As filed with the Securities and Exchange Commission on July 10, 2017
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996
REGISTRATION NO. 333-06693
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5984 43-1698480
(STATE OR OTHER (PRIMARY STANDARD 43-1742520
JURISDICTION INDUSTRIAL 43-1698481
OF INCORPORATION OR CLASSIFICATION CODE (I.R.S. EMPLOYER
ORGANIZATION) NUMBER) IDENTIFICATION NO.)
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ONE LIBERTY PLAZA
LIBERTY, MISSOURI 64068
(816) 792-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DANLEY K. SHELDON
SENIOR VICE PRESIDENT
FERRELLGAS, INC.
ONE LIBERTY PLAZA
LIBERTY, MISSOURI 64068
(816) 792-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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(Exact name of registrants as specified in their charters)
Delaware | 5900 | 43-1698480 | ||
Delaware | 5900 | 43-1742520 | ||
(State or other jurisdictions of | (Primary Standard Industrial | (I.R.S. Employer |
7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210
(913) 661-1500
(Address, including zip code, and telephone number, including area code, of the registrants’ principal executive offices)
Alan C. Heitmann
Executive Vice President; Chief Financial Officer; Treasurer
Ferrellgas, Inc.
7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210
(913) 661-1500
(Name, address, including zip code, and telephone number, including area code, of the registrants’ agent for service)
Copies to:
KENDRICK T. WALLACE, ESQ
BRYAN CAVE
Charles H. Still, Jr.
Bracewell LLP
1200 MAIN STREET, SUITE 3500
KANSAS CITY, MISSOURI 64105
(816) 374-3200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
711 Louisiana Street, Suite 2300
Houston, Texas 77002
Telephone: (713) 221-3309
Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable afterfollowing the effective dateeffectiveness of this Registration Statement.
registration statement.
If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_]
o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Ferrellgas Partners, L.P.
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Ferrellgas Partners Finance Corp.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION OF REGISTRATION FEE
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Title of each class of securities |
| Amount to be |
| Proposed maximum |
| Proposed maximum aggregate |
| Amount of |
|
85/8% Senior Notes due 2020 |
| $175,000,000 |
| 100% |
| $175,000,000 |
| $20,282.50 |
|
(1)Calculated pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
THE REGISTRANTREGISTRANTS HEREBY AMENDSAMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THETHIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAIDSUCH SECTION 8(A)8(a), MAY DETERMINE.
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FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 404(A) AND ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
FORM S-4 ITEM NUMBER LOCATION IN PROSPECTUS
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1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus... Outside Front Cover Page; Inside Front
Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earn-
ings to Fixed Charges and
Other Information.......... Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data
4. Terms of the Transaction....
Prospectus Summary; The Exchange Offer;
Description of Exchange Notes; Certain
Federal Income Tax Considerations; Plan of
Distribution
5. Pro Forma Financial Informa-
tion....................... Prospectus Summary; The Skelgas and
Superior Acquisitions; Unaudited Pro Forma
Combined Financial Statements
6. Material Contracts with the
Company Being
Acquired................... Not Applicable
7. Additional Information Re-
quired for Reoffering by
Persons and Parties Deemed
to be Underwriters......... Not Applicable
8. Interests of Named Experts
and Counsel................ Not Applicable
9. Disclosure of Commission Po-
sition on Indemnification
for Securities Act
Liabilities................ Not Applicable
10. Information with Respect to
S-3 Registrants............ Not Applicable
11. Incorporation of Certain In-
formation by Reference..... Not Applicable
12. Information with Respect to
S-2 or S-3 Registrants..... Prospectus Summary; The Skelgas and
Superior Acquisitions; Capitalization;
Selected Historical Combined Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Related Transactions; Description of
Existing Indebtedness; Description of
Exchange Notes; Financial Statements
13. Incorporation of Certain In-
formation by Reference..... Information Incorporated By Reference
14. Information with Respect to
Registrants Other Than S-3
or S-2 Registrants......... Not Applicable
15. Information with Respect to
S-3 Companies.............. Not Applicable
FORM S-4 ITEM NUMBER LOCATION IN PROSPECTUS
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16. Information with Respect to S-2
or S-3 Companies............... Not Applicable
17. Information with Respect to Com-
panies Other Than S-2 or S-3
Companies...................... Not Applicable
18. Information if Proxies, Consents
or Authorizations are to be
Solicited...................... Not Applicable
19. Information if Proxies, Consents
or Authorizations are Not to be
Solicited or in an Exchange
Offer.......................... The Exchange Offer; Management; Principal
Unitholders
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 30, 1996
[LOGO OF FERRELGAS
OFFER TO EXCHANGE APPEARS HERE]
ALL OUTSTANDING
9 3/8% SERIES A SENIOR SECURED NOTES DUE 2006
FOR
9 3/8% SERIES B SENIOR SECURED NOTES DUE 2006
OF
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
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THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME
ON , 1996 UNLESS EXTENDED
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10, 2017
PRELIMINARY PROSPECTUS
Ferrellgas Partners, L.P., a Delaware limited partnership (the
"Partnership"), and
Ferrellgas Partners Finance Corp., a Delaware corporation
and wholly owned subsidiary
OFFER TO EXCHANGE
$175,000,000 of the Partnership ("Finance Corp." and, together
with the Partnership, the "Issuers") hereby offer (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of their 9 3/8% Series B85/8% Senior Secured Notes due 2006
(the "Exchange Notes") for each $1,000 principal amount2020
that have been registered under the Securities Act of their1933
for
$175,000,000 of outstanding 9
3/8% Series A85/8% Senior Secured Notes due 2006 (the "Private Notes") which2020
that have not been registered under the Securities Act of 1933 as amended (the
"Securities Act"). Private Notes
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK
CITY TIME, ON , 2017, UNLESS WE EXTEND THE OFFER
· We are offering, on the terms and conditions set forth in this prospectus and the accompanying letter of transmittal, to exchange $175,000,000 aggregate principal amount of $160,000,000 wereour registered 85/8% Senior Notes due 2020, which we refer to as the exchange notes, for all $175,000,000 outstanding aggregate principal amount of our unregistered 85/8% Senior Notes due 2020 originally issued on April 26, 1996 and are outstanding as of the date
hereof. The form and terms of the Exchange Notes are the sameJanuary 30, 2017, which we refer to as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will
not bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement (as hereinafter defined), which rights
will terminate upon the consummation of the Exchange Offer, and (iii) if the
Exchange Offer is not completed by January 14, 1997, certain Liquidated Damages
(as hereinafter defined) will be payable in respect of the Private Notes. The
Exchange Notes will evidence the same indebtedness and be secured by the same
collateral as the Private Notes (which they replace) and will be issued under
and entitled to the benefits of, the indenture dated as of April 26, 1996
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Senior Notes." See "The Exchange Offer" and "Description
of Exchange Notes."
The Exchange Notes will bear interest from and including the date of issuance
at the same rate and on the same terms as the Private Notes. Holders whose
Private Notes are accepted for exchange will receive accrued interest thereon
from the most recent date to which interest has been paid to, but not
including, the date of issuance of the Exchange Notes, such interest to be
payable with the first interest payment on the Exchange Notes. Interest on the
Private Notes accepted for exchange will cease to accrue upon issuance of the
Exchange Notes.
(continued on next page)
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SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH HOLDERS OF
PRIVATE NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1996
The Exchange Notes will be senior secured joint and several obligations of
the Issuers and will rank senior in right of payment to all future
subordinated Indebtedness (as hereinafter defined) of the Issuers and pari
passu in right of payment with other existing and future obligations of the
Issuers. The Exchange Notes will be effectively subordinated to all existing
Indebtedness and all future senior Indebtedness and, until the Subsidiary
Guarantee Effectiveness Date (as hereinafter defined), other liabilities and
commitments of the Partnership's subsidiaries. As of April 30, 1996, after
giving pro forma effect to the transactions described herein, the total
Indebtedness, liabilities and commitments (including trade payables and other
accrued liabilities) of the Partnership's subsidiaries were approximately
$359.8 million.
The Issuersunregistered notes.
· We will accept for exchange any and all Private Notesoutstanding unregistered notes that are validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time,
on , 1996, unless such date is extended by the Issuers in their sole
discretion (as so extended, such date and time are referred to herein asexpiration of the "Expiration Date"). Tendersexchange offer.
· You may withdraw tenders of Private Notes may be withdrawnunregistered notes at any time prior to the Expiration Date. Private Notes mayexpiration of the exchange offer.
· The terms of the exchange notes will be tendered onlyidentical in integral multiplesall material respects to those of $1,000.the outstanding unregistered notes, except that the transfer restrictions, registration rights or provisions for additional interest applicable to the unregistered notes do not apply to the exchange notes.
· The Exchange Offer is subjectexchange of unregistered notes for exchange notes pursuant to certain customary conditions. See
"The Exchange Offer--Conditions."
Except as described herein in the event of a Change of Control (as
hereinafter defined) or an Asset Sale (as hereinafter defined), the Issuersexchange offer will not be required to make any mandatory redemption or sinking fund paymenta taxable exchange for U.S. federal income tax purposes. Because the unregistered notes were issued with respect tooriginal issue discount (“OID”) for U.S. federal income tax purposes, the Exchange Notes prior to maturity. The Exchange Notesexchange notes will be redeemable attreated as having been issued with OID.
· We will not receive any cash proceeds from the option ofexchange offer.
· There is no established trading market for the Issuers, in whole or in part, at any time
on or after June 15, 2001 at the redemption prices set forth herein plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption. In the event of a Change of Control, holders of the Exchange Notes
will have the right to require the Issuers to purchase their Exchange Notes,
in whole or in part, at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties with respect to similar transactions, the Issuers believe that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that (i) the holder is not an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act, (ii) the holder is acquiring the Exchange Notes in its ordinary course of
business, and (iii) the holder is not engaged in, and doesnotes. We do not intend to engage in, and has no arrangement or understanding with any person to
participate in, the distributionapply for listing of the Exchange Notes. Holdersexchange notes on any securities exchange or quotation of Private
Notes wishing to accept the Exchange Offer must represent to the Issuers, as
required by the Registration Rights Agreement, that such conditions have been
met.
exchange notes on any quotation system.
Each broker-dealer that receives Exchange Notesexchange notes for its own account inpursuant to the exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities,offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act of 1933, as amended (the “Securities Act”), in connection with any resale of such Exchange Notes.exchange notes. The Letterletter of Transmittaltransmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter"“underwriter” within the meaning of the Securities Act. This Prospectus,prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with anyresales of exchange notes received in exchange for unregistered notes where such resale. The Issuersunregistered notes were acquired by such broker-dealer as a result of market-making or other trading activities. Please note that this prospectus may not meet the requirements of the SEC for a resale prospectus for all purposes and may require additional information. See “The Exchange Offer—Resales of Exchanges Notes.” We have agreed that, theyfor a period ending on the earlier of 180 days after the date of this prospectus and the date on which a broker-dealer is no longer required to deliver a prospectus, we will make this Prospectus (as it may
be amended or supplemented)prospectus available to any broker-dealer for use in connection with any such resaleresale. See “Plan of Distribution.”
See “Risk Factors” beginning on page 20 of this prospectus for a perioddiscussion of 180 days fromrisks you should consider before determining whether to tender your unregistered notes in the date on
whichexchange offer.
Neither the Registration StatementSEC nor any state securities commission has approved or disapproved of whichthese securities or determined if this Prospectusprospectus is truthful or complete. Any representation to the contrary is a partcriminal offense.
The date of this prospectus is declared effective by the Commission. See "Plan, 2017.
YOU SHOULD CAREFULLY READ THIS PROSPECTUS AND THE EXCHANGEDOCUMENTS WE HAVE INCORPORATED BY REFERENCE AS DESCRIBED UNDER THE SECTION ENTITLED “INCORPORATION OF DOCUMENTS BY REFERENCE.” WE ARE NOT MAKING AN OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTESTHESE SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
You should rely only on the information contained in this prospectus and the documents we have incorporated by reference. We have not authorized anyone to provide you with different information. You should not assume that the information provided by this prospectus or the documents we have incorporated by reference is accurate as of any date other than the date of the respective document.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US THAT HAS NOT BEEN INCLUDED IN WHICHOR DELIVERED WITH THIS PROSPECTUS. WE WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY SUCH INFORMATION. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO: FERRELLGAS, INC., INVESTOR RELATIONS, 7500 COLLEGE BOULEVARD, SUITE 1000, OVERLAND PARK, KANSAS 66210; TELEPHONE NUMBER: 913-661-1500. TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially onlyOFFER.
This prospectus and the documents we have incorporated by reference in book-entry form. The
Issuers expectthis prospectus include forward-looking statements. These forward-looking statements are identified as any statement that the Exchange Notes issued pursuantdoes not relate strictly to the Exchange Offer
will be issued in the form of one fully registered global note that will be
deposited with,historical or on behalf of, the Depository Trust Company ("DTC"current facts. These statements often use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” or the "Depositary") and registered in its name or in the namenegative of Cede & Co., as its
nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be
issued in exchange for the global note only in accordance with thethose terms and
conditions set forth in the Indenture. See "Description of Exchange Notes--
Book Entry, Delivery and Form."
AVAILABLE INFORMATION
The Issuers have filed with the Commission, under the Securities Act, a
Registration Statement on Form S-4 (together with all amendments thereto, the
"Registration Statement") with respect to the Exchange Offer. This Prospectus
does not contain all information set forth in the Registration Statement and
the exhibits thereto, to which reference is hereby made. Statements made in
this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract,
agreementvariations of them or other document titled as an exhibit to the Registration
Statement, reference is hereby made to such exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement (and the exhibits and schedules thereto), as well
as the periodic reports and other information filed by the Issuers with the
Commission,comparable terminology. These statements often discuss plans, strategies, events or developments that we expect or anticipate will or may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices at Suite 1300, Seven
World Trade Center, New York, New York 10048 and Northwest Atrium, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov.) that contains reports, proxy and
information statements and other information filed electronically by the
Partnership with the Commission through its Electronic Data Gathering,
Analysis and Retrieval (EDGAR) System. In addition, the Partnership's common
units are listed on the New York Stock Exchange (the "NYSE") and material
filed by the Partnership can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Finance
Corp. will become subject to such requirements as a result of the Exchange
Offer, and in accordance therewith the Partnership and Finance Corp. are (or
will be) required to file periodic reports and other information with the
Commission. In the event the Issuers are not required to be subject to the
reporting requirements of the Exchange Actoccur in the future and are based upon the Issuersbeliefs and assumptions of our management and on the information currently available to them. In particular, statements, express or implied, concerning our future operating results or our ability to generate sales, income or cash flow are forward-looking statements.
Forward-looking statements are not guarantees of performance. You should not put undue reliance on any forward-looking statement. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from those expressed in or implied by these forward-looking statements. Many of the factors that will affect our future results are beyond our ability to control or predict.
Some of our forward-looking statements include the following:
· that we will continue to have sufficient funds to meet our obligations, including any obligations under the unregistered notes and the exchange notes;
· that we will continue to meet all of the quarterly financial tests required by the agreements governing our indebtedness;
· that we will continue to have sufficient access to capital markets at yields acceptable to us to support our expected growth expenditures and refinancing of debt maturities;
· that we intend to or will be requiredsuccessful in reducing our debt and cash deficiencies;
· that our future maintenance capital expenditures and working capital needs will be provided by a combination of cash generated from future operations, existing cash balances, borrowings under our secured credit facility or our accounts receivable securitization facility; and
·the Indenture to file withdiscussion of future effects of certain factors as described under “Summary—Recent Developments—Factors Affecting the Commission the information,
documentsNine Months Ended April 30, 2017.”
For a more detailed description of these particular forward-looking statements and for other reports specifiedfactors that may affect any forward-looking statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Sections 13 and 15(d) of the Exchange
Act.
3
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Partnership and the Operating
Partnership with the Commission are incorporated herein by reference:
(i) Theour Annual ReportsReport on Form 10-K offor the Partnership and the Operating
Partnership for thefiscal year ended July 31, 1995;
(ii) The2016 and our Quarterly Reports on Form 10-Q of the Partnership and the
Operating Partnership for the quartersquarterly periods ended October 31, 1995,2016, January 31, 19962017 and April 30, 1996;
(iii) The Current2017, which are incorporated by reference in this prospectus. See “Incorporation of Documents by Reference.”
When considering any forward-looking statement, you should also keep in mind the risk factors described under the section entitled “Risk Factors” in this prospectus, our Annual Report on Form 8-K/A dated November 10, 1994 (filed
August 16, 1995),10-K for the fiscal year ended July 31, 2016 and our Quarterly Reports on Form 10-Q for the quarterly periods ended October 31, 2016, January 31, 2017 and April 30, 2017. Any of these risks could cause our actual results to differ materially from those expressed in or implied by forward-looking statements and could impair our business, financial condition or results of operation. Any such impairment may affect our ability to make distributions or pay interest on the principal of any of our debt securities, including the unregistered notes and the exchange notes. In addition, the trading price, if any, of our securities could decline as a result of any such impairment.
Except for our ongoing obligations to disclose material information as required by federal securities laws, we undertake no obligation to update any forward-looking statements or risk factors after the date of this prospectus.
This summary may not contain all of the Partnershipinformation that may be important to you. You should read this summary together with this entire prospectus and the Operating Partnership,
furnishinginformation we have incorporated by reference to understand fully the unaudited pro forma consolidated financial statementsterms of the exchange notes being offered hereunder, as well as the tax and other considerations that are important to you in making your investment decision. You should pay special attention to the risk factors described under “Risk Factors” in this prospectus, our Annual Report on Form 10-K for the fiscal year ended July 31, 2016 and our Quarterly Reports on Form 10-Q for the quarterly periods ended October 31, 2016, January 31, 2017 and April 30, 2017 to determine whether an investment in the exchange notes is appropriate for you. See “Where You Can Find More Information” in this prospectus.
For purposes of this prospectus, unless otherwise noted or the context otherwise requires:
·“we,” “us,” “our,” “ours” and “our company” refer to Ferrellgas Partners, L.P. and Vision Energy Resources, Inc.;
(iv) The Current Report on Form 8-K dated March 27, 1996 of the
Partnership and the Operating Partnership, reporting the signing of a
letter of intent to acquire Skelgas;
(v) The Current Report on Form 8-K dated April 6, 1996 of the Partnership
and the Operating Partnership, reporting a private placement of debt
securities to qualified institutional investors under Rule 144A;
(vi) The Current Report on Form 8-K dated May 6, 1996 of the Partnership
and the Operating Partnership, reporting the acquisition by the Operating
Partnership of the propane business of Skelgas Propane, Inc.
(vii) The Current Report on Form 8-K/A dated May 6, 1996 (filed July 12,
1996), of the Partnership and the Operating Partnership, furnishing the
audited financial statements of Skelgas Propane, Inc. and the unaudited pro
formatogether with its consolidated financial statements ofsubsidiaries, including Ferrellgas Partners L.P.Finance Corp. and Skelgas Propane, Inc.
All documents filed by the Partnership and the Operating Partnership with
the Commission pursuant to Sections 13(a)Ferrellgas, L.P., 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date hereof and prior to the termination of the Exchange
Offer shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated
herein by reference, which statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of these documents (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) will be provided by first class mail without
charge to each person to whom this Prospectus is delivered, upon written or
oral request, to Theresa Schekirke, its operating partnership;
· “Ferrellgas Inc., One Liberty Plaza,
Liberty, Missouri 64068 (telephone number: (816) 792-6263).
4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and Unaudited Pro Forma Combined Financial Statements
and notes thereto, appearing elsewhere in this Prospectus. As used in this
Prospectus, the term "Partnership"Partners” refers to Ferrellgas Partners, L.P.;
·“operating partnership” refers to Ferrellgas, L.P., together with its consolidated subsidiaries; and
where
·“general partner” refers to Ferrellgas, Inc., as general partner of Ferrellgas Partners and the context requires, its subsidiaryoperating partnership.
Our Company
Ferrellgas Partners is a Delaware limited partnership and corporations. The
Partnership's fiscal year ends on July 31. References to a particular fiscal
year of the Partnership are to the twelve-month period ended on July 31 of the
year indicated.
THE PARTNERSHIP
The Partnership isprimarily engaged in the sale,retail distribution marketing and trading of propane and other natural gas liquids. The Partnership believes it isrelated equipment sales and midstream operations, including crude oil logistics. We serve propane customers in all 50 states, the second largest retail marketerDistrict of Columbia and Puerto Rico and provide midstream services to major energy companies in the United States.
Our Business
Propane Operations and Related Equipment Sales
We are a leading distributor of propane and related equipment and supplies to customers in the United States based on gallons
sold, serving more than 800,000as measured by the volume of our retail sales in fiscal 2016 and a leading national provider of propane by portable tank exchange.
We serve residential, industrial/commercial, portable tank exchange, agricultural, wholesale and agriculturalother customers in 45all 50 states, and the District of Columbia through
approximately 487 retail outlets and 251 satellite locations in 38 states (some
outlets serve interstate markets). The Partnership's largest marketPuerto Rico. Our operations primarily include the distribution and sale of propane and related equipment and supplies with concentrations are in the Midwest, Great LakesSoutheast, Southwest and SoutheastNorthwest regions of the United States. Ferrellgas, Inc. ("Ferrellgas", "Predecessor" or the "General
Partner"), a wholly owned subsidiary of Ferrell Companies, Inc. ("Ferrell"),
serves as General Partner of the Partnership. The Partnership acquired theSales from propane business and assets of Ferrellgas in July 1994.
Retail propane sales volumes were approximately 645 million gallons during
the pro forma nine months ended April 30, 1996, and 671 million gallons during
the pro forma twelve months ended July 31, 1995. Net earnings for the same
respective periods were $49.6 million and $21.8 million. See "Unaudited Pro
Forma Combined Financial Statements."
BUSINESS STRATEGY
The Partnership's business strategy is to continue its historical focus on
residential and commercial retail propane operations and to continue to expand
its operations and increase its market share both through the acquisition of
local and regional propane distributors and through internal growth by
increased competitiveness and the opening of new locations. Acquisitions will
be an important element of growth for the Partnership, as the overall demand
for propane is expected to remain relatively constant for the foreseeable
future, with year-to-year industry volumes being affected primarily by weather
patterns. The General Partner believes theredistribution are numerous potential acquisition
candidates because the propane industry is highly fragmented, with over 5,000
retailers and with the ten largest retailers comprising 33% of industry sales.
The Partnership's retail operations accounted for approximately 8% of the
retailgenerated principally from transporting propane purchased in the United States in 1995, as measured by gallons
sold.
Historically, the Partnership and Ferrellgas have been successful in
acquiring independent propane retailers and integrating them into their
existing operations at what they believefrom third parties to be attractive returns. Since 1986,
and as of May 1, 1996, the Partnership and Ferrellgas have acquired a total of
95 smaller propane businesses. Except for the acquisition of Vision Energy
Resources, Inc. ("Vision") in November of 1995 and the acquisition of Skelgas
Propane, Inc. (discussed below), none of the acquisitions were individually
material. For the nine months ended April 30, 1996 and the five fiscal years in
the period ended July 31, 1995, the Partnership and the Predecessor invested
approximately $27.7 million, $70.1 million, $3.4 million, $0.9 million, $10.1
million and $25.3 million, respectively, to acquire propane businesses with
annual retail propane sales volumes of approximately 15.1 million, 70.0
million, 2.5 million, 0.7 million, 8.6 million and 18.0 million gallons,
respectively, at the time of acquisition.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which
5
may result from such combination. However, the Partnership will also pursue
acquisitions which broaden its geographic coverage. The Partnership's goal in
any acquisition will be to improve the operations and profitability of these
smaller companies by integrating them into the Partnership's established supply
network. The General Partner regularly evaluates a number of propane distribution companies which may be candidateslocations and then to tanks on customers’ premises or to portable propane tanks delivered to nationwide and local retailers. Sales from portable tank exchanges, nationally branded under the name Blue Rhino, are generated through a network of independent and partnership-owned distribution outlets. Our market areas for acquisition. The General
Partner believes that there are numerous local retail propane distribution
companies that are possible candidates for acquisition by the Partnership and
that the Partnership's geographic diversity of operations helps to create many
attractive acquisition opportunities. The Partnership intends to fund
acquisitions through internal cash flow, external borrowings or the issuance of
additional common units of the Partnership representing limited partner
interests (the "Common Units"). The Partnership's ability to accomplish these
goals will be subject to the continued availability of acquisition candidates
at prices attractive to the Partnership. There is no assurance the Partnership
will be successful in increasing the level of acquisitions or that any
acquisitions that are made will prove beneficial to the Partnership.
In addition to growth through acquisitions, the General Partner believes that
the Partnership may also achieve growth within its existing propane operations.
Historically, the Partnership and Ferrellgas have experienced modest internal
growth in their customer base. As a result of its experience in responding to
competition and in implementing more efficient operating standards, the General
Partner believes that it has positioned the Partnership to be more successful
in direct competition for customers. The Partnership currently has marketing
programs underway which focus specific resources toward this effort.
SKELGAS ACQUISITION
On April 30, 1996, Ferrellgas acquired (the "Skelgas Acquisition") all of the
outstanding capital stock of Skelgas Propane, Inc. ("Skelgas") from Superior
Propane, Inc., a Canadian corporation ("Seller").
Through its operating subsidiaries, Skelgas sells propane and related
appliances to industrial, commercial,our residential and agricultural customers in
11 states located in the north central region of the United States. During the
year ended December 31, 1995, Skelgas sold approximately 96 million gallons of
propane, generating revenues of $75.2 million and a net loss of $(53.9) million
(which includes a $47.6 million writedown of goodwill).
Ferrellgas paid $89.3 million in cashare generally rural while our market areas for the stock of Skelgas. In addition,
Ferrellgas will pay $1.2 million for a noncompete agreement with the Seller,
payable in three equal annual installments of $400,000 commencing on the
closing date. The purchase price will be adjusted upward or downward based on a
final determination of working capital balances acquired.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a short term
acquisition loan. As of May 1, 1996, Skelgas and its operating subsidiaries
were merged into Ferrellgas and all of the assets acquired by Ferrellgas in
connection with such mergers (the "Skelgas Assets") were then contributed by
Ferrellgas to the Operating Partnership as a capital contribution. In
connection with this transaction, the Operating Partnership assumed the
obligation to repay the short term acquisition loan and issued a limited
partner interest in the Operating Partnership to Ferrellgas. Following the
contribution of the Skelgas Assets to the Operating Partnership, Ferrellgas
contributed the limited partner interest in the Operating Partnership to the
Partnership in exchange for Common Units of the Partnership with a value of
approximately $925,000, which represents consideration for certain tax
liabilities retained by Ferrellgas. The Operating Partnership utilized the
Credit Facility (as hereinafter defined) (see "Use of Proceeds") to discharge
its assumed obligations under the short term acquisition loan.
SUPERIOR ACQUISITION
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior Propane, Inc., a California corporation ("Superior"), which is not
affiliated with the Seller in the Skelgas Acquisition, from Milton Heath and
Maskey Heath (collectively the "Heaths").
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Superior sells propane and related appliances to industrial, our industrial/commercial and residentialportable tank exchange customers in 11 counties in California and one county in Nevada. In
the fiscal year ending July 31, 1995, Superior sold approximately 11.5 million
gallons of propane from its seven locations, generating revenues of $12.7
million.
Ferrellgas paid $18.9 million for the stock of Superior, $15.5 million of
which was paid in cash at closing and $3.4 million of which was paid at closing
in the form of 6% promissory notes having a term of five years. In addition,
Ferrellgas will pay a total of $1.0 million for noncompete agreements with the
Heaths, payable in installments over five years.
The purchase price was based on the assumption that the current assets of
Superior at closing were equal to or greater than the amount of Superior's
total liabilities on the closing date. The purchase price will be adjusted
upward or downward to the extent the current assets of Superior on the closing
date are subsequently determined to be more or less than the total liabilities
of Superior on the closing date.
Immediately following the acquisition, Superior was merged into Ferrellgas
and all of the assets acquired by Ferrellgas in connection with such merger
were transferred to the Operating Partnership in a series of transactions
structured in a manner similar to that involved in transferring the Skelgas
Assets to the Operating Partnership. The Partnership delivered to Ferrellgas
Common Units of the Partnership with a value of approximately $700,000, which
represents consideration for certain tax liabilities retained by Ferrellgas.
GENERAL
Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative forms of stand alone energy sources. generally urban.
In the residential and industrial/commercial markets, propane is primarily used for space heating, water heating, cooking and cooking.other propane fueled appliances. In the portable tank exchange market, propane is used primarily for outdoor cooking using gas grills. In the agricultural market, propane is primarily used for crop drying, space heating, irrigation and weed control. In addition, propane is used for certaina variety of industrial applications, including use as an engine fuel which is burned in the internal combustion engines that powerof vehicles and forklifts and as a heating or energy source in manufacturing and drying processes. Consumption
A substantial majority of our gross margin from propane and other gas liquids sales is derived from the distribution and sale of propane as a heating fuel peaks sharply in winter
months.
Theand related risk management activities. Our gross margin from the retail distribution of propane business ofis primarily based on the Partnership consists principally of
transportingcents-per-gallon difference between the sales price we charge our customers and our costs to purchase and deliver propane to its retailour propane distribution outlets and thenlocations.
The distribution of propane to tanks
located on its customers' premises byresidential customers generally involves large numbers of small volume deliveries. Our retail deliveries averaging approximately 200 gallons each. The market areasof propane are generally rural
but also include suburban areas where natural gas service is not available. The
Partnership sells propane primarily to four specific markets: residential,
industrial/commercial, agricultural and other (principally to other propane
retailers and as an engine fuel). During the pro forma nine months ended April
30, 1996, sales to residential customers accounted for 60% of the Partnership's
retail gross profits, sales to industrial/commercial customers accounted for
26% of the Partnership's retail gross profits and sales to other customers
accounted for 14% of the Partnership's retail gross profits. Residential sales
generally have a greater profit margin and a more stable customer base and tend
to be less sensitive to price changes than the other markets served by the
Partnership. No single customer of the Partnership accounts for 10% or more of
the Partnership's consolidated revenues.
Profits in the retail propane industry are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets, primarilytypically transported from natural gas processing plants and major oil companies,
on a short-term basis. Therefore, its supply costs generally fluctuate with
market price fluctuations. Should wholesale propane prices decline in the
future, the General Partner believes the Partnership's margins on itsour retail propane distribution business should increaselocations to our customers by our fleet of bulk delivery trucks, which are generally fitted with tanks ranging in the short-term because retailsize from 2,600 to 3,500 gallons. Propane storage tanks located on our customers’ premises are then filled from these bulk delivery trucks. We also deliver propane to our industrial/ commercial and portable tank exchange customers using our fleet of portable tank and portable tank exchange delivery trucks, truck tractors and portable tank exchange delivery trailers.
Our residential customers and portable tank exchange customers typically provide us a greater cents-per-gallon margin than our industrial/commercial, agricultural, wholesale and other customers. We track “Propane sales volumes,” “Revenues—Propane and other gas liquids sales” and “Gross Margin— Propane and other gas liquids sales” by customer; however, we are not able to specifically allocate operating and other costs by customer in a manner that would determine their specific profitability with a high degree of accuracy. The wholesale propane price per gallon is subject to various market conditions, including inflation, and may fluctuate based on changes in demand, supply and other energy commodity prices, primarily crude oil and natural gas, as propane prices tend to change less rapidly than wholesale prices. Should wholesale
propane prices increase, for similar reasons retail margins and profitability
would likely be reduced at least forcorrelate with the short-term until retail prices can be
increased.
7
Retail propanefluctuations of these underlying commodities.
As of July 31, 2016, approximately 51% of our residential customers typically leaserent their stationary storage tanks from their propane distributors. Approximately 70% of the Partnership's customers
lease their tank from the Partnership. The leaseus. Our rental terms and in most states,
certainthe fire safety regulations restrict the refilling of a leased tank solelyin some states require rented bulk tanks to be filled only by the propane supplier that ownsowning the tank. The cost and inconvenience of switching bulk tanks minimizeshelps minimize a customer'scustomer’s tendency to switch among suppliers of propane on the basis of minor variations in price.
price, helping us minimize customer loss.
In addition, we lease tanks to some of our independent distributors involved with our delivery of propane for portable tank exchanges. Our owned and independent distributors provide portable tank exchange customers with a national delivery presence that is generally not available from most of our competitors.
In our past three fiscal years, our total annual propane sales volumes in gallons were:
Fiscal year ended | Propane Sales | ||
July 31, 2016 | 779 | ||
July 31, 2015 | 879 | ||
July 31, 2014 | 947 |
We utilize marketing programs targeting both new and existing customers by emphasizing:
· our efficiency in delivering propane to customers;
· our employee training and safety programs;
· our enhanced customer service, facilitated by our technology platform and our 24 hours a day, seven days a week emergency retail customer call support capabilities; and
· our national distributor network for our commercial and portable tank exchange customers.
Some of our propane distribution locations also conduct the retail sale of propane appliances and related parts and fittings, as well as other retail propane related services and consumer products. We also sell gas grills, grilling tools and accessories, patio heaters, fireplace and garden accessories, mosquito traps and other outdoor products through Blue Rhino Global Sourcing, Inc.
Our other activities in our propane and related equipment and supplies sales segment include the following:
· the sale of refined fuels, and
· common carrier services.
Effect of Weather and Seasonality
Weather conditions have a significant impact on demand for propane for heating purposes during the months of November through March (the “winter heating season”). Accordingly, the volume of propane used by our customers
for this purpose is directly affected by the severity of the winter weather in the regions we serve and can vary substantially from year to year. In any given region, sustained warmer-than-normal temperatures in the winter heating season will tend to result in reduced propane usage, while sustained colder-than-normal temperatures in the winter heating season will tend to result in greater usage. Although there is a strong correlation between weather and customer usage, general economic conditions in the United States and the wholesale price of propane can also significantly impact this correlation. Additionally, there is a natural time lag between the onset of cold weather and increased sales to customers. If the United States were to experience a cooling trend we could expect nationwide demand for propane to increase which could lead to greater sales, income and liquidity availability. Conversely, if the United States were to experience a warming trend, we could expect nationwide demand for propane to decrease which could lead to a reduction in our sales, income and liquidity availability.
The retail market for propane is seasonal because it is usedof increased demand during the winter heating season primarily for the purpose of providing heating in residential and commercial buildings. Consequently, sales and operating profits are concentrated in theour second and third fiscal quarters, (November through April). Whilewhich are during the winter heating season. However, our propane by portable tank exchange business experiences higher volumes in the spring and summer, which include the majority of the grilling season. These volumes add to our operating profits during our first and fourth fiscal quarters due to those counter-seasonal business activities. These sales also provide us the ability to better utilize our seasonal resources at our propane distribution business is seasonal
in nature and historically sensitive to variations in weather, management
believes that the geographical diversity of the Partnership's areaslocations. Other factors affecting our results of operations include competitive conditions, volatility in energy commodity prices, demand for propane, timing of acquisitions and general economic conditions in the United States.
We use information on temperatures to understand how our results of operations are affected by temperatures that are warmer or colder than normal. We use the definition of “normal” temperatures based on information published by the National Oceanic and Atmospheric Administration. Based on this information we calculate a ratio of actual heating degree days to normal heating degree days. Heating degree days are a general indicator of weather impacting propane usage.
We believe that our broad geographic distribution helps to minimize the Partnership'sus reduce exposure to regional weather orand economic patterns. Furthermore, long-term historicDuring times of colder-than-normal winter weather, datawe have been able to take advantage of our large, efficient distribution network to avoid supply disruptions, thereby providing us a competitive advantage in the markets we serve.
Risk Management Activities—Commodity Price Risk
We employ risk management activities that attempt to mitigate price risks related to the purchase, storage, transport and sale of propane generally in the contract and spot markets from the
National Climatic Data Center indicate that average annual temperatures have
remained relatively constant over the last 30 years, with fluctuations
occurringmajor domestic energy companies on a year-to-year basis only.
Propane competesshort-term basis. We attempt to mitigate these price risks through the use of financial derivative instruments and forward propane purchase and sales contracts. We enter into propane sales commitments with a portion of our customers that provide for a contracted price agreement for a specified period of time. These commitments can expose us to product price risk if not immediately hedged with an offsetting propane purchase commitment.
Our risk management strategy involves taking positions in the forward or financial markets that are equal and opposite to our positions in the physical products market in order to minimize the risk of financial loss from an adverse price change. This risk management strategy is successful when our gains or losses in the physical product markets are offset by our losses or gains in the forward or financial markets. Our propane related financial derivatives are designated as cash flow hedges.
Our risk management activities may include the use of financial derivative instruments including, but not limited to, swaps, options, and futures to seek protection from adverse price movements and to minimize potential losses. We enter into these financial derivative instruments directly with third parties in the over-the-counter market and with brokers who are clearing members with the New York Mercantile Exchange. We also enter into forward propane purchase and sales contracts with counterparties. These forward contracts qualify for the normal purchase normal sales exception within GAAP and are therefore not recorded on our financial statements until settled.
Through our supply procurement activities, we purchase propane primarily with natural gas, electricityfrom energy companies. Supplies of propane from these sources have traditionally been readily available, although no assurance can be given that they will be readily available in the future. We may purchase and fuel oil as an
energy source, principally onstore inventories of propane to avoid delivery interruptions during the basisperiods of price, availability and
profitability. Propane serves as an alternative to natural gas in rural and
suburban areas where natural gas is unavailable or portability of product is
required. Propane is generally more expensive than natural gas on an equivalent
British thermal unit ("BTU") basis in locations served by natural gas, although
propane is often sold in such areas as a standby fuel for use during peak
demand periods and during interruption in natural gas service. Propane is
generally less expensive to use than electricity for space heating, water
heating and cooking and competes effectively with electricity in those parts of
the country where propane is cheaper than electricity on an equivalent BTU
basis. Although propane is similar to fuel oil in application, marketincreased demand and price, propane and fuel oil have generally developed their own distinct
geographic markets, lessening competition between such fuels.
The Partnership is also engaged in the tradingto take advantage of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing. In
the pro forma nine months ended April 30, 1996 and the pro forma twelve months
ended July 31, 1995, the Partnership's annual wholesale and trading sales
volume was approximately 1.4 billion gallons and 1.6 billion gallons,
respectively,favorable commodity prices. As a result of propane and other natural gas liquids, of which 46% and 60%,
respectively, were propane. Because the Partnership possesses a large
distribution system, underground storage capacity and theour ability to buy large volumes of propane the General Partner believes that the Partnership isand utilize our national distribution system, we believe we are in a position to achieve product cost savings and avoid shortages during periods of tight supply to an extent not generally available to other retail propane distributors. PARTNERSHIP STRUCTURE AND MANAGEMENT
The managementDuring fiscal 2016, seven suppliers accounted for approximately
73% of our total propane purchases. Because there are numerous alternative suppliers available, we do not believe it is reasonably possible that this supplier concentration could cause a near-term severe impact on our ability to procure propane, though propane prices could be affected; however, if supplies were interrupted or difficulties in obtaining alternative transportation were to arise, the cost of procuring replacement supplies may materially increase. These transactions are accounted for at cost in ‘‘Cost of product sold—propane and employeesother gas liquids sales’’ in our consolidated statement of Ferrellgas manageearnings.
A portion of our propane inventory is purchased under supply contracts that typically have a one-year term and operate the propane
business and assets of the Partnership as officers and employees of the General
Partner.a price that fluctuates based on spot market prices. In order to simplifylimit overall price risk, we will enter into fixed price over-the-counter propane forward and/or swap contracts that generally have terms of less than 36 months. We may also use options to hedge a portion of our forecasted purchases, which generally do not exceed 36 months in the Partnership'sfuture.
We also incur risks related to the price and availability of propane during periods of much colder-than-normal weather, temporary supply shortages concentrated in certain geographic regions and commodity price distortions between geographic regions. We attempt to mitigate these risks through our transportation activities by utilizing our transport truck and railroad tank car fleet to distribute propane between supply or storage locations and propane distribution locations. The propane we sell to our customers is generally transported from gas processing plants and refineries, pipeline terminals and storage facilities to propane distribution locations or storage facilities by our leased railroad tank cars, our owned or leased highway transport trucks, common carrier, or owner-operated transport trucks.
Risk Management Activities—Transportation Fuel Price Risk
We employ risk management activities that attempt to mitigate price risks related to the purchase of gasoline and diesel fuel for use in the transport of propane from supply or storage locations and from retail fueling stations. We attempt to mitigate these price risks through the use of financial derivative instruments.
Our risk management strategy involves taking positions in the financial markets that are not more than the forecasted purchases of fuel for our internal use in both the supply and retail propane delivery fleet in order to minimize the risk of decreased earnings from an adverse price change. This risk management strategy locks in our purchase price and is successful when our gains or losses in the physical product markets are offset by our losses or gains in the financial markets. Our transport fuel financial derivatives are not designated as cash flow hedges.
Midstream Operations
Our midstream operations include crude oil logistics, which we operate under the Bridger Logistics tradename (“Bridger”) and water solutions operations (“Bridger Environmental”). Bridger primarily provides domestic crude oil transportation and logistics services with an integrated portfolio of midstream assets connecting crude oil production in prolific basins in the U.S. to downstream markets. Bridger’s truck, pipeline terminal, pipeline, rail and maritime assets form a comprehensive, fee-for-service business model, and substantially all of its cash flow is generated from fee-based commercial agreements.
Bridger’s fee-based business model generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil with end markets across North America including a presence in all major domestic crude oil basins. The first link in Bridger’s integrated value chain is its truck transportation operations. Bridger charges producers and first purchasers of crude oil fees per barrel to transport crude from the wellhead to takeaway outlets, which provide connectivity to end markets and generate additional fee-for-service income. Bridger also owns or controls a number of assets connecting trucked crude volumes to downstream takeaway infrastructure, including pipeline injection terminals, crude storage, rail loading and unloading facilities, new build railcars, maritime assets and pipelines.
Bridger also engages in the marketing of physical crude oil in the major production basins of the United States. Bridger purchases this crude oil from producers and transports it using a mix of its truck transportation and rail assets as well as terminal and pipeline contracts to the sale point with its customers.
Bridger’s customers include crude oil producers, refiners and marketers. Generally, Bridger seeks to enter into long-term contracts to provide logistics services; however, contracts for the transportation of crude oil by truck tend to be terminable on 30 days’ notice.
Bridger Environmental generates revenues from treatment and disposal of salt water generated from crude oil production operations at its salt water disposal wells and from the sale of recovered crude oil from the skimming oil process.
Risk Management Activities—Crude Oil Price Risk
Our risk management activities attempt to mitigate price risks related to our crude oil line fill and inventory. We may use financial and commodity based derivative contracts to manage the risks produced by changes in the price of crude oil or to capture market opportunities.
Our risk management strategy involves taking positions in the financial markets that are equal and opposite to the forecasted crude oil line fill and inventory volume in order to minimize the risk of inventory price change. This risk management strategy locks in our sales price and is successful when our gains or losses on line fill or inventory are offset by our losses or gains in the financial markets. Our crude oil financial derivatives are not designated as cash flow hedges.
Business Strategy
Propane Operations and Related Equipment Sales
Our business strategy for our propane and related equipment sales business is to:
· Expand our operations through internal growth, as accretive opportunities become available;
· Capitalize on our national presence and economies of scale; and
· Maximize operating efficiencies through utilization of our technology platform.
Expand our operations through internal growth, as accretive opportunities become available
Our goal is to improve the operations and profitability of our propane and related equipment sales segment by integrating best practices and leveraging our established national organization and technology platforms to help reduce costs and enhance customer service. We believe that our enhanced operational synergies, improved customer service and ability to better track the financial performance of operations provide us a distinct competitive advantage and better analysis as we consider future opportunities.
We believe that we are positioned to successfully compete for growth opportunities within and outside of our existing operating regions. Our efforts will focus on adding density to our existing customer base, providing propane and complementary services to national accounts and providing other product offerings to existing customer relationships. This continued expansion will give us new growth opportunities by leveraging the capabilities of our operating platforms.
Capitalize on our national presence and economies of scale
We believe our national presence of 855 propane distribution locations in the United States as of July 31, 2016 gives us advantages over our smaller competitors. These advantages include economies of scale in areas such as:
· product procurement;
· transportation;
· fleet purchases;
· propane customer administration; and
· general administration.
We believe that our national presence allows us to be one of the few propane distributors that can competitively serve industrial/commercial and portable tank exchange customers on a nationwide basis, including the ability to serve such propane customers through leading home-improvement centers, mass merchants and hardware, grocery and convenience stores. In addition, we believe that our national presence provides us opportunities to make
acquisitions of other propane distribution companies whose operations overlap with ours, providing economies of scale and significant cost savings in these markets.
We also believe that investments in technology similar to ours require both a large scale and a national presence, in order to generate sustainable operational savings to produce a sufficient return on investment. For these reasons, we believe our national presence and economies of scale provide us with an on-going competitive advantage.
Maximize operating efficiencies through utilization of our technology platform
We believe our significant investments in technology give us a competitive advantage to operate more efficiently and effectively at a lower cost compared to most of our competitors. We do not believe that many of our competitors will be able to justify similar investments in the near term. Our technology advantage has resulted from significant investments made in our retail propane distribution operating platform together with our state-of-the-art tank exchange operating platform.
Our technology platform allows us to efficiently route and schedule our customer deliveries, customer administration and operational workflow for the retail sale and delivery of bulk propane. Our service centers are staffed to provide oversight and management to multiple distribution locations, referred to as service units. We operate a retail distribution network, including portable tank exchange operations, using a structure of 56 service centers and 855 service units as of July 31, 2016. The service unit locations utilize hand-held computers and cellular or satellite technology to communicate with management personnel who are typically located at the associated service center. We believe this structure and our technology platform allow us to more efficiently route and schedule customer deliveries and significantly reduce the need for daily on-site management.
The efficiencies gained from operating our technology platform allow us to consolidate our management teams at fewer locations, quickly adjust the sales prices to our customers and manage our personnel and vehicle costs more effectively to meet customer demand.
Our customer support capabilities allow us to accept emergency customer calls 24 hours a day, seven days a week. These combined capabilities provide us cost savings while improving customer service by reducing customer inconvenience associated with multiple, unnecessary deliveries.
Midstream Operations
Our current business strategy for our midstream operations is to maximize profitability utilizing existing assets. The continued, sustained decline in the price of crude oil has had a negative impact on domestic crude oil production, and as a result, has had a trending negative impact on the volumes of crude oil that we transport. We are evaluating all phases of our business in light of these challenges with the goal of operating more efficiently.
We are evaluating alternatives to maximize profitability relative to rail car assets previously committed to a recently terminated transportation and logistics agreement and Bridger’s largest customer and our trucking fleet which is currently operating under capacity. We believe this business strategy supports our overall current company strategy of reducing debt and improving our leverage ratio. See “—Recent Developments.”
Recent Developments
Termination of Bridger Agreement with Jamex
In connection with the closing of our acquisition of Bridger in June 2015, Bridger entered into a ten-year transportation and logistics agreement (the “Jamex TLA”) with Jamex Marketing, LLC (“Jamex”) pursuant to which Jamex would be responsible for certain payments to Bridger and also for sourcing crude oil volumes for Bridger’s largest customer.
As a result of concerns regarding the collectability of amounts owed to Bridger from Jamex under the Jamex TLA and certain other matters between Bridger and Jamex, Bridger, on September 1, 2016, Jamex, Ferrellgas Partners and certain other affiliated parties entered into a group of agreements that terminated the Jamex TLA, facilitated Ferrellgas Partners purchasing certain Ferrellgas Partners common units from Jamex, and established payment terms for certain amounts owed by Jamex to Bridger under the Jamex TLA. Consequently, we do not anticipate any material contribution to revenue or EBITDA from Jamex or Bridger’s former largest customer in the future.
On September 1, 2016, we entered into a Termination, Settlement and Release Agreement (the “Jamex Termination Agreement”) with Jamex, certain of Jamex’s affiliates, and James Ballengee (the owner of Jamex) pursuant to which:
(1) Jamex agreed to execute and deliver a secured promissory note in favor of Bridger in original principal amount of $49.5 million (the “Jamex Secured Promissory Note”) in satisfaction of all obligations owed to Bridger under the Jamex TLA;
(2) Mr. Ballengee and Bacchus Capital Trading, LLC, an entity controlled by Mr. Ballengee (“Bacchus”), executed and delivered a joint guarantee of the Jamex Secured Promissory Note obligations up to a maximum aggregate amount of $20.0 million;
(3) The operating partnership agreed to provide Jamex with a $5.0 million revolving secured working capital facility evidenced by a revolving promissory note (the “Jamex Revolving Promissory Note” and, together with the Jamex Secured Promissory Note, the “Jamex Notes”);
(4) The other Jamex entities agreed to execute and deliver a security agreement and a full guarantee of the obligations under the lawsJamex Notes;
(5) We paid approximately $16.9 million to Jamex and in return received 0.9 million of several
jurisdictionsFerrellgas Partners’ common units, which were cancelled upon receipt, and approximately 23,000 barrels of crude oil;
(6) The parties agreed to terminate the Jamex TLA and certain other commercial agreements and arrangements between them, and release any claims between or among them that may exist (other than those arising under the Jamex Termination Agreement or the other agreements entered into in connection with the Jamex Termination Agreement); and
(7) We waived the remaining lockup provision applicable to Jamex under the Registration Rights Agreement dated June 24, 2015 to which Jamex is party.
The Jamex Secured Promissory Note originally had an annual interest rate of 7%, which decreased to 2.8% as a result of Ferrellgas Partners’ reducing its quarterly distribution rate to $0.10, and contemplates quarterly amortizing principal payments, together with payments of accrued interest. The first quarterly interest payment of approximately $0.9 million was received in December 2016 and the first quarterly principal payment of approximately $2.5 million was received in March 2017. The maturity date of the Jamex Secured Promissory Note is December 17, 2021, and Jamex may prepay the Secured Promissory Note in whole or in part at any time.
The Jamex Revolving Promissory Note, which provides Jamex with access to working capital liquidity to meet their unrelated and ongoing crude oil marketing and other business needs, has an annual interest rate of 0% (which rate would be increased in case of a default), and contains certain conditions precedent to the operating partnership’s obligation to make any advances thereunder. Each borrowing under the Jamex Revolving Promissory Note must be repaid within 10 days, and the ultimate maturity date of the Jamex Revolving Promissory Note is the earlier of September 1, 2021 and the date on which all obligations under the Jamex Secured Promissory Note are repaid.
The Jamex Secured Promissory Note is guaranteed, pursuant to a Guaranty Agreement, jointly by James Ballengee and Bacchus (up to a maximum aggregate amount of $20.0 million), and each Note is fully guaranteed, pursuant to respective Guaranty Agreements, by the other Jamex entities. The obligations of Jamex and the other Jamex entities under the Notes are secured, pursuant to a Security Agreement, by a lien on certain of those entities’ assets, actively traded marketable securities and cash, which are held in a controlled account that can be seized by us in the event of default. The sum of the amounts available under the controlled account and the $20.0 million guarantee approximate the $45.0 million note receivable as of April 30, 2017.
During the year ended July 31, 2016, approximately 60% and 80% of Bridger’s gross margin and EBITDA, respectively, was generated from its largest customer and Jamex, that customer’s supplier, under take-or-pay arrangements. Bridger’s largest customer during the fiscal year ended July 31, 2016 owned a refinery in Trainer, Pennsylvania. Bridger was party to an agreement with this customer under which Bridger provided logistics services to transport crude oil from the Bakken region in North Dakota to the Trainer refinery. That agreement had a minimum volume commitment and payment obligation from the refinery for logistics services associated with the delivery of 65 MBbls/d. However, if the quantity of crude oil delivered to the refinery dropped below 35 MBbls/d, the minimum volume commitment and payment obligation from the refinery would be suspended and Jamex would become responsible for payments to Bridger under the pay provisions of the Jamex TLA. During February 2016,
Jamex ceased sourcing barrels for delivery to the refinery and since that time Bridger had been billing Jamex directly in accordance with the pay provisions of the Jamex TLA. During July 2016, we determined Jamex would not resume sourcing barrels for delivery to the refinery or be likely to continue to make payments under the pay provisions of the Jamex TLA. As a result, we negotiated a settlement with Jamex, and the Jamex TLA was terminated on September 1, 2016. While the agreement with the refinery owner was not terminated as a result of the execution and delivery of the Jamex Termination Agreement, Bridger has been unable to negotiate a revised transportation and logistics agreement with that customer; accordingly it is unlikely that Bridger will continue to make any deliveries under the existing agreement. Consequently, we do not anticipate any material contribution to revenue or EBITDA from Jamex or Bridger’s former largest customer in the future. Additionally, the continued, sustained decline in crude oil prices and resulting decrease in crude oil production in the regions in which it conductswe operate continued to significantly impact our trucking and rail operations during the nine months ended April 30, 2017, a trend we anticipate will continue in the remainder of fiscal 2017 and beyond.
Financial Covenants
The indenture governing the outstanding notes of Ferrellgas Partners and the agreements governing the operating partnership’s indebtedness contain various covenants that limit our ability and the ability of specified subsidiaries to, among other things, incur additional indebtedness and make distribution payments to our common unitholders. Our general partner believes that the most restrictive of these covenants are the consolidated leverage ratio and the consolidated interest coverage ratio, as defined in our secured credit facility and our accounts receivable securitization facility.
Before a restricted payment (as defined in the secured credit facility and the operating partnership indentures) can be made by the operating partnership, the operating partnership must be in compliance with the covenants under the secured credit facility and accounts receivable securitization facility and in compliance with the covenants under the operating partnership’s indentures. If the operating partnership is unable to make restricted payments, Ferrellgas Partners will not have the ability to make interest payments on its notes, including the exchange notes. If Ferrellgas Partners does not make interest payments on its notes, that would constitute an event of default which would permit the acceleration of the notes. The accelerated notes would become immediately due and payable, which would in turn trigger cross acceleration of other debt. If the payment of our debt is accelerated, we may be unable to borrow sufficient funds to refinance our debt.
A breach of the financial covenants under the secured credit facility and the accounts receivable securitization facility will also result in an event of default under those facilities resulting in the operating partnership’s inability to obtain funds under those facilities and give the lenders and receivables purchasers the right to accelerate the operating partnership’s obligations under those facilities and to exercise remedies to collect the outstanding amounts under those facilities.
Our consolidated leverage ratio is defined as the ratio of total debt of the operating partnership to trailing four quarters EBITDA of the operating partnership (both as adjusted for certain, specified items), as detailed in our secured credit facility and our accounts receivable securitization facility. Our interest coverage ratio is defined as the ratio of trailing four quarter EBITDA of the operating partnership (adjusted for certain, defined items) to interest expense (adjusted for certain defined items) for such period, as detailed in our secured credit facility and our accounts receivable securitization facility. See “Description of Other Indebtedness.”
During fiscal 2016 our secured credit facility and our accounts receivable securitization facility required the operating partnership to maintain a consolidated leverage ratio of no more than 5.5x as of each fiscal quarter end. Our consolidated leverage ratio was 5.48x as of July 31, 2016, which would have permitted approximately $8.1 million of additional borrowing capacity or approximately $1.5 million less EBITDA as of the fiscal year end. The narrow margin in this covenant was due primarily to several factors including higher debt caused by: (1) a $44.8 million unpaid accounts receivable balance due from Jamex at July 31, 2016; (2) the $45.9 million purchase of 2.4 million common units from Jamex in November 2015; (3) a $16.9 million purchase of 0.9 million of Ferrellgas Partners’ common units from Jamex on September 1, 2016; (4) Bridger growth capital expenditures of approximately $52.4 million; and (5) lower EBITDA caused by: (a) the warm weather in fiscal 2016 which was 19% warmer than normal and 16% warmer than fiscal 2015, which led to reduced demand for propane; and (b) the decline in our water solutions business. As a result of these factors, and the Jamex settlement discussed above, on September 27, 2016, we entered into a fifth amendment to our secured credit facility and a fourth amendment to our accounts receivable securitization facility to modify our maximum consolidated leverage ratio covenant to require a maximum leverage ratio of 5.95x as of January 31, 2017 and April 30, 2017.
During the quarter ended January 31, 2017, our results of operations were negatively impacted by sustained temperatures that were 14% warmer than normal throughout our operating areas. In order to avoid a violation of both the fifth amendment to our secured credit facility and the fourth amendment to our accounts receivable credit facility, Ferrellgas Partners sold $175.0 million aggregate principal amount of the unregistered notes at 96% of par. Net proceeds from the offering of approximately $165.9 million were contributed to the operating partnership, which used the net proceeds to repay borrowings under our secured credit facility.
As a result of the factors discussed above and the continued significantly warmer than normal temperatures during the quarter ended April 30, 2017, which were 19.5% warmer than normal throughout our operating area, on April 28, 2017, we entered into a sixth amendment to our secured credit facility and a fifth amendment to our accounts receivable facility to modify our maximum consolidated leverage ratio covenant and our consolidated interest coverage ratio covenant. The amendment to our secured credit facility also (1) reduces the amounts available to be borrowed from $700 million to $575 million, (2) increases the pricing of loans when our leverage ratio is greater than or equal to 6.00x from LIBOR plus 3.50% to LIBOR plus 3.75% and when our leverage ratio is greater than or equal to 7.00x from LIBOR plus 3.50% to LIBOR plus 4.00%, (3) limits the amount of distributions (other than distributions to Ferrellgas Partners for payments of interest payable on its unsecured notes) that the operating partnership may make to Ferrellgas Partners to $10 million per quarter (Ferrellgas Partners’ current distribution rate is $9.8 million per quarter) until the leverage ratio is less than 5.50x, (4) reduces the amount of investments we can make when our leverage ratio is greater than 5.50x from $200 million to $50 million, and (5) requires us to reduce our secured credit facility with 50% of the net cash proceeds received from any equity sale.
On April 28, 2017, the maximum consolidated leverage covenant was modified as follows:
Date |
| Maximum leverage ratio |
| Maximum leverage ratio |
|
April 30, 2017 |
| 5.95 |
| 7.75 |
|
July 31, 2017 |
| 6.05 |
| 7.75 |
|
October 31, 2017 |
| 5.95 |
| 7.75 |
|
January 31, 2018 |
| 5.95 |
| 7.75 |
|
April 30, 2018 |
| 5.50 |
| 7.75 |
|
July 31, 2018 & thereafter |
| 5.50 |
| 5.50 |
|
Our consolidated leverage ratio was 6.45x as of April 30, 2017; the margin allows for approximately $340.2 million of additional borrowing capacity or approximately $43.9 million less EBITDA. This covenant also restricts the operating partnership’s ability to make payments to us for purposes of funding quarterly common unit distributions.
|
| Minimum consolidated interest |
| Minimum consolidated interest |
|
Date |
| (prior to sixth amendment) |
| (after sixth amendment) |
|
April 30, 2017 |
| 2.50 |
| 1.75 |
|
July 31, 2017 |
| 2.50 |
| 1.75 |
|
October 31, 2017 |
| 2.50 |
| 1.75 |
|
January 31, 2018 |
| 2.50 |
| 1.75 |
|
April 30, 2018 |
| 2.50 |
| 1.75 |
|
July 31, 2018 & thereafter |
| 2.50 |
| 2.50 |
|
Our consolidated interest coverage ratio was 2.29x as of April 30, 2017; the margin allows for approximately $35.2 million of additional interest expense or approximately $61.5 million less EBITDA.
Given the lack of headroom on these covenants, we continue to execute on a strategy to reduce our debt and interest expense. This strategy may include issuance of equity, amending existing debt agreements, asset sales or a
further reduction in our annual distribution, which was reduced during the quarter ended October 31, 2016 from an annualized rate of $2.05 to $0.40 per common unit. We believe any debt and interest expense reduction strategies would remain in effect until our consolidated leverage ratio reaches 4.5x or a level that we deem appropriate for our business.
If we are unsuccessful with our strategy to reduce debt and interest expense, we may be unsuccessful in renegotiating our secured credit facility, which matures in October 2018. If we were to be unsuccessful in renegotiating our secured credit facility and unable to secure alternative liquidity sources, we may not have the liquidity to fund our operations after that maturity date.
Failure to renew or replace liquidity available under the secured credit facility could have a material effect on our operating capacity and cash flows and could further restrict our ability to incur debt, pay interest on our outstanding notes or to make cash distributions to unitholders, which could result in an event of default that would permit the acceleration of all of our indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full and we may be unable to borrow sufficient funds to refinance debt.
Factors Affecting the Nine Months Ended April 30, 2017
Propane operations and related equipment sales
Weather conditions have a significant impact on demand for propane for heating purposes primarily during the months of November through March (the “winter heating season”). Accordingly, the volume of propane used by our customers for this purpose is directly affected by the severity of the winter weather in the regions we serve and can vary substantially from year to year. In any given region, sustained warmer-than-normal temperatures will tend to result in reduced propane usage, while sustained colder-than-normal temperatures will tend to result in greater usage. Weather in the more highly concentrated geographic areas we serve for the nine months ended April 30, 2017 was approximately 18% warmer than normal, and 1% colder than the corresponding period of fiscal 2016, which was determined to have been one of the warmest winters on record.
Midstream operations
Prior to the three months ended April 30, 2017, the results of our water solutions business were included in Corporate and other. As a result of a change in the Partnership's activitiesway management is evaluating results and allocating resources, results of the water solutions business are conductednow included in the Midstream operations segment for all periods presented. Bridger Logistics primarily generates income by providing crude oil transportation and logistics services on behalf of producers and end-users of crude oil.
As discussed above, we terminated our relationship with Jamex on September 1, 2016 and did not receive any material contribution to revenue or EBITDA from Jamex or Bridger’s former largest customer for the quarters ended January 31, 2017 and April 30, 2017, and we do not anticipate a material contribution to revenue or EBITDA from Jamex or Bridger’s former largest customer in the future. Additionally, the continued, sustained decline in crude oil prices and resulting decrease in crude oil production in the regions in which we operate continued to significantly impact our trucking and rail operations during the first nine months of fiscal 2017, a trend we anticipate will continue in the fourth quarter of fiscal 2017 and beyond. As a result, we expect to experience a decline in future cash flows from operations from our Midstream Operations segment overall, as well as from individual asset groups within the segment.
Our Offices
The address of our principal offices is 7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210, and our telephone number at those offices is (913) 661-1500. We maintain a website at www.ferrellgas.com where our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with or furnished to the SEC. Except to the extent expressly incorporated by reference herein, information on or accessible through our website is not incorporated into or part of this prospectus.
Our Structure
Ferrellgas L.P.,Partners is a subsidiaryDelaware limited partnership (the
"Operating Partnership"). The Partnershipthat was formed in 1994 in connection with our initial public offering. Ferrellgas Partners is a holding entity that conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp. and the operating partnership. Ferrellgas Partners is the sole limited partner of the Operating Partnershipoperating partnership, with a 99% limited partner interest. The operating partnership accounts for substantially all of our consolidated assets, sales and operating earnings.
Ferrellgas Partners Finance Corp., co-issuer of the notes offered hereby, is a Delaware corporation and wholly owned subsidiary of Ferrellgas Partners. Ferrellgas Partners Finance Corp. has nominal assets, does not, and will not in the future, conduct any operations or have any employees and was formed for the purpose of being a co-issuer of certain of our indebtedness, including the unregistered notes and the General Partner serves asexchange notes. You should not expect Ferrellgas Partners Finance Corp. to have the ability to service obligations on the unregistered notes and the exchange notes.
Ferrellgas, Inc., the general partner of Ferrellgas Partners and the Operating Partnership.operating partnership, performs all of the management functions for us. The General Partnergeneral partner does not receive any management fee in connection with its management of the Partnershipus and does not receive any remuneration for its services as the general partner of the Partnership other than reimbursement for all direct and indirect expenses incurredit incurs in connection with our operations. James E. Ferrell is 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 operationChairman of the Partnership's business. The Partnership
Agreement
8
(as hereinafter defined) provides that the General Partner shall determine the
feesBoard of Directors and expenses that are allocable to the Partnership in any reasonable
manner determined by the General Partner in its sole discretion. BecauseInterim Chief Executive Officer and President of the broad authority granted to the General Partner to determine the fees and
expenses, including compensation of the General Partner's officers and other
employees, allocable to the Partnership, certain conflicts of interest could
arise between the General Partner and its affiliates, on the one hand, and the
Partnership and its limited partners, on the other. The limited partners have
no ability to control the expenses allocated by the General Partner to the
Partnership.
FERRELLGAS PARTNERS FINANCE CORP.
Ferrellgas Partners Finance Corp., a Delaware corporation, is acting as co-
obligor for the Senior Notes. Finance Corp. is a wholly-owned subsidiary of the
Partnership which has nominal assets and does not conduct any operations.
Certain institutional investors that might otherwise be limited in their
ability to invest in securities issued by partnerships by reason of the legal
investment laws of their states of organization or their charter documents, may
be able to invest in the Senior Notes because Finance Corp. is a co-obligor.
The principal executive offices of the Partnership, the Operating Partnership
and Finance Corp. are located at One Liberty Plaza, Liberty, Missouri 64068,
and their telephone number is (816) 792-1600.
9
The following chart depicts the organization and ownershipour abbreviated structure as of July 7, 2017.
Summary of the PartnershipExchange Offer
On January 30, 2017, we issued $175,000,000 aggregate principal amount of the unregistered notes in a private placement. The unregistered notes were sold to the initial purchasers who in turn resold the unregistered notes to persons believed to be qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A under the Securities Act. On the date the unregistered notes were issued, we and the initial purchasers of the unregistered notes entered into a registration rights agreement in which we agreed to offer to exchange notes registered under the Securities Act but otherwise having substantially identical terms to the unregistered notes for the unregistered notes. This exchange offer is intended to satisfy that obligation. After the exchange offer is completed, you generally will no longer be entitled to any registration rights with respect to your unregistered notes. For additional information on the terms of the exchange offer, see “The Exchange Offer.”
Unregistered Notes | $175,000,000 aggregate principal amount of 85/8% Senior Notes due 2020, issued on January 30, 2017. |
Exchange Notes | $175,000,000 aggregate principal amount of 85/8% Senior Notes due 2020. The terms of the exchange notes are substantially identical to the terms of the unregistered notes, except that the transfer restrictions, registration rights and provisions for additional interest applicable to the unregistered notes do not apply to the exchange notes. |
Exchange Offer | We are offering to exchange $175,000,000 aggregate principal amount of our 85/8% Senior Notes due 2020 registered under the Securities Act for all $175,000,000 outstanding aggregate principal amount of our unregistered 85/8% Senior Notes due 2020. As of the date of this prospectus, $175,000,000 aggregate principal amount of our unregistered 85/8% Senior Notes due 2020 are outstanding. |
Outstanding unregistered notes may be tendered only in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. The exchange notes will evidence the same debt as the unregistered notes and will be issued under and entitled to the benefits of the same indenture that governs the unregistered notes. Holders of the unregistered notes do not have any appraisal or dissenter rights in connection with the exchange offer. | |
Expiration Date | The exchange offer will expire at 5:00 p.m., New York City time, on , 2017, unless we decide to extend it. |
Conditions to the Exchange Offer | We will not be required to accept for exchange any unregistered notes and we may amend or terminate the exchange offer if any of the following conditions or events occurs: · the exchange offer violates applicable law or any applicable interpretation of the staff of the SEC; · any action or proceeding shall have been instituted or threatened which might materially impair our ability to proceed with the exchange offer, or a material adverse development in any existing action or proceeding with respect to us; · any holder of unregistered notes has not made to us the representations described under “The Exchange Offer—Procedures for Tendering” and “Plan of Distribution;” or |
· all governmental approvals that we deem necessary for the consummation of the exchange offer have not been obtained. | |
We reserve the right to waive any conditions of the exchange offer. | |
Resale of Exchange Notes | Based on interpretations of the staff of the SEC, as set forth in no-action letters issued to third parties that are not related to us, we believe that the exchange notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act so long as: · you are not our “affiliate”; · the exchange notes are being acquired in the ordinary course of business; · you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the exchange notes issued to you in the exchange offer; and · if you are a broker-dealer, you will receive exchange notes for your own account in exchange for unregistered notes that were acquired as a result of market-making activities or other trading activities and that you will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. |
The SEC has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the SEC would make similar determinations with respect to this exchange offer. If any of these conditions are not satisfied, or if our belief is not accurate, and you transfer any exchange notes issued to you in the exchange offer without delivering a resale prospectus meeting the requirements of the Securities Act or without an exemption from registration of your exchange notes under the Securities Act, you may incur liability under the Securities Act. We will not assume, nor will we indemnify you against, any such liability. See “Plan of Distribution.” | |
See “The Exchange Offer—Resale of Exchange Notes” for more information regarding resales of the exchange notes. | |
Procedures for Tendering Unregistered | If you wish to participate in the exchange offer, you must complete, sign and date the accompanying letter of transmittal, and any other documents required by the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must then mail or otherwise deliver the letter of transmittal, together with your unregistered notes and any other documents required by the letter of transmittal, to the exchange agent at the address set forth on the cover of the letter of transmittal. |
If you hold unregistered notes through The Depository Trust Company (“DTC”) and wish to participate in the exchange |
offer, you must comply with the Automated Tender Offer Program (“ATOP”) procedures of DTC. | |
Special Procedures for Beneficial | If you are a beneficial owner of unregistered notes that are held through a broker, dealer, commercial bank, trust company or other nominee and you wish to tender such unregistered notes, you should contact such person promptly and instruct them to tender your unregistered notes on your behalf. |
Guaranteed Delivery Procedures for Unregistered Notes | If you wish to tender your unregistered notes and you cannot deliver your unregistered notes, the letter of transmittal or any other documents required by the letter of transmittal or you cannot comply with DTC’s ATOP procedures prior to the expiration of the exchange offer, you must tender your unregistered notes according to the guaranteed delivery procedures set forth under “The Exchange Offer—Guaranteed Delivery Procedures.” |
Withdrawal Rights; Non-acceptance | You may withdraw any unregistered notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on , 2017. If we decide for any reason not to accept any unregistered notes tendered for exchange, any unaccepted unregistered notes will be returned to the registered holder or credited to the tendering holder’s account at DTC, as applicable, without expense to the holder. For further information regarding the withdrawal of tendered unregistered notes, see “The Exchange Offer—Withdrawal of Tenders.” |
Consequences of Failure to Exchange | If you are eligible to participate in this exchange offer and you do not tender your unregistered notes as described in this prospectus, you will not have any further registration rights. In that case, your unregistered notes will continue to be subject to restrictions on transfer. As a result of the restrictions on transfer and the availability of exchange notes, the unregistered notes are likely to be much less liquid than before the exchange offer. |
Certain U.S. Federal Income Tax Considerations | The exchange of unregistered notes for exchange notes pursuant to the exchange offer will not be a taxable exchange for U.S. federal income tax purposes. |
Use of Proceeds | We will not receive any proceeds from the issuance of exchange notes pursuant to the exchange offer. |
Exchange Agent for the Unregistered | U.S. Bank National Association will serve as the exchange agent for the exchange offer. |
Summary Description of the Exchange Notes
The following is a summary of the exchange notes and is subject to a number of important exceptions and qualifications. For additional information on the terms of the exchange notes, see “Description of the Exchange Notes.”
The Issuers | Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. |
Securities | $175,000,000 aggregate principal amount of 85/8% Senior Notes due 2020. Ferrellgas Partners and Ferrellgas Partners Finance Corp. issued $280,000,000 aggregate principal amount of their 85/8% Senior Notes due 2020 in April 2010 and subsequently redeemed $98,000,000 in principal amount of those notes, leaving $182,000,000 outstanding (referred to herein as the “original notes”). On January 30, 2017, Ferrellgas Partners and Ferrellgas Partners Finance Corp. issued $175,000,000 aggregate principal amount of their 85/8% Senior Notes due 2020 (referred to herein as the “unregistered notes”), resulting in $357,000,000 in aggregate principal amount of 85/8% Senior Notes due 2020 outstanding. The exchange notes will have substantially the same terms as the original notes, will be treated as a single class with the original notes and vote as one class with the original notes. However, because the unregistered notes were issued with original issue discount (“OID”) for U.S. federal income tax purposes, the exchange notes (for which the unregistered notes will be exchanged) also will be deemed to have been issued with OID, and therefore (i) the exchange notes also will be treated as a separate issuance from the original notes for such purposes and (ii) you generally will be required to include in your ordinary income for U.S. federal income tax purposes OID as it accrues regardless of your method of accounting for U.S. federal income tax purposes. See “Risk Factors—Risks Relating to the Exchange Notes—The exchange notes will be deemed to have been issued with ‘original issue discount (‘OID’)” and “Certain U.S. Federal Income Tax Considerations.” Accordingly, the exchange notes will have a different CUSIP number from that of the original notes and will not be fungible with the original notes at any time, which may cause the exchange notes to trade at prices that are different from those of the original notes. See “Risk Factors—Risks Relating to the Exchange Notes—The exchange notes will not be fungible with the original notes bearing substantially the same terms.” |
Maturity | June 15, 2020. |
Interest | 85/8% per annum, payable semi-annually in cash in arrears on June 15 and December 15 to holders of record of notes as of the preceding June 1 and December 1, respectively. The exchange notes will accrue interest from the last interest payment date on which interest was paid on the unregistered notes surrendered in exchange for the exchange notes (i.e., June 15, 2017). |
Ranking | The exchange notes will be our senior unsecured obligations. Accordingly, the exchange notes will rank: · equally with all of our existing and future senior unsecured indebtedness, including the original notes, any unregistered notes not exchanged pursuant to the exchange offer and trade payables; · senior to any of our future indebtedness that expressly provides it is subordinated to the exchange notes; · effectively junior to all of our future secured indebtedness, to the extent of the value of the assets securing such debt; and · structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including any borrowings under the operating partnership’s secured credit facility and the operating partnership’s outstanding senior notes. |
As of April 30, 2017, the exchange notes would rank structurally junior to approximately $1.7 billion of our operating partnership’s long-term indebtedness and certain other liabilities. See “Capitalization” and “Description of Other Indebtedness.” | |
Optional Redemption | We may redeem the exchange notes at any time, in whole or in part, in cash at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to the date of redemption. See “Description of the Exchange Notes—Optional Redemption.” |
Change of Control | If we experience a specified change of control, each holder of exchange notes will have the right to require us to repurchase all or part of that holder’s exchange notes. The repurchase price will equal 101% of the aggregate principal amount of the exchange notes repurchased, plus accrued and unpaid interest to the date of repurchase. See “Description of the Exchange Notes—Offers to Purchase; Repurchase at the Option of the Noteholders—Change of Control Offer.” |
Asset Sales | Under specified circumstances, we may be required to make an offer to repurchase a portion of the exchange notes in the event of specified asset sales by us or our subsidiaries. See “Description of the Exchange Notes— Offers to Purchase; Repurchase at the Option of the Noteholders—Asset Sales.” |
Certain Covenants | The indenture governing the exchange notes includes certain covenants that limit our ability and the ability of our restricted subsidiaries to, among other things: · incur additional indebtedness; · make distributions to our unitholders; · purchase or redeem our outstanding equity interests or subordinated debt; · make specified investments; |
· create or incur liens; · sell assets; · engage in specified transactions with affiliates; · make specified payments, loans, guarantees and transfers of assets or interests in assets; and · effect a merger or consolidation with or into other companies or a sale of all or substantially all of our properties or assets. | |
These covenants are subject to a number of important qualifications and exceptions. See “Description of the Exchange Notes.” | |
Trading | There is no established trading market for the exchange notes. We do not intend to apply for listing of the exchange notes on any securities exchange or quotation of the exchange notes on any quotation system. |
Trustee, Registrar and Exchange Agent | U.S. Bank National Association. |
Risk Factors | See “Risk Factors” beginning on page 20 of this prospectus for a discussion of risks you should consider before determining whether to tender your unregistered notes in the exchange offer. |
Summary Historical Financial and Operating PartnershipData
The following table presents summary historical consolidated financial and their respective indebtedness.operating data for Ferrellgas Partners. Our summary historical financial data were derived from our historical consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2016 and our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2017 incorporated by reference in this prospectus. The percentages reflectedsummary historical financial data do not purport to project our results of operations or financial position for any future period or as of any future date and are not necessarily indicative of financial results to be achieved in future periods. You should read the summary historical financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2016 and our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2017 incorporated by reference in this prospectus. See “Incorporation of Documents by Reference” and “Where You Can Find More Information.”
Our historical consolidated financial statements as of and for the fiscal years ended July 31, 2014, 2015 and 2016 have been audited. Our historical consolidated financial statements as of and for the nine months ended April 30, 2016 and 2017 and the twelve months ended April 30, 2017 are unaudited. Ferrellgas Partners believes that all material adjustments that consist only of normal recurring adjustments necessary for the fair presentation of its interim results have been included. Results of operations for any interim period are not necessarily indicative of the results of operations for our entire fiscal year due to the seasonal nature of our business.
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| Ferrellgas Partners, L.P. |
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| Nine Months Ended |
| Twelve |
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| Year Ended July 31, |
| April 30, |
| April 30, |
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(in thousands, other than ratios) |
| 2014 |
| 2015 |
| 2016 |
| 2016 |
| 2017 |
| 2017 |
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Income statement data: |
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Total revenues |
| $ | 2,405,860 |
| $ | 2,024,390 |
| $ | 2,039,367 |
| $ | 1,629,856 |
| $ | 1,496,901 |
| $ | 1,906,412 |
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Interest expense |
| 86,502 |
| 100,396 |
| 137,937 |
| 102,889 |
| 112,107 |
| 147,155 |
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Asset impairments |
| — |
| — |
| 658,118 |
| 29,316 |
| — |
| 628,802 |
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Net earnings (loss) attributable to Ferrellgas Partners, L.P. |
| 33,211 |
| 29,620 |
| (665,415 | ) | (3,981 | ) | 1,561 |
| (659,873 | ) | ||||||
Balance sheet data (at end of period): |
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Working capital (deficit) (1) |
| $ | 9,891 |
| $ | (44,371 | ) | $ | (77,062 | ) | (2,962 | ) | $ | (26,153 | ) | $ | (26,153 | ) | |
Total assets |
| 1,553,564 |
| 2,437,729 |
| 1,683,306 |
| 2,372,849 |
| 1,679,269 |
| 1,679,269 |
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Long-term debt |
| 1,273,508 |
| 1,778,065 |
| 1,941,335 |
| 1,960,331 |
| 1,984,218 |
| 1,984,218 |
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Partners’ capital (deficit) |
| (111,646 | ) | 207,709 |
| (651,780 | ) | 53,643 |
| (703,486 | ) | (703,486 | ) | ||||||
Operating data (unaudited): |
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Propane sales volumes (gallons) |
| 946,570 |
| 878,846 |
| 778,892 |
| 635,138 |
| 643,127 |
| 786,881 |
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Crude oil hauled (barrels) |
| — |
| 10,447 |
| 79,411 |
| 64,824 |
| 36,549 |
| 51,136 |
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Crude oil sold (barrels) |
| — |
| 702 |
| 6,860 |
| 4,969 |
| 5,228 |
| 7,119 |
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Capital expenditures: |
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Maintenance |
| $ | 18,138 |
| $ | 19,449 |
| $ | 16,877 |
| $ | 13,728 |
| $ | 10,679 |
| $ | 14,067 |
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Growth |
| 32,843 |
| 50,388 |
| 96,058 |
| 91,329 |
| 21,246 |
| 30,476 |
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Acquisition |
| 169,430 |
| 901,612 |
| 28,245 |
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Total |
| $ | 220,411 |
| $ | 971,449 |
| $ | 141,180 |
| $ | 105,057 |
| $ | 31,925 |
| $ | 44,543 |
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Supplemental data (unaudited): |
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EBITDA (2) |
| $ | 206,431 |
| $ | 228,280 |
| $ | (377,011 | ) | $ | 213,052 |
| $ | 191,020 |
| $ | (399,033 | ) |
Adjusted EBITDA (2) |
| $ | 288,148 |
| $ | 300,184 |
| $ | 344,730 |
| $ | 295,214 |
| $ | 210,839 |
| $ | 260,355 |
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Ratio of Adjusted EBITDA to Interest expense |
| 3.33 |
| 2.99 |
| 2.50 |
| 2.87 |
| 1.88 |
| 1.76 |
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Ratio of long-term debt to Adjusted EBITDA |
| 4.42 |
| 5.92 |
| 5.63 |
| 6.64 |
| 9.41 |
| 7.62 |
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(1) Working capital is current assets less current liabilities.
(2) EBITDA and Adjusted EBITDA are non-GAAP measures. We calculate EBITDA as net earnings (loss) before income tax expense (benefit), interest expense and depreciation and amortization expense. We calculate Adjusted EBITDA as net earnings (loss) before income tax expense (benefit), interest expense, depreciation and amortization expense, asset impairments, loss on extinguishment of debt, non-cash employee stock ownership plan compensation charge, non-cash stock and unit-based compensation charge, loss on asset sales and disposal, other (income) expense, net, severance charges, change in fair value of contingent consideration, litigation accrual and related legal fees associated with a class action lawsuit, acquisition and transition expenses, unrealized (non-cash) loss on changes in fair market value of derivatives not designated as hedging instruments and net earnings (loss) attributable to non-controlling interest. We believe the presentation of these measures is relevant and useful because it allows investors to view our performance in a manner similar to the method we use, adjusted for items we believe are unusual or non-recurring, and makes it easier to compare our results with
other companies that have different financing and capital structures. In addition, we believe these measures are consistent with the manner in which our lenders and investors measure our overall performance and liquidity, including our ability to service our long-term debt and other fixed obligations and to fund our capital expenditures and working capital requirements. Our method of calculating EBITDA and Adjusted EBITDA may not be consistent with similarly titled measures used by other companies, and these measures should be viewed in conjunction with measurements that are computed in accordance with GAAP. A reconciliation of EBITDA and Adjusted EBITDA to net earnings (loss) is set forth in the following chart representtable.
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| Ferrellgas Partners, L.P. |
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| Nine Months Ended |
| Twelve |
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| Year Ended July 31, |
| April 30, |
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(in thousands) |
| 2014 |
| 2015 |
| 2016 |
| 2016 |
| 2017 |
| 2017 |
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Reconciliation of Net Earnings (Loss) to EBITDA and Adjusted EBITDA: |
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Net earnings (loss) attributable to Ferrellgas Partners, L.P |
| $ | 33,211 |
| $ | 29,620 |
| $ | (665,415 | ) | $ | (3,981 | ) | $ | 1,561 |
| $ | (659,873 | ) |
Income tax expense (benefit) |
| 2,516 |
| (315 | ) | (36 | ) | 1,446 |
| (194 | ) | (1,676 | ) | ||||||
Interest expense |
| 86,502 |
| 100,396 |
| 137,937 |
| 102,889 |
| 112,107 |
| 147,155 |
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Depreciation and amortization expense |
| 84,202 |
| 98,579 |
| 150,513 |
| 112,698 |
| 77,546 |
| 115,361 |
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EBITDA |
| 206,431 |
| 228,280 |
| (377,001 | ) | 213,052 |
| 191,020 |
| (399,033 | ) | ||||||
Asset impairments |
| — |
| — |
| 658,118 |
| 29,316 |
| — |
| 628,802 |
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Loss on extinguishment of debt |
| 21,202 |
| — |
| — |
| — |
| — |
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Non-cash employee stock ownership plan compensation charge |
| 21,789 |
| 24,713 |
| 27,595 |
| 18,375 |
| 11,396 |
| 20,616 |
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Non-cash stock and unit-based compensation charge |
| 24,508 |
| 25,982 |
| 9,324 |
| 6,757 |
| 3,298 |
| 5,865 |
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Loss on asset sales and disposals |
| 6,486 |
| 7,099 |
| 30,835 |
| 23,220 |
| 8,861 |
| 16,476 |
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Other (income) expense, net |
| 479 |
| 350 |
| (110 | ) | 89 |
| (1,433 | ) | (1,632 | ) | ||||||
Severance charges |
| — |
| — |
| 1,453 |
| 1,325 |
| 1,959 |
| 2,087 |
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Change in fair value of contingent consideration |
| 5,000 |
| (6,300 | ) | (100 | ) | (100 | ) | — |
| — |
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Litigation accrual and related legal fees associated with a class action lawsuit |
| 1,749 |
| 806 |
| — |
| — |
| — |
| — |
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Acquisitions and transaction expenses |
| — |
| 16,373 |
| 99 |
| 99 |
| — |
| — |
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Unrealized (non-cash) loss on changes in fair value of derivatives not designated as hedging instruments |
| — |
| 2,412 |
| 1,137 |
| 2,993 |
| (4,449 | ) | (6,305 | ) | ||||||
Net earnings (loss) attributable to noncontrolling interest |
| 504 |
| 469 |
| (6,620 | ) | 88 |
| 187 |
| (6,521 | ) | ||||||
Adjusted EBITDA |
| $ | 288,148 |
| $ | 300,184 |
| $ | 344,730 |
| $ | 295,214 |
| $ | 210,839 |
| $ | 260,355 |
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Ratio of Earnings to Fixed Charges
The following table sets forth our historical, consolidated ratio of earnings to fixed charges for the approximate
ownershipperiods indicated:
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| Nine Months |
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| Fiscal Year Ended July 31, |
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| 2012 |
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| 2014 |
| 2015 |
| 2016 |
| 2017 |
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Ratio of earnings to fixed charges |
| 0.9 |
| 1.6 |
| 1.3 |
| 1.3 |
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| 1.0 |
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For purposes of the ratios of earnings to fixed charges, “earnings” is the sum of pre-tax income from continuing operations and fixed charges less capitalized interest, (includingand “fixed charges” is the Common Unitssum of interest expensed or capitalized, amortized capitalized expenses related to indebtedness and an estimate of the interest within lease expense.
** For the year ended July 31, 2016, earnings were insufficient to cover fixed charges by approximately $383.9 million.
You should carefully consider the risk factors set forth below as well as other information contained in and incorporated by reference in this prospectus before determining whether to tender your unregistered notes in the exchange offer. The risks described below are not the only risks facing us. In addition to the risk factors listed below, please see the risk factors included under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2016 and our Quarterly Reports on Form 10-Q for the quarterly periods ended October 31, 2016, January 31, 2017 and April 30, 2017, which are incorporated by reference in this prospectus, for a discussion of particular factors you should consider before determining whether to tender your unregistered notes in the exchange offer. See “Where You Can Find More Information.”
Risks Relating to the Exchange Offer and the Exchange Notes
We cannot assure you that an active trading market for the exchange notes will exist if you desire to sell the exchange notes.
There is no existing public market for the exchange notes. We do not intend to apply for listing of the exchange notes on a securities exchange or quotation system. The liquidity of any trading market in the exchange notes, and the market prices quoted for the exchange notes, may be adversely affected by changes in the overall market for these types of securities, and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure you that you will be able to sell the exchange notes or that, if you can sell your exchange notes, you will be able to sell them at an acceptable price. If a market for the exchange notes were to develop, the exchange notes could trade at prices that may be higher or lower than the principal amount. Additionally, there is a risk that the liquidity of, and the trading market for, the exchange notes will be limited if few exchange notes are issued in connection with the Skelgas Acquisition) in eachexchange offer. If only a limited number of exchange notes are outstanding after the completion of the Partnershipexchange offer, it may be more difficult for a market to develop in the exchange notes and any market that does develop may be less liquid than would be the case if more exchange notes were outstanding. The liquidity of the trading market for the exchange notes, if any, and the Operating Partnership,
individually. Exceptmarket price quoted for the exchange notes may be adversely affected by changes in interest rates for comparable securities, and by changes in our financial performance or prospects, as well as by declines in the following chart,prices of securities, or the ownership percentages referredfinancial performance or prospects of similar companies. See also “—The exchange notes will not be fungible with the original notes bearing the same terms.”
If you do not tender your unregistered notes, you will continue to hold unregistered notes and your ability to sell your unregistered notes may be adversely affected.
We will issue exchange notes only in this Prospectus reflect the approximate effective ownership interestexchange for unregistered notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the holderunregistered notes, and you should carefully follow the instructions on how to tender your unregistered notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of unregistered notes. See “The Exchange Offer—Procedures for Tendering.”
If you do not exchange your unregistered notes for exchange notes in the Partnershipexchange offer, you will continue to be subject to the restrictions on transfer of your unregistered notes described in the legend on the global note certificates for your unregistered notes. In general, you may offer or sell the unregistered notes only if they are registered under the Securities Act and the Operating Partnership on a combined
basis.
[INSERT CHART]
10
THE EXCHANGE OFFER
On April 26, 1996, the Issuers issued $160,000,000 principal amount of
Private Notes pursuant to exemptionsapplicable state securities laws or are offered and sold under an exemption from or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. We do not plan to register any sale of the unregistered notes under the Securities Act. As a result of the restrictions on transfer and the availability of the exchange notes, the unregistered notes are likely to be much less liquid than before the exchange offer. See “The Exchange Offer—Consequences of Failure to Exchange.”
If the Internal Revenue Service (“IRS”) were to treat us as a corporation for tax purposes, or changes in federal or state laws (the "Offering"or changes in our business were to cause us to become subject to entity level taxation for federal or state tax purposes, then our cash available for payment on the exchange notes would be substantially reduced.
We believe that, under current law, we have been and currently are classified as a partnership for U.S. federal income tax purposes. Nonetheless, the IRS may adopt positions that differ from those expressed herein or from the positions we take. It may be necessary to resort to administrative or court proceedings in an effort to sustain some or all of the positions we take, and some or all of these positions ultimately may not be sustained.
One of the requirements for classification as a partnership is that at least 90% of our gross income for each taxable year has been and will be “qualifying income” within the meaning of Section 7704 of the Internal Revenue Code. Whether we will continue to be classified as a partnership depends in part on our ability to meet the qualifying income test in the future. Additionally, a change in current law or a change in our business could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to entity-level U.S. federal income taxation. If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate, which currently is a maximum of 35%, and we likely would pay state taxes as well. Because a tax would be imposed upon us as a corporation, the cash available for payment on the exchange notes would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in our anticipated cash flows and could cause a reduction in the value of the exchange notes.
In addition, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of such tax on us would reduce the cash available for payment on the exchange notes.
The exchange notes will be deemed to have been issued with “original issue discount” (“OID”).
Because the unregistered notes were issued with OID for U.S. federal income tax purposes, the exchange notes will be deemed to have been issued with OID. Accordingly, holders will be required to include OID in income over the term of the note on a constant yield basis in advance of receiving any payments with respect to this income. This means that holders may have a tax liability without receiving cash (other than from interest payments) to satisfy such obligations. See “Certain U.S. Federal Income Tax Considerations.” Holders are urged to consult their own tax advisors regarding the acquisition, ownership and disposition of an exchange note issued with OID. See also “—The Exchange Offer appliesexchange notes will not be fungible with the original notes bearing the same terms.”
Our substantial debt and other financial obligations could impair our financial condition and our ability to fulfill our obligations.
We have substantial indebtedness and other financial obligations. As of April 30, 2017:
· we had total indebtedness of approximately $2.1 billion;
· we had total potential availability under our secured credit facility of approximately $237.9 million as of April 30, 2017; and
· we had aggregate future minimum rental commitments under non-cancelable operating leases of approximately $153.1 million; provided, however, if we elect to purchase the underlying assets at the end of the lease terms, such aggregate buyout would be $26.3 million.
As of April 30, 2017, we had long and short-term payment obligations with maturity dates ranging from fiscal 2017 to 2023 that bear interest at rates ranging from 6.5% to 11.8%. Borrowings under our secured credit facility classified as “Long-term debt” of $175.2 million currently bear an interest rate of 5.5%. As of April 30, 2017, the long-term obligations do not contain any sinking fund provisions but do require the following aggregate principal payments, without premium, during the following fiscal years:
· $0.8 million-2017;
· $2.5 million-2018;
· $177.2 million-2019;
· $358.2 million-2020;
· $501.0 million-2021; and
· $975.4 million-thereafter.
Our secured credit facility provides $575.0 million in revolving credit for loans and has a $200.0 million sublimit for letters of credit. The obligations under this credit facility are secured by substantially all outstanding
Private Notes.assets of the operating partnership, the general partner and certain subsidiaries of the operating partnership but specifically
excluding (a) assets that are subject to the operating partnership’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interest in certain unrestricted subsidiaries. Such obligations are also guaranteed by the general partner and certain subsidiaries of the operating partnership. The Exchange Notessecured credit facility will mature in October 2018.
All of the indebtedness and other obligations described above are obligations of the operating partnership except for $175.0 million aggregate principal amount of the unregistered notes and $182.0 million aggregate principal amount of the original notes.
Subject to the restrictions governing the operating partnership’s indebtedness and other financial obligations and the indenture governing the exchange notes, we may incur significant additional indebtedness and other financial obligations, which may be secured and/or structurally senior to the exchange notes.
Our substantial indebtedness and other financial obligations could have important consequences for you. For example, it could:
· make it more difficult for us to satisfy our obligations with respect to our indebtedness, including the exchange notes;
· impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;
· result in higher interest expense in the event of increases in interest rates since some of our debt is, and will continue to be, at variable rates of interest;
· impair our operating capacity and cash flows if we fail to comply with financial and restrictive covenants in our debt agreements and an event of default occurs as a result of that failure that is not cured or waived;
· require us to dedicate a substantial portion of our cash flow to payments on our indebtedness and other financial obligations, thereby reducing the availability of our cash flow to fund distributions, working capital, capital expenditures and other general partnership requirements;
· limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
· place us at a competitive disadvantage compared to our competitors that have proportionately less debt.
Despite our and our subsidiaries’ current level of indebtedness, we may still be able to incur substantially more indebtedness. This could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the exchange notes will not prohibit us or our subsidiaries from doing so if we meet applicable coverage tests. If we incur any additional indebtedness that ranks equally with the exchange notes, the holders of that indebtedness will be entitled to share ratably with the benefitsholders of the exchange notes and our existing senior unsecured indebtedness and other obligations in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of us. This may have the effect of reducing the amount of proceeds paid to you. If we add new indebtedness to our current debt levels, the related risks that we and our subsidiaries now face could intensify.
The exchange notes will be structurally subordinated to all indebtedness and other liabilities of the operating partnership and its subsidiaries.
None of our subsidiaries (including the operating partnership and its subsidiaries) will guarantee the exchange notes, other than Ferrellgas Partners Finance Corp., which is a co-issuer of the exchange notes. Therefore, the exchange notes will be structurally subordinated to all existing and future claims of creditors of the operating partnership and its subsidiaries, including:
· the lenders under the operating partnership’s indebtedness, including borrowings under the operating partnership’s secured credit facility and the operating partnership’s outstanding senior notes;
· the claims of lessors under the operating partnership’s operating leases;
· the claims of the lenders and their affiliates under the operating partnership’s accounts receivable securitization facility;
· other indebtedness, including any subordinated debt, issued by the operating partnership in the future; and
· all other possible future creditors of the operating partnership and its subsidiaries.
This subordination is due to these creditors’ priority as to the assets of the operating partnership and its subsidiaries over Ferrellgas Partners’ claims as an equity holder in the operating partnership and, thereby, indirectly, the claims of holders of Ferrellgas Partners’ indebtedness, including the exchange notes. As a result, upon any distribution to these creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to Ferrellgas Partners or its property, the operating partnership’s creditors will be entitled to be paid in full before any payment may be made with respect to Ferrellgas Partners’ indebtedness, including the exchange notes. Thereafter, the holders of Ferrellgas Partners’ indebtedness, including the exchange notes, will participate with its trade creditors and all other holders of its indebtedness in the assets remaining, if any. In any of these cases, Ferrellgas Partners may have insufficient funds to pay all of its creditors, and holders of the exchange notes may therefore receive less, ratably, than creditors of the operating partnership and its subsidiaries. As of April 30, 2017, the operating partnership had approximately $1.7 billion of outstanding long-term indebtedness and certain other liabilities to which the exchange notes will rank structurally junior.
We are a holding company and have no material operations or assets. Accordingly, we are dependent on distributions from our operating partnership to service our debt obligations. These distributions are not guaranteed and may be restricted.
We are a holding company for our subsidiaries, including our operating partnership. We have no material operations and only limited assets. Ferrellgas Partners Finance Corp., the co-issuer of the exchange notes, is our wholly-owned finance subsidiary that conducts no business and has nominal assets. Accordingly, we are dependent on cash distributions from our operating partnership and its subsidiaries to service our debt obligations. Our operating partnership is required to distribute all of its available cash each fiscal quarter, less the amount of cash reserves that our general partner determines is necessary or appropriate in its reasonable discretion to provide for the proper conduct of our business, to provide funds for distributions over the next four fiscal quarters or to comply with applicable law or with any of our debt or other agreements. This discretion may limit the amount of available cash the operating partnership may distribute to us each fiscal quarter. Noteholders will not receive payments required by the exchange notes unless our operating partnership is able to make distributions to us after it first satisfies its obligations under the terms of its own borrowing arrangements and reserves any necessary amounts to meet its own financial obligations.
In addition, the various agreements governing our operating partnership’s indebtedness and other financing transactions permit quarterly distributions only so long as each distribution does not exceed a specified amount, the operating partnership meets a specified financial ratio and no default exists or would result from such distribution. Those agreements include the indentures governing the operating partnership’s outstanding senior notes, its secured credit facility and an accounts receivable securitization facility. Each of these agreements contains various negative and affirmative covenants applicable to the operating partnership, and some of these agreements require the operating partnership to maintain specified financial ratios. If the operating partnership violates any of these covenants or requirements, a default may result and distributions would be limited. See “—Restrictive covenants in the agreements governing our indebtedness and other financial obligations may reduce our operational flexibility.”
Ferrellgas Partners and the operating partnership are required to distribute all of their available cash to their equity holders, and Ferrellgas Partners and the operating partnership are not required to accumulate cash for the purpose of meeting their future obligations to holders of their debt securities, which may limit the cash available to service those debt securities, including the exchange notes.
Subject to the limitations on restricted payments contained in the indenture that governs the exchange notes, the instruments governing the outstanding indebtedness of the operating partnership and any applicable indenture that will govern any debt securities Ferrellgas Partners or the operating partnership may issue in the future, the partnership agreements of both Ferrellgas Partners and the operating partnership require us to distribute all of our available cash each fiscal quarter to our limited partners and our general partner and do not require us to accumulate cash for the purpose of meeting obligations to holders of any debt securities of Ferrellgas Partners or the operating partnership. Available cash is generally all of our cash receipts, less cash disbursements and adjustments for net changes in reserves. As a result of these distribution requirements, we do not expect either Ferrellgas Partners or the
operating partnership to accumulate significant amounts of cash. Depending on the timing and amount of our cash distributions and because we are not required to accumulate cash for the purpose of meeting obligations to holders of any debt securities of Ferrellgas Partners or the operating partnership, such distributions could significantly reduce the cash available to us in subsequent periods to make payments on the exchange notes.
Ferrellgas Partners or the operating partnership may be unable to refinance its indebtedness or pay that indebtedness if it becomes due earlier than scheduled.
If Ferrellgas Partners or the operating partnership is unable to meet its debt service obligations or other financial obligations, it could be forced to:
· restructure or refinance its indebtedness;
· enter into other necessary financial transactions;
· seek additional equity capital; or
· sell its assets.
It may then be unable to obtain such financing or capital or sell its assets on satisfactory terms, if at all. Further, given its recent financial performance, it may be more difficult to refinance its indebtedness as it becomes due. Its failure to make payments, whether after acceleration of the due date of that indebtedness or otherwise, or its failure to refinance the indebtedness would impair its operating capacity and cash flows. See “—We may have difficulty maintaining compliance with the financial covenants, which include a maximum leverage ratio, in our secured credit facility and accounts receivable securitization facility. If weather continues to remain unseasonably warm or our debt reduction initiatives are unsuccessful, we may be forced to seek an additional waiver or amendment to the secured credit facility and accounts receivable securitization facility. If we were unsuccessful in obtaining these waivers or amendments, it could result in a default and potentially an acceleration of our existing indebtedness.”
Restrictive covenants in the agreements governing our indebtedness and other financial obligations may reduce our operating flexibility.
The indenture governing the exchange notes and the agreements governing the operating partnership’s indebtedness and other financial obligations contain, and any indenture that will govern debt securities issued by Ferrellgas Partners or the operating partnership in the future may contain, various covenants that limit our ability and the ability of specified subsidiaries of ours to, among other things:
· incur additional indebtedness;
· make distributions to our unitholders;
· purchase or redeem our outstanding equity interests or subordinated debt;
· make specified investments;
· create or incur liens;
· sell assets;
· engage in specified transactions with affiliates;
· restrict the ability of our subsidiaries to make specified payments, loans, guarantees and transfers of assets or interests in assets;
· engage in sale-leaseback transactions;
· effect a merger or consolidation with or into other companies or a sale of all or substantially all of our properties or assets; and
· engage in other lines of business.
These restrictions could limit the ability of Ferrellgas Partners, the operating partnership and our other subsidiaries:
· to obtain future financings;
· to make needed capital expenditures;
· to withstand a future downturn in our business or the economy in general; or
· to conduct operations or otherwise take advantage of business opportunities that may arise.
Some of the agreements governing our indebtedness and other financial obligations also require the maintenance of specified financial ratios and the satisfaction of other financial conditions. Our ability to meet those financial ratios and conditions can be affected by unexpected downturns in business operations beyond our control, such as significantly warmer than normal weather, a volatile energy commodity cost environment or an economic downturn. Accordingly, we may be unable to meet these ratios and conditions. This failure could impair our operating capacity and cash flows and could restrict our ability to incur debt or to make cash distributions, even if sufficient funds were available.
Our breach of any of these covenants or the operating partnership’s failure to meet any of these ratios or conditions could result in a default under the terms of the relevant indebtedness, which could cause such indebtedness or other financial obligations, and by reason of cross-default provisions, any of Ferrellgas Partners’ or the operating partnership’s other outstanding notes or future debt securities, to become immediately due and payable. If we were unable to repay those amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed against the collateral, if any. If the lenders of the operating partnership’s indebtedness or other financial obligations accelerate the repayment of borrowings or other amounts owed, we may not have sufficient assets to repay our indebtedness or other financial obligations, including the exchange notes.
We may have difficulty maintaining compliance with the financial covenants, which include a maximum leverage ratio, in our secured credit facility and accounts receivable securitization facility. If weather continues to remain unseasonably warm or our debt reduction initiatives are unsuccessful, we may be forced to seek an additional waiver or amendment to the secured credit facility and accounts receivables securitization facility. If we were unsuccessful in obtaining these waivers or amendments, it could result in a default and potentially an acceleration of our existing indebtedness.
Our secured credit facility and accounts receivable securitization facility contain financial covenants, including a maximum leverage ratio. Our ability to comply with the maximum leverage ratio will be affected by events and circumstances beyond our control, including unseasonably warm weather that reduces demand for propane and sustained low commodity prices, and our ability to execute on our debt reduction initiatives.
If we are unable to comply with any of the financial covenants, including the maximum leverage ratio, we will be required to negotiate a waiver or amendment to the covenant. There can be no assurance that we will be able to obtain a waiver or amendment of covenant breaches if needed.
Our inability to comply with any of the covenants under our secured credit facility and accounts receivable securitization facility, in the absence of a waiver or amendment, will result in a default under both facilities. A default under the facilities, if not cured or waived, could result in an event of default that would permit the acceleration of all of our indebtedness under the facilities. The accelerated debt would become immediately due and payable, which would in turn trigger cross acceleration under our other debt, including the exchange notes. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full and we may be unable to borrow sufficient funds to refinance our debt.
Additionally, when our leverage ratio exceeds specified levels, borrowings under our secured credit facility bear interest at a higher rate, and the operating partnership’s ability to make distributions to Ferrellgas Partners and to make investments is subject to additional restrictions. See “Description of Other Indebtedness—Operating Partnership’s Secured Credit Facility.”
We may have difficulty renewing or replacing our secured credit facility when it matures in October 2018.
Our secured credit facility matures in October 2018. If we are unsuccessful with our strategy to reduce debt and interest expense, we may be unsuccessful in renegotiating our secured credit facility. If we are unsuccessful in
renegotiating our secured credit facility and are unable to secure alternative liquidity sources, we may not have the liquidity to fund our operations.
Failure to renew or replace liquidity available under our secured credit facility could have a material effect on our operating capacity and cash flows and could further restrict our ability to incur debt or pay interest on our notes, including the exchange notes, which could result in an event of default that would permit the acceleration of all of our indebtedness. The accelerated debt would become immediately due and payable, which would in turn trigger cross-acceleration under other debt. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full and we may be unable to borrow sufficient funds to refinance debt.
Your right to receive payments on the exchange notes is effectively subordinated to all future secured indebtedness of Ferrellgas Partners, to the extent of the value of the assets securing such debt.
Holders of any future secured indebtedness will have claims that are prior to your claims as holders of the exchange notes to the extent of the value of the assets securing that other indebtedness. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of any secured indebtedness will have prior claim to those of our assets that constitute their collateral. Holders of exchange notes will participate ratably with all holders of our unsecured indebtedness that is deemed to be of the same Indentureclass as such notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the exchange notes. As a result, holders of exchange notes may receive less, ratably, than holders of any secured indebtedness.
The exchange notes will be non-recourse to the operating partnership, which will limit your remedies as a holder of exchange notes.
Our obligations under which the Private Notes were issued. See "Descriptionexchange notes will be non-recourse to the operating partnership. Therefore, if we should fail to pay the interest or principal on the exchange notes or breach any of our other obligations under the exchange notes and the indenture governing the exchange notes, you will not be able to obtain any such payments or obtain any other remedy from the operating partnership or its subsidiaries. The operating partnership and its subsidiaries will not be liable for any of our obligations under the exchange notes or the indenture.
We may be unable to repurchase exchange notes upon a change of control; it may be difficult to determine if a change of control has occurred.
Upon the occurrence of a “change of control,” as defined in the indenture governing the exchange notes, we or a third party will be required to make a change of control offer to repurchase the exchange notes, the original notes and any unregistered notes that remain outstanding after the exchange offer at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. We may not have the financial resources to purchase the exchange notes and such other notes in that circumstance, particularly if a change of control event triggers a similar repurchase requirement for, or results in the acceleration of, other indebtedness. Some of the agreements governing the operating partnership’s indebtedness currently provide that specified change of control events will result in the acceleration of the indebtedness under those agreements. Future debt agreements of Ferrellgas Partners or the operating partnership may also contain similar provisions. The obligation to repay any accelerated indebtedness of the operating partnership will be structurally senior to our obligations to repurchase the exchange notes upon a change of control. In addition, future debt agreements of Ferrellgas Partners or the operating partnership may contain other restrictions on our ability to repurchase the exchange notes upon a change of control. These restrictions could prevent us from satisfying our obligations to purchase the exchange notes unless we are able to refinance or obtain waivers under any indebtedness of Ferrellgas Partners or of the operating partnership containing these restrictions. Our failure to make or consummate a change of control repurchase offer or pay the change of control purchase price when due would give the trustee and the holders of the exchange notes, any unregistered notes and the original notes particular rights as described in the “Description of the Exchange Notes."Notes” section.
In addition, one of the events that constitute a change of control is a sale of all or substantially all of our assets. The Exchange Offer...... meaning of “substantially all” varies according to the facts and circumstances of the subject transaction and has no clearly established meaning under New York law, which is the law that governs the indenture for the exchange notes. This ambiguity as to when a sale of substantially all of our assets has occurred may make it difficult for holders of the exchange notes to determine whether we have properly identified, or failed to identify, a change of control.
The Issuersexchange notes will not be fungible with the original notes bearing the same terms.
Although the exchange notes will have substantially the same terms as the original notes, the exchange notes will be deemed to have been issued with OID for U.S. federal income tax purposes, which means that a holder will be required to include in their ordinary income for U.S. federal income tax purposes OID as it accrues regardless of such holder’s regular method of accounting for U.S. federal income tax purposes. See “—The exchange notes will be deemed to have been issued with ‘original issue discount’ (‘OID’).” In addition, the exchange notes will have a separate CUSIP number from that of the original notes, and therefore will not be fungible with the original notes at any time, which may adversely affect the liquidity of the exchange notes and cause the exchange notes to trade at prices that are hereby offeringdifferent from the original notes.
The following table sets forth our consolidated cash and cash equivalents and capitalization as of April 30, 2017 on a historical basis, without giving effect to the exchange $1,000offer.
This table should be read in conjunction with, and is qualified in its entirety by reference to, our historical financial statements, including the accompanying notes, which are incorporated by reference in this prospectus.
|
| As of |
| |
|
| (in thousands) |
| |
Cash and cash equivalents |
| $ | 9,506 |
|
Debt: |
|
|
| |
Ferrellgas Partners: |
|
|
| |
85/8% Senior Notes due 2020 (original notes) |
| $ | 182,000 |
|
85/8% Senior Notes due 2020 (unregistered notes)(1) |
| 175,000 |
| |
Other (2) |
| (11,384 | ) | |
Total Ferrellgas Partners Debt |
| 345,616 |
| |
Operating Partnership: |
|
|
| |
Secured Credit Facility (3) |
| 213,600 |
| |
6.50% Senior Notes due 2021 |
| 500,000 |
| |
6.75% Senior Notes due 2022 (4) |
| 475,000 |
| |
6.75% Senior Notes due 2023 |
| 500,000 |
| |
Other (5) |
| (9,031 | ) | |
Total Operating Partnership Debt |
| 1,679,569 |
| |
Total Debt |
| 2,025,185 |
| |
Total Partners’ Deficit |
| (703,486 | ) | |
Total Capitalization |
| $ | 1,321,699 |
|
(1) Reflects the principal amount of Exchange Notes for each $1,000
principal amountthe outstanding unregistered notes without discount.
(2) Consists of Private Notesdebt issuance costs and discounts.
(3) At April 30, 2017, $213.6 million in borrowings and $123.5 million in letters of credit were outstanding under the operating partnership’s secured credit facility, including $38.4 million in borrowings classified as short-term debt because it was used to fund working capital needs that are properly
tendered and accepted.management intended to pay down within the 12-month period following April 30, 2017. The Issuers will issue
Exchange Notes on or promptly after the Expiration
Date.operating partnership has total commitments of $575.0 million under its secured credit facility, with available but unused commitments of $237.9 million as of April 30, 2017. As of July 5, 2017, $250.6 million in borrowings and $138.6 million in letters of credit were outstanding under the date hereof, there is $160,000,000operating partnership’s secured credit facility, and the operating partnership had availability under our secured credit facility of approximately $185.8 million.
(4) Principal amount, excluding unamortized premium.
(5) Consists of seller-financed notes, discounts and premiums of debt issuances, debt issuance costs and fair value adjustments related to interest rate swaps, and does not include $91.0 million of notes payable in connection with our accounts receivable securitization facility.
Purpose and Effect of Exchange Offer; Registration Rights
On January 30, 2017, we issued $175,000,000 aggregate principal amount of Private Notes
outstanding. See "The Exchange Offer."
Basedthe unregistered notes in a private placement. The unregistered notes were sold to the initial purchasers who in turn resold the unregistered notes to persons believed to be qualified institutional buyers in reliance on an interpretationthe exemption from registration provided by Rule 144A under the Securities Act.
In connection with the sale of the unregistered notes, we entered into a registration rights agreement with the initial purchasers of the unregistered notes, pursuant to which we agreed to file and to use our reasonable best efforts to cause to be declared effective by the staff of the
Commission set forth in no-action letters issued to
third partiesSEC a registration statement with respect to similar transactions,
the Issuers believeexchange of the exchange notes for the unregistered notes. We are making the exchange offer to fulfill our contractual obligations under that agreement. A copy of the Exchange Notes issuedregistration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. See “Where You Can Find More Information.”
For each unregistered note tendered to us pursuant to the Exchange Offerexchange offer, we will issue to the holder of such note an exchange note having a principal amount equal to that of the unregistered note. Interest on each exchange note will accrue from the last interest payment date on which interest was paid on the unregistered note surrendered in exchange for
Private Notes maythereof.
Based on existing SEC interpretations, we believe the exchange notes will be offered for resale, resold and
otherwise transferredfreely transferable by a holder thereofholders after the exchange offer without compliance with thefurther registration and prospectus
delivery requirements of the Securities Act; provided
that (i) the holder is not an "affiliate" of the
Issuers within the meaning of Rule 405 under the Securities Act (ii)if the holder of the exchange note (i) is not our affiliate, (ii) is acquiring the Exchange Notesexchange note in itsthe ordinary course of its business, and (iii) the holder is not engagedparticipating in and does not intend to engageparticipate in a distribution of the exchange notes and (iv) has no arrangement or understanding with any person to participate in the distribution of exchange notes, as such terms are interpreted by the Exchange Notes. HoldersSEC; provided, however, that broker dealers receiving exchange notes in the exchange offer for their own account will have a prospectus delivery requirement with respect to resales of Private Notes wishing to acceptsuch exchange notes. The SEC has taken the Exchange Offer
must represent to the Issuersposition that such conditions
have been met. Any holder who tendersbroker dealers may fulfill their prospectus delivery requirements with respect to exchange notes (other than a resale of an unsold allotment from the original sale of the unregistered notes) with the prospectus contained in the Exchange
Offerexchange offer registration statement. Please note that this prospectus may not meet the requirements of the SEC for a resale prospectus for all purposes and may require additional information for resales not meeting these requirements.
A holder of unregistered notes who wishes to exchange such notes for exchange notes in the purposeexchange offer will be required to represent that (i) it is not our affiliate, (ii) any exchange notes to be received by it will be acquired in the ordinary course of its business, (iii) it is not participating in and does not intend to participate in a distribution of the Exchange Notes cannot rely on
such interpretation byexchange notes and (iv) it has no arrangement or understanding with any person to participate in the staffdistribution (within the meaning of the Commission
and must complySecurities Act) of the exchange notes.
The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of unregistered notes in any jurisdiction in which the exchange offer or the acceptance of the exchange offer would not be in compliance with the securities laws or blue sky laws of such jurisdiction.
If you are eligible to participate in this exchange offer and you do not tender your unregistered notes as described in this prospectus, you will not have any further registration rights. In that case, your unregistered notes will continue to be subject to restrictions on transfer under the Securities Act.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus deliveryand in the accompanying letter of transmittal, we will accept for exchange in the exchange offer all unregistered notes that are validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on the expiration date. Outstanding unregistered notes may be tendered only in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. As of the date of this prospectus, $175,000,000 aggregate principal amount of the unregistered notes are outstanding.
The exchange offer is not conditioned upon any minimum aggregate principal amount of unregistered notes being tendered for exchange.
The terms of the exchange notes to be issued are identical in all material respects to the unregistered notes, except that the exchange notes will have been registered under the Securities Act and, therefore, any certificates for
the exchange notes will not bear legends restricting their transfer, and the exchange notes will not have any registration rights or right to additional interest. The exchange notes will be issued under and be entitled to the benefits of the Indenture dated as of April 13, 2010, as supplemented, among us and U.S. Bank National Association, as trustee.
In connection with the issuance of the unregistered notes, we arranged for the unregistered notes to be issued and transferable in book-entry form through the facilities of DTC, acting as a depositary. The exchange notes will also be issuable and transferable in book-entry form through DTC.
There will be no fixed record date for determining the eligible holders of the unregistered notes that are entitled to participate in the exchange offer. We will be deemed to have accepted for exchange validly tendered unregistered notes when and if we have given oral, promptly confirmed in writing, or written notice of acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of unregistered notes for the purpose of receiving exchange notes from us and delivering them to such holders.
Holders of unregistered notes who tender in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of unregistered notes for exchange notes pursuant to the exchange offer. We will pay all charges and expenses, other than applicable taxes, in connection with the exchange offer. It is important that you read the section “—Fees and Expenses” below for more details regarding fees and expenses incurred in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement we entered into with the initial purchasers of the unregistered notes, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC. If we successfully complete this exchange offer, any unregistered notes that are not tendered or that we do not accept in connection withthe exchange offer will remain outstanding and will continue to be subject to restrictions on transfer. The unregistered notes will continue to accrue interest, but, in general, the holders of unregistered notes after the exchange offer will not have further rights under the registration rights agreement, and we will not have any secondary resale transactions.
Each broker-dealerfurther obligation to register the unregistered notes under the Securities Act. In that receives Exchange Notes for
its own account in exchange for Private Notes, where
such Private Notes were acquired by such broker-
dealer as a resultcase, holders wishing to transfer unregistered notes would have to rely on exemptions from the registration requirements of market-making activities or
other trading activities, must acknowledge that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. See "The Exchange
Offer--Resalethe Securities Act.
Conditions of the Exchange Notes."
Registration Rights
Agreement............... The Private Notes were sold byOffer
You must tender your unregistered notes in accordance with the Issuers on April
26, 1996 to Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co. (collectively,
the "Initial Purchasers") in a private placement
pursuant to a Purchase Agreement, dated April 23,
1996, by and among the Issuers, the Operating
Partnership, Ferrellgasrequirements of this prospectus and the Initial Purchasers
(the "Purchase Agreement"). In connection therewith,letter of transmittal to participate in the Issuers, the Operating Partnership and the
Initial Purchasers entered into a Registration Rights
Agreement (the "Registration Rights Agreement") which
grants the holdersexchange offer. Notwithstanding any other provision of the Private Notes certain
exchange offer, or any extension of the exchange offer, we will not be required to accept for exchange any unregistered notes, and registration rights. The Exchange Offer
is intendedmay amend or terminate the exchange offer if:
· the exchange offer violates applicable law or any applicable interpretation of the staff of the SEC;
· any action or proceeding shall have been instituted or threatened that might materially impair our ability to satisfy such rights, which will
terminate uponproceed with the exchange offer, or a material adverse development in any existing action or proceeding with respect to us;
· any holder of unregistered notes has not made to us the representations described under “—Procedures for Tendering” and “Plan of Distribution;” or
· all governmental approvals that we deem necessary for the consummation of the Exchange
Offer. The
11
holdersexchange offer have not been obtained.
These conditions are for our sole benefit and we may assert them regardless of the Exchange Notescircumstances that may give rise to them or waive them in whole or in part at any or at various times prior to the expiration of the exchange offer in our sole discretion. If we fail at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of such right. Each such right will be entitled todeemed an ongoing right that it may assert at any exchangetime or registration rights with respectat various time prior to the Exchange Notes. See "The Exchange Offer--expiration of the exchange offer.
Expiration Date; Extensions; Amendment; Termination of Certain Rights."
Expiration Date.........
The Exchange Offerexchange offer will expire at 5:00 p.m., New York City time, on , 1996,2017, unless, the Exchange Offer
is extended by the Issuers in theirour sole discretion, in whichwe decide to extend it. In the case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer
is extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions to the
Exchange Offer......... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived byany extension, we will notify the
Issuers. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Private
Notes being tendered for exchange. See "The Exchange
Offer-- Conditions."
Procedures for
Tendering Private
Notes.................. Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Private Notes and any other required documentation,
to American Bank National Association, as exchange agent (the "Exchange Agent"), atorally, promptly confirmed in writing, or in writing of any extension. We will also notify the address set
forth herein. Tendered Private Notes must be receivedregistered holders of unregistered notes
of the extension by the Exchange Agent by 5:means of a press release or other public announcement no later than 9:00 p.m.a.m., New York City time, on the Expiration Date. By executingbusiness day after the Letterpreviously scheduled expiration date. During any such extensions, all unregistered notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange.
If any of Transmittal, the holderconditions or events described above under “—Conditions of the Exchange Offer” occur, we reserve the right, in our sole discretion by giving written notice of such delay, extension or termination to the exchange agent before 9:00 a.m. New York City time on the first business day following the previously scheduled expiration date,
· to delay accepting for exchange any unregistered notes,
· to extend the exchange offer, or
· to terminate the exchange offer.
Subject to the terms of the registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will representbe followed promptly by notice thereof via a press release or other public announcement to holders of the unregistered notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement that will be distributed to holders of the unregistered notes. Depending upon the significance of the amendment and agreethe manner of disclosure to holders, we may extend the exchange offer. If an amendment constitutes a material change to the exchange offer, including the waiver of a material condition, we will extend the exchange offer, if necessary, to remain open for at least five business days after the date of the amendment. In the event of any increase or decrease in the consideration we are offering for the unregistered notes or in the percentage of unregistered notes being sought by us, we will extend the exchange offer to remain open for at least ten business days after the date we provide notice of such increase or decrease to the registered holders of unregistered notes.
Interest on the Exchange Notes
The exchange notes will accrue interest from the last interest payment date on which interest was paid on the unregistered notes surrendered in exchange therefor (i.e., June 15, 2017). Interest will be paid on the exchange notes semi-annually on June 15 and December 15 of each year to holders of record of the exchange notes as of the preceding June 1 and December 1, respectively, with the Issuersnext interest payment date being December 15, 2017.
Resale of Exchange Notes
Based upon existing interpretations of the staff of the SEC set forth in several no-action letters issued to third parties unrelated to us, we believe that among other things, (i)
the holder is acquiringexchange notes issued pursuant to the Exchange Notesexchange offer in itsexchange for the unregistered notes may be offered for resale, resold and otherwise transferred by their holders, without complying with the registration and prospectus delivery provisions of the Securities Act, provided that:
· you are not our “affiliate,” as defined in Rule 405 under the Securities Act;
· any exchange notes to be received by you will be acquired in the ordinary course of business, (ii) such holder isyour business;
· you are not engagedparticipating in, and doesdo not intend to engageparticipate in and has
noor have any arrangement or understanding with any person to participate in athe distribution of the Exchange Notesexchange notes;
· if you are a broker-dealer, you will receive exchange notes for your own account in exchange for unregistered notes that were acquired as a result of market-making activities or other trading activities and that you will deliver a prospectus in connection with any resale of such exchange notes; and
· you are not acting on behalf of any person or entity that could not truthfully make these representations.
If you wish to be issuedparticipate in the Exchange Offer, (iii) that if
such holder isexchange offer, you will be required to make these representations to us in the letter of transmittal.
If you are a broker-dealer registered underthat receives exchange notes in exchange for unregistered notes held for your own account, as a result of market-making or other trading activities, you must acknowledge by way of the Exchange Actletter of transmittal that you will deliver a prospectus in connection with any resale of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by any broker-dealers in connection with resales of exchange notes received in exchange for unregistered notes. We have agreed that, for a period ending on the earlier of 180 days after the date of this prospectus and the date on which a broker-dealer is no longer required to deliver a prospectus, we will make this prospectus and any amendment or supplement to this prospectus available to any such broker-dealer for use in connection with any resale. Please note that this prospectus may not meet the requirements of the SEC for a resale prospectus for all purposes and may require additional information for resales not meeting these requirements.
Any holder that is an affiliate of ours or that does not acquire exchange notes in the ordinary course of business or that tenders unregistered notes in the exchange offer for the purpose of participating in a distribution:
· may not rely on the Exchange
Offer forapplicable interpretation of the purposes of distributing the Exchange
Notes, such holder willSEC staff’s position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1988), Morgan, Stanley & Co., Inc., SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993); and
· must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transactiontransaction.
Procedures for Tendering
The term “holder” with respect to the exchange offer means any person in whose name unregistered notes are registered on our agent’s books or any other person who has obtained a properly completed bond power from the registered holder, or any person whose unregistered notes are held of record by DTC who desires to deliver such unregistered notes by book-entry transfer at DTC. Except in limited circumstances, only a DTC participant listed on a DTC securities position listing with respect to the unregistered notes may tender its unregistered notes in the exchange offer.
To tender unregistered notes in the exchange offer, you must comply with one of the Exchange Notes acquiredfollowing prior to the expiration of the exchange offer:
· complete, sign and date the letter of transmittal and any other documents required by such
person and cannot relythe letter of transmittal, have the signature(s) on the positionletter of transmittal guaranteed if required by the staffletter of transmittal, and mail or otherwise deliver the Commissionletter of transmittal and any other documents required by the letter of transmittal to the exchange agent at the address set forth below under “—Exchange Agent”; or
· complete the DTC’s ATOP procedures as described below.
In addition, either:
· the exchange agent must receive any corresponding certificate or certificates representing unregistered notes prior to the expiration date, if any;
· the exchange agent must receive a confirmation of book-entry transfer of unregistered notes into the exchange agent’s DTC account and a properly transmitted agent’s message as described below prior to the expiration date; or
· you must comply with the guaranteed delivery procedures described below.
The tender by a holder of unregistered notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in no-action letters (see
"The Exchange Offer--Resale of Exchange Notes"), (iv)
such holder understands that a secondary resale
transaction described in clause (iii) abovethis prospectus and any
resales of Exchange Notes obtained by such holder in
exchange for Private Notes acquired by such holder
directly from the Issuers should be covered by an
effective registration statement containing the
selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of
the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Issuers. If the holder is a
broker-dealer that will receive Exchange Notes for
its own account in exchange for Private Notes that
were acquired as a result of market-making activities
or other trading activities, such holder will be
required to acknowledge in the Letterletter of Transmittal
that suchtransmittal. If less than all the unregistered notes held by a holder will deliverof unregistered notes are tendered, a 12
prospectustendering holder should fill in connection with any resalethe amount of such
Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holderunregistered notes being tendered in the specified box on the letter of transmittal. The entire amount of unregistered notes delivered to the exchange agent will not be deemed to admit that ithave been tendered unless otherwise indicated.
The method of delivery of unregistered notes, the letter of transmittal and all other required documents or transmission of an agent’s message to the exchange agent is an "underwriter" withinat the meaningelection and risk of the Securities Act. See "The Exchange
Offer--Procedures for Tendering."
Shelf Registration
Statement............... Pursuantholder. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. In all cases, you should allow sufficient time to assure timely delivery to the Registration Rights Agreement,exchange agent prior to the Issuers are required to file a registration statement
for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act in
respectexpiration of the Private Notesexchange offer. You should not send letters of any holder that istransmittal or unregistered notes to us. Delivery of documents to DTC will not eligibleconstitute delivery to participate in the Exchange Offer or
does not receive freely tradeable Exchange Notes in
the Exchange Offer and requests to have its Private
Notes registered under the Securities Act. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners...... Anyexchange agent.
If you are a beneficial owner whose Private Notesof unregistered notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishesyou wish to tender such Private Notes in the
Exchange Offeryour unregistered notes, you should contact suchthe registered holder promptly and instruct suchthe registered holder to tender on such beneficial owner'syour behalf. If such
beneficial owner wishesyou wish to tender on such owner'syour own behalf, such owneryou must, prior to completing and executing the Letterletter of Transmittaltransmittal and delivering such owner's Private Notes, eitheryour unregistered notes, either:
· make appropriate arrangements to register ownership of the Private
Notesunregistered notes in such owner's nameyour name; or
· obtain a properly completed bond power from the registered holder.
The transfer of registeredrecord ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange
Offer-- Procedures for Tendering."
Guaranteed
Delivery Procedures..... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration Date
may tender their Private Notes according to the
guaranteed delivery procedures set forth under "The
Exchange Offer-- Guaranteed Delivery Procedures."
Acceptance of the
Private Notes and
Delivery of the
Exchange Notes......... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Issuers will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the earliest
practicable date following the Expiration Date. See
"The Exchange Offer--Terms of the Exchange Offer."
Withdrawal Rights....... Tenders of Private Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Withdrawal
of Tenders."
13
Certain Federal Income
Tax Considerations..... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Exchange Agent.......... American Bank National Association is serving as the
Exchange Agent in connection with the Exchange Offer.
Consequences of Failure
to Exchange............ The liquidity of the market for a holder's Private
Notes could be adversely affected upon completion of
the Exchange Offer if such holder does not
participate in the Exchange Offer. See "The Exchange
Offer--Consequences of Failure to Exchange."
14
THE EXCHANGE NOTES
The Exchange Offer applies to $160,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness and be secured by the same collateral as the Private Notes (which
they replace) and will be issued under, and be entitled to the benefits of, the
Indenture. For further information and for definitions of certain capitalized
terms used below, see "Description of Exchange Notes."
Securities.............. Offered $160 million aggregate principal amount of
9-3/8% Series B Senior Secured Notes due 2006 (the
"Exchange Notes").
Maturity Date........... June 15, 2006.
Interest Payment Dates.. The Exchange Notes will bear interest from the date
of issuance at the rate of 9-3/8% per annum, payable
semi-annually in arrears on June 15 and December 15
of each year commencing on December 15, 1996.
Security................ The Exchange Notes will be secured by a first
priority security interest in all of the Capital
Interests of the Operating Partnership held by the
Partnership. Additional Indebtedness other than
Subordinated Indebtedness incurred by the Partnership
in the future in accordance with the provisions of
the Indenture may also be secured by such Capital
Interests of the Operating Partnership. See
"Description of Exchange Notes--Security."
Subsidiary Guarantee.... On and after the Subsidiary Guarantee Effectiveness
Date, the Issuers' obligations under the Exchange
Notes and the Indenture will be guaranteed by the
Operating Partnership on a senior subordinated basis.
The Subsidiary Guarantee Effectiveness Date means the
first date upon which the Operating Partnership is
permitted pursuant to the Fixed Charge Coverage Ratio
tests contained in the Operating Partnership
Indenture (as hereinafter defined) and the Credit
Facility (as hereinafter defined) and permitted
pursuant to the terms of any other Senior Operating
Partnership Indebtedness (as hereinafter defined) to
guarantee, on a senior subordinated basis, the
Issuers' total payment obligations under all of the
then-outstanding Exchange Notes. There can be no
assurance as to whether or when the Subsidiary
Guarantee Effectiveness Date will occur. See
"Description of Exchange Notes--Subsidiary
Guarantee."
Optional Redemption..... The Exchange Notes will be redeemable at the option
of the Issuers, in whole or in part, at any time on
or after June 15, 2001, at the redemption prices set
forth herein plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemptionexpiration date.
Mandatory Redemption.... Except as set forth below under "Change of Control"
and "Asset Sales," the Issuers are not required to
make any mandatory redemption or sinking fund payment
with respect to the Exchange Notes.
15
Ranking................. The Exchange Notes will be senior secured joint and
several obligations of the Issuers and will rank
senior in right of payment to all future subordinated
Indebtedness of the Issuers and pari passu in right
of payment with other existing and future obligations
of the Issuers. The Exchange Notes will be
effectively subordinated to all existing Indebtedness
and all future senior Indebtedness and, until the
Subsidiary Guarantee Effectiveness Date, other
liabilities and commitments of the Issuers'
Subsidiaries (as hereinafter defined). As of April
30, 1996, the total Indebtedness, liabilities and
commitments (including trade payables and other
accrued liabilities) of the Partnership's
Subsidiaries were approximately $359.8 million.
Change of Control....... Upon a Change of Control, each Holder of Exchange
Notes will have the right to require the Issuers to
repurchase all or any part of such Holder's Exchange
Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of purchase. There can be no assurance that
the Issuers will have adequate funds available to
repurchase the Exchange Notes.
Asset Sales............. If the aggregate amount of Excess Proceeds (as
hereinafter defined) received by the Partnership or
any of its Subsidiaries from Asset Sales exceeds $15
million, the Issuers shall make an offer to all
Holders of Exchange Notes to purchase the Exchange
Notes with such Excess Proceeds at a purchase price
equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of purchase.
Certain Covenants....... The Indenture contains covenants restricting or
limiting the liability of the Partnership and its
Subsidiaries to, among other things, (i) pay
distributions or make other restricted payments, (ii)
incur additional indebtedness and issue preferred
stock, (iii) enter into sale and leaseback
transactions, (iv) create liens, (v) incur dividend
and other payment restrictions affecting
Subsidiaries, (vi) enter into mergers, consolidations
or sales of all or substantially all assets, (vii)
enter into transactions with affiliates or (viii)
engage in other lines of business.
Events of Default....... The following will constitute Events of Default under
the Indenture (as hereinafter defined): the failure
after 30 days to pay interest on the Exchange Notes,
the failure to pay when due principal on the Exchange
Notes, the failure after applicable grace periods to
comply with any other covenants in the Indenture, a
payment default or acceleration of all amounts owing
under any other indebtedness of the Partnership or
any of its Subsidiaries (if the principal amount of
such indebtedness, together with the principal amount
of all other indebtedness so defaulted or
accelerated, aggregates $10 million or more), the
failure by the Partnership or any of its Subsidiaries
to pay final judgments aggregating in excess of $10
million, the invalidation of the Subsidiary Guarantee
(as hereinafter defined), certain events of
bankruptcy with regard to the Partnership or its
Subsidiaries, the breach of any material
representation or warranty set
16
forth in the Pledge Agreement (as hereinafter
defined), or default in the performance of any
covenant set forth in the Pledge Agreement after
applicable grace periods.
Use of Proceeds......... There will be no cash proceeds to the Issuers from
the exchange pursuant to the Exchange Offer. The net
proceeds to the Partnership from the sale of the
Private Notes were approximately $155.4 million,
after deducting the discounts and commissions and
expenses of the Offering. The net proceeds of the
sale of the Private Notes were contributed by the
Partnership to the Operating Partnership and used to
retire indebtedness under the Operating Partnership's
Credit Facility. See "Use of Proceeds."
RISK FACTORS
Prospective investors in the Exchange Notes should consider carefully the
information set forth in "Risk Factors" and elsewhere in this Prospectus in
evaluating an investment in the Exchange Notes.
17
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
The following table presents summary unaudited pro forma combined financial
information derived from the Unaudited Pro Forma Combined Financial Statements
included elsewhere in this Prospectus. The summary unaudited pro forma combined
financial information gives effect to the Skelgas Acquisition and the Offering
(collectively, the "Transactions") as if they had occurred as of August 1,
1994, for purposes of the pro forma combined income statement data and other
financial data. The summary pro forma combined financial information gives
effect to the Skelgas Acquisition as if it had occurred as of April 30, 1996
for purposes of the pro forma combined balance sheet data.
The Unaudited Pro Forma Combined Financial Statements do not purport to
present the actual financial position or results of operations of the
Partnership had the transactions and events assumed therein in fact occurred on
the dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The Pro Forma Combined data as
of April 30, 1996 for the nine months ended April 30, 1996 and the twelve
months ended July 31, 1995 reflect certain adjustments discussed in "Unaudited
Pro Forma Combined Financial Statements". The Unaudited Pro Forma Combined
Financial Statements are based on certain assumptions and adjustments described
in the notes thereto and should be read in conjunction therewith and with "The
Skelgas and Superior Acquisitions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical Consolidated
Financial Statements of the Partnership (and Predecessor) and the historical
Consolidated Financial Statements of Skelgas and the related notes thereto
included elsewhere in this Prospectus.
PRO FORMA PRO FORMA
COMBINED COMBINED
NINE MONTHS TWELVE MONTHS
ENDED APRIL 30, ENDED JULY
1996(1) 31, 1995(2)
INCOME STATEMENT DATA:
Total revenues................................ $630,124 $668,549
Depreciation and amortization................. 31,123 38,182
Operating income ............................. 84,596 64,449
Interest expense.............................. 34,508 42,534
Net earnings ................................. 49,566 21,821
Net earnings per limited partner unit......... $ 1.58 $ 0.70
OTHER DATA:
Retail propane sales volume (in gallons)...... 644,673 670,820
Capital expenditures(3)....................... $ 40,935 $ 93,327
EBITDA(4)..................................... 115,719 102,631
Ratio of earnings to fixed charges(5)......... 2.4x 1.5x
Ratio of EBITDA to interest expense(4)........ 3.4x 2.4x
PRO FORMA
COMBINED
APRIL 30, 1996(6)
BALANCE SHEET DATA:
Working capital....................................... $ 52,857
Total assets.......................................... 657,454
Long-term debt........................................ 433,107
Partners' Capital..................................... 129,198
See Footnotes which follow Summary Historical Financial Data
18
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
The summary historical financial data presented in the table below have been
derived from the Partnership's Consolidated Financial Statements and the
related notes thereto included elsewhere in this Prospectus and should be read
in conjunction therewith. The Partnership's historical financial data for the
nine months ended April 30, 1996 and 1995 are unaudited but, in the opinion of
management, include all material adjustments (consisting only of normal
recurring entries) necessary for a fair presentation of such data in all
material respects. The Income Statement Data and Other Data for the nine months
ended April 30, 1996 and 1995 are not necessarily indicative of the results
that may be expected for a complete fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
FERRELLGAS PARTNERS, L.P.
PREDECESSOR(7)
-----------------
PRO FORMA ONE ELEVEN
NINE MONTHS ENDED YEAR YEAR MONTH MONTHS YEAR
------------------- ENDED ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31, JULY 31, JULY 31, JUNE 30, JULY 31,
1996 1995 1995 1994(7) 1994 1994 1993
INCOME STATEMENT DATA:
Total revenues........ $553,712 $506,087 $596,436 $526,556 $24,566 $501,990 $541,945
Depreciation and
amortization......... 25,839 23,855 32,014 28,835 2,383 26,452 30,840
Operating income
(loss)............... 79,510 65,245 55,927 68,631 (2,391) 71,522 58,553
Interest expense...... 26,755 23,536 31,993 28,130 2,662 53,693 60,071
Income (loss) from
continuing
operations........... 52,185 41,800 23,820 39,909 (5,026) 12,337 109
OTHER DATA:
Retail propane sales
volume (in gallons).. 557,897 493,584 575,935 564,224 23,915 540,309 553,413
Capital
expenditures(3)...... $ 38,078 $ 75,394 $ 89,791 $ 13,149 $ 2,772 $ 10,377 $ 14,275
EBITDA(4)............. 105,349 89,100 87,941 97,466 (8) 97,974 89,393
Ratio of earnings to
fixed charges(5)..... 2.8x 2.6x 1.7x 2.3x -- 1.2x 1.0x
Ratio of EBITDA to
interest expense(4).. 3.9x 3.8x 2.8x 3.5x -- 1.8x 1.5x
FOOTNOTES TO SUMMARY PRO FORMA FINANCIAL DATA AND SUMMARY HISTORICAL FINANCIAL
DATA
(1) The pro forma financial data for the nine months ended April 30, 1996 were
derived by combining the Partnership's financial data for the nine months
ended April 30, 1996 and Skelgas' financial data for the nine months ended
April 30, 1996. The pro forma combined income statement data does not
include the effects of the acquisition of Superior Propane, Inc. which was
consummated on April 19, 1996 because the acquisition was not material. See
"The Skelgas and Superior Acquisitions."
(2) The pro forma financial data for the twelve months ended July 31, 1995 were
derived by combining the Partnership's financial data for the twelve months
ended July 31, 1995 and Skelgas' financial data for the twelve months ended
July 31, 1995. Skelgas' financial data was derived from its consolidated
financial statements for the years ending December 31, 1995 and 1994. The
pro forma combined income statement data does not include the effects of
the acquisition of Superior Propane, Inc. which was consummated on April
19, 1996, because the acquisition was not material. See "The Skelgas and
Superior Acquisitions."
19
(3) The Partnership's capital expenditures fall generally into three
categories: (i) maintenance capital expenditures, which include expenditures
for repair and replacement of property, plant and equipment; (ii) growth
capital expenditures, which include expenditures for purchases of new
propane tanks and other equipment to facilitate expansion of the
Partnership's customer base and operating capacity; and (iii) acquisition
capital expenditures, which include expenditures related to the acquisition
of retail propane operations. Acquisition capital expenditures represent the
cost of acquisitions less working capital acquired. Acquisition capital
expenditures exclude amounts paid for the Skelgas Acquisition.
(4) EBITDA is calculated as operating income (loss) plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent a measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to service its debt. EBITDA is not intended as an
alternative to earnings (loss) from continuing operations or net earnings
(loss).
(5) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
on all indebtedness (including amortization of deferred debt issuance
costs) and the portion of operating lease rental expense that is
representative of the interest factor. For the one month ended July 31,
1994, earnings were inadequate to cover fixed charges by $5.0 million.
Earnings from continuing operations for the periods presented were reduced
by certain non-cash expenses, consisting principally of depreciation and
amortization. Such non-cash charges totaled $25.8 million and $23.9 million
for the nine months ended April 30, 1996 and 1995, respectively, $32.0
million for the year ended July 31, 1995, $28.8 million for the pro forma
year ended July 31, 1994, $2.4 million for the one month ended July 31,
1994, $26.5 million for the eleven months ended June 30, 1994, and $33.0
million for the year ended July 31, 1993.
(6) The pro forma financial data as of April 30, 1996 were derived by combining
the Partnership's financial data as of April 30, 1996 and Skelgas'
financial data as of April 30, 1996.
(7) The pro forma year ended July 31, 1994 includes the eleven months ended
June 30, 1994 for the Partnership's predecessor, Ferrellgas, Inc. and its
subsidiaries (the "Predecessor"), and the historical financial data of the
Partnership for the period from inception (July 5, 1994) to July 31, 1994
(adjusted principally for the pro forma effect on interest expense
resulting from the early retirement of debt net of additional borrowings).
See Selected Historical Consolidated Financial Data.
20
RISK FACTORS
In evaluating an investment in the Senior Notes, prospective investors
should carefully consider the following factors in addition to the other
information presented in the Offering Memorandum.
DISTRIBUTIONS BY THE OPERATING PARTNERSHIP TO THE PARTNERSHIP MAY BE
RESTRICTED
The ability of the Partnership to service its debt obligations will be
entirely dependent upon the receipt of distributions from the Operating
Partnership. Distributions by the Operating Partnership are subject to an
indenture (the "Operating Partnership Indenture") governing the Operating
Partnership's Notes (the "Operating Partnership Notes"), as well as the Credit
Facility. The Credit Facility and the Operating Partnership Indenture each
contains, among other restrictions, a covenant limiting restricted payments
which provides that no quarterly distributions may be made unless, among other
things, no default or event of default exists or would result therefrom, the
Operating Partnership's pro forma fixed charge coverage ratio for the
preceding four fiscal quarters is at least 2.25 to 1.0 and certain minimum
targets for capital expenditures and expenditures for permitted acquisitions
have been met. The fixed charge coverage ratio is defined as the ratio of
earnings from continuing operations before income taxes, plus interest expense
(including amortization of original issue discount) and depreciation and
amortization (excluding amortization of prepaid cash expenses) to fixed
charges. As of April 30, 1996, the Operating Partnership's fixed charge
coverage ratio as calculated according to the Credit Facility and the
Operating Partnership's Indenture was 2.94 to 1.0. See "Description of
Existing Indebtedness."
PARTNERSHIP IS REQUIRED TO DISTRIBUTE AVAILABLE CASH, LIMITING CASH RESERVES
AVAILABLE TO SERVICE THE SENIOR NOTES
Assuming that the restrictions under the Operating Partnership Indenture and
the Credit Facility are met, the Partnership, pursuant to its governing
partnership agreement, is required to distribute, on a quarterly basis, 100%
of its Available Cash to its partners. "Available Cash" is generally all of
the cash receipts of the Partnership, adjusted for cash disbursements (which
will include semi-annual interest payments on the Senior Notes) and net
changes in reserves. The timing and amount of distributions by the Partnership
could significantly reduce the cash available to the Partnership to meet its
future business needs and to pay future principal, premium (if any) and
interest, including Liquidated Damages, if any, on the Senior Notes. The
General Partner will determine the amount and timing of such distributions and
has broad discretion to establish and make additions to reserves of the
Partnership for any proper purpose, including but not limited to reserves for
the purpose of (i) complying with the terms of any agreement or obligation of
the Partnership (including the establishment of reserves to fund the payment
of interest and principal in the future), (ii) providing for level
distributions of cash notwithstanding the seasonality of the Partnership's
business, and (iii) providing for future capital expenditures and other
payments deemed by the General Partner to be necessary or advisable.
HOLDING COMPANY STRUCTURE AND ABILITY TO REPAY THE SENIOR NOTES; EFFECTIVE
SUBORDINATION TO INDEBTEDNESS AND LIABILITIES OF OPERATING PARTNERSHIP AND
SUBSIDIARIES
The Partnership is a holding company for its subsidiaries, including the
Operating Partnership, and has no material operations and only limited assets.
Accordingly, the Partnership is dependent upon the distribution of the
earnings of the Operating Partnership and its subsidiaries, to service its
debt obligations. In addition, the Senior Notes are effectively subordinated
to claims of creditors (other than the Partnership) of the Partnership's
subsidiaries and the Operating Partnership and its subsidiaries. Claims of
creditors (other than the Partnership) of such subsidiaries, including trade
creditors, secured creditors, taxing authorities and creditors holding
guarantees, will generally have priority as to assets of such subsidiaries
over the claims and equity interests of the Partnership and, thereby
indirectly, the holders of indebtedness of the Partnership, including the
Senior Notes. See "Description of the Senior Notes--General." From and after
the Subsidiary Guarantee Effectiveness Date, claims of holders of the Senior
Notes under the Subsidiary Guarantee will generally rank on an equal basis in
right of payment with claims of trade creditors and other unsecured creditors
of such subsidiaries. However, there can be no assurance as to whether or when
the Subsidiary Guarantee Effectiveness Date will occur. See "Description of
Senior Notes--Subsidiary Guarantee."
21
The Partnership must rely on distributions and other payments from the
Operating Partnership to generate the funds necessary to meet its obligations,
including the payment of principal and interest, including Liquidated Damages,
if any, on the Senior Notes. The ability of the Operating Partnership to make
such payments may be restricted by, among other things, the Credit Facility,
the Operating Partnership Indenture, applicable state partnership laws and
other laws and regulations. If the Partnership is unable to obtain the funds
necessary to pay the principal amount at maturity of the Senior Notes, to
redeem the Senior Notes or to repurchase the Senior Notes upon the occurrence
of a Change of Control, the Partnership may be required to adopt one or more
alternatives, such as a refinancing of the Senior Notes.
LEVERAGE
The Partnership is significantly leveraged and has indebtedness that is
substantial in relation to its equity. As of April 30, 1996, after giving pro
forma effect to the Offering and the Skelgas Acquisition, the Partnership
would have had an aggregate of $433.1 million of long-term indebtedness
(excluding current maturities) and $129.2 million in equity, resulting in a
long-term debt to equity ratio of 3.4 to 1.0. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Partnership's leverage could have important consequences to investors in
the Senior Notes. The Partnership's ability to make scheduled payments, to
refinance its obligations with respect to its indebtedness or its ability to
obtain additional financing in the future will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
The Partnership believes that it will have sufficient cash flow from
operations and available borrowings under the Credit Facility to service its
indebtedness, although the principal amount of the Senior Notes will likely
need to be refinanced at maturity in whole or in part. However, a significant
downturn in the propane industry or other development adversely affecting the
Partnership's cash flow could materially impair the Partnership's ability to
service its indebtedness. If the Partnership's cash flow and capital resources
are insufficient to fund its debt service obligations, the Partnership may be
forced to refinance all or a portion of its debt or sell assets. There can be
no assurance that the Partnership would be able to refinance its existing
indebtedness or sell assets on terms that are commercially reasonable.
At April 30, 1996, on a consolidated pro forma basis, the Partnership would
have had outstanding approximately $65.0 million of Indebtedness bearing
interest at floating rates. In addition, pursuant to the Credit Facility, the
Partnership would have had available an additional $163.4 million of
borrowings, all of which would have borne interest at floating rates.
Accordingly, following the Offering, the Partnership is affected by increases
in interest rates which, if material, could adversely impact the Partnership's
ability to make payments in respect of the Senior Notes. The Operating
Partnership has entered into a series of three-year interest rate collar
agreements with major banks effectively fixing the LIBOR component of $125.0
million notional principal amount of floating rate debt between 4.86% and
6.5%. These agreements expire from June 1998 through December 1998.
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Operating Partnership Indenture and the Credit Facility contain a number
of restrictive covenants which, among other things, restrict the ability of
the Operating Partnership to incur other indebtedness, make certain restricted
payments, enter into sale and leaseback transactions, incur liens and engage
in transactions with affiliates. A failure by the Operating Partnership to
comply with the restrictions contained in the Operating Partnership Indenture,
the Credit Facility or other agreements relating to the Operating
Partnership's indebtedness could result in a default thereunder, which in turn
could cause such indebtedness (and, by reason of cross-default provisions,
other indebtedness) to become immediately due and payable. There can be no
assurance that the Operating Partnership will be able to comply with such
restrictions, or that such restrictions will not adversely affect the
Operating Partnership's and, thereby, the Partnership's ability to conduct its
operations or
22
finance its capital needs or impair the Operating Partnership's and, thereby,
the Partnership's ability to pursue attractive business and investment
opportunities, if such opportunities arise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Senior Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Issuers of indebtedness such as the Senior Notes for
the purposes described herein may be subject to review under relevant federal
and state fraudulent conveyance laws if a bankruptcy case or a lawsuit
(including in circumstances where bankruptcy is not involved) is commenced by
or on behalf of unpaid creditors of the Issuers. Under these laws, if a court
were to find that, at the time the Senior Notes were issued, (a) the Issuers
either incurred indebtedness represented by the Senior Notes with the intent
of hindering, delaying or defrauding creditors or received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b) the Issuers (i) were insolvent or were rendered insolvent
by reason of such transaction, (ii) were engaged in a business or transaction
for which the assets remaining with them constituted unreasonably small
capital or (iii) intended to incur, or believed that they would incur, debts
beyond their ability to pay such debts as they matured, such court may
subordinate the Senior Notes to presently existing and future indebtedness of
the Issuers, void the issuance of the Senior Notes and direct the repayment of
any amounts paid thereunder to the Issuers or to a fund for the benefit of the
Issuers' creditors or take other action detrimental to the holders of the
Senior Notes. In such an event, the Partnership might not have sufficient
funds to satisfy its obligations to the holders of the Senior Notes because
substantially all of the Partnership's assets are held by, and substantially
all of the Partnership's revenues are derived from, the operations of the
Operating Partnership, and the Senior Notes are effectively subordinated to
all secured and unsecured Indebtedness of the Operating Partnership.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, an entity would
be considered insolvent for purposes of the foregoing if the sum of its debts,
including contingent liabilities, were greater than the fair saleable value of
all of its assets at a fair valuation, or if the present fair saleable value
of its assets were less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and matured.
The Issuers believe they will receive equivalent value at the time the
indebtedness represented by the Senior Notes is incurred. In addition, the
Issuers do not believe that they, as a result of the issuance of the Senior
Notes, (i) will be insolvent or rendered insolvent under the foregoing
standards, (ii) will be engaged in a business or transaction for which their
remaining assets constitute unreasonably small capital or (iii) intend to
incur or believe that they will incur, debts beyond their ability to pay such
debts as they mature. These beliefs are based on the Partnership's operating
history and net worth and management's analysis of internal cash flow
projections and estimated values of assets and liabilities of the Partnership
at the time of this Offering. There can be no assurance, however, that a court
passing on these issues would make the same determination.
FRAUDULENT CONVEYANCE CONSIDERATIONS--SUBSIDIARY GUARANTEE
After the Subsidiary Guarantee Effectiveness Date, the Operating Partnership
will guarantee, on a senior subordinated basis, the due and punctual payment
of principal of, premium, if any, and interest, including Liquidated Damages,
if any, on the Senior Notes and the performance of the other obligations of
the Issuers under the Senior Notes and the Indenture. The Subsidiary Guarantee
is a general unsecured obligation of the Operating Partnership and is
subordinated in right of payment to all Senior Operating Partnership
Indebtedness (as hereinafter defined), including the Operating Partnership
Senior Notes and indebtedness under the Credit Facility. The Subsidiary
Guarantee Effectiveness Date means the first date upon which the Operating
Partnership is permitted pursuant to the Fixed Charge Coverage Ratio tests
contained in the Operating Partnership Indenture (as hereinafter defined) and
the Credit Facility (as hereinafter defined) and permitted pursuant to the
terms of any other Senior Operating Partnership Indebtedness to guarantee, on
a senior subordinated basis, the Issuers'
23
total payment obligations under all of the then-outstanding Senior Notes.
However, there can be no assurance as to whether or when the Subsidiary
Guarantee Effectiveness Date will occur. See "Description of Senior Notes--
Subsidiary Guarantee."
It is possible that creditors of the Operating Partnership may challenge the
Subsidiary Guarantee as a fraudulent conveyance under relevant federal and
state statutes, and, under certain circumstances (including a finding that the
Operating Partnership was insolvent at the time its Subsidiary Guarantee was
issued), a court could hold that the obligations of the Operating Partnership
under the Subsidiary Guarantee may be voided or are subordinate to other
obligations of the Operating Partnership. In addition, it is possible that the
amount for which the Operating Partnership is liable under the Subsidiary
Guarantee may be limited. The measure of insolvency for purposes of the
foregoing may vary depending upon the law of the jurisdiction that is being
applied. Generally, however, a company would be considered insolvent if the
sum of its debts is greater than all of its property at a fair valuation or if
the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and mature. The Indenture will provide that the obligations of
the Operating Partnership under the Subsidiary Guarantee will be limited to
amounts which will not result in the Subsidiary Guarantee being a fraudulent
conveyance under applicable law. See "Description of Senior Notes--Subsidiary
Guarantee."
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
There is no existing trading market for the Exchange Notes, which are new
securities, and there can be no assurance regarding the future development of
a market for the Exchange Notes, or the ability of holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders may be
able to sell their Exchange Notes. If such a market were to develop, the
Exchange Notes could trade at prices that may be higher or lower than the
initial offering price of the Private Notes depending on many factors,
including prevailing interest rates, the Partnership's operating results and
the market for similar securities. The Initial Purchasers have advised the
Issuers that they currently intend to make a market in the Private Notes and
the Exchange Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the Private Notes or Exchange
Notes may be discontinued at any time without notice. Therefore, there can be
no assurance as to the liquidity of any trading market for the Private Notes
and the Exchange Notes or that an active public market for the Private Notes
or Exchange Notes will develop. The Private Notes are eligible for trading in
the Private Offerings, Resales and Trading through Automatic Linkages (PORTAL)
Market. The Issuers do not intend to apply for listing or quotation of the
Private Notes or the Exchange Notes on any securities exchange or stock
market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Senior Notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on holders of the Senior Notes.
WEATHER CONDITIONS AFFECT THE DEMAND FOR PROPANE
National weather conditions have a substantial impact on the demand for
propane and, therefore, the results of operations of the Partnership. In
particular, the demand for propane by residential customers is affected by
weather, with peak sales typically occurring during the winter months. Average
winter temperatures as measured by degree days across the Partnership's and
its predecessor's operating areas in fiscal 1991, 1992 and 1995 were warmer
than historical standards, thus lowering demand for propane. Average winter
temperatures as measured by degree days across the Partnership's operating
areas in fiscal 1993, 1994 and 1996 were slightly colder than historical
averages. There can be no assurance that average temperatures in future years
will be close to the historical average. Agricultural demand is also affected
by weather. Wet weather during harvest season causes an increase in propane
used for crop drying and dry weather during the growing season causes an
increase in propane used for irrigation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
24
THE RETAIL PROPANE INDUSTRY IS A MATURE ONE
The retail propane industry is a mature one, with only limited growth in
total demand for the product foreseen (the exception being in the case of
motor fuel applications, which is being driven by recent environmental
legislation, but for which the opportunity cannot be estimated). The
Partnership expects the overall demand for propane to remain relatively
constant over the next several years, with year to year industry volumes being
impacted primarily by weather patterns. Therefore, the Partnership's ability
to grow within the industry is dependent on its ability to acquire other
retail distributions, on the success of opening new district locations and on
the success of its marketing efforts to acquire new customers.
The Partnership competes with other distributors of propane, including
several major companies and several thousand small independent operators.
Generally, competition in the past few years has intensified, partly as a
result of warmer-than-normal weather and general economic conditions. The
Partnership's ability to compete effectively depends on the reliability of its
service, its responsiveness to customers and its ability to maintain
competitive retail prices.
THE PARTNERSHIP WILL BE SUBJECT TO PRICING AND INVENTORY RISK
The retail propane business is a "margin-based" business in which gross
profits are dependent upon the excess of the sales price over the propane
supply costs. Propane is a commodity, and, as such, its unit price is subject
to volatile changes in response to changes in supply or other market
conditions. The Partnership will have no control over these market conditions.
Consequently, the unit price of propane purchased by the Partnership, as well
as other marketers can change rapidly over a short period. In general, product
supply contracts permit suppliers to charge posted prices at the time of
delivery or the current prices established at major storage points such as
Mont Belvieu, Texas or Conway, Kansas. As rapid increases in the wholesale
cost of propane cannot be immediately passed on to retail customers, such
increases reduce margins on retail sales. In recent years, due to warmer-than-
normal weather and other factors, there have been occasions when the
Partnership was unable to fully pass on price increases to its customers, and
there may be future periods when the Partnership will be unable to fully pass
on such price increases. Consequently, the Partnership's profitability will be
sensitive to changes in wholesale propane prices. The Partnership may from
time to time engage in transactions to hedge product costs in an attempt to
reduce cost volatility, although to date such activities have not been
significant. See "--The Retail Propane Industry is a Mature One."
An important element of the Partnership's high retention of retail customers
has been its ability to deliver propane during periods of extreme demand. To
help insure this capability, the Partnership intends to continue engaging in
the brokerage and trading of propane and other natural gas liquids. If the
Partnership sustains material losses from its trading activities, payments in
respect of the Senior Notes and the other indebtedness of the Partnership
could be jeopardized. The Partnership has sought to minimize its trading risks
through the enforcement of trading policies, which include total inventory
limits and loss limits. The Partnership intends to continue these policies.
Personnel responsible for trading activities have an average of over 10 years
of trading experience with the General Partner. See "Business--Other
Operations." In addition, depending on inventory and price outlooks, the
Partnership may purchase and store propane or other natural gas liquids. This
activity may subject the Partnership to losses if the prices of propane or
such other natural gas liquids decline prior to their sale by the Partnership.
The Partnership may be unable to pass rapid increases in the wholesale cost of
propane on to its retail customers, reducing margins on retail sales. In the
long term, however, margins generally have not been materially impacted by
rapid increases in the wholesale cost of propane, as the Partnership has
generally been able to eventually pass on increases to its retail customers.
There can be no assurance as to whether the Partnership will be able to pass
on such costs in the future.
THE RETAIL PROPANE BUSINESS EXPERIENCES COMPETITION FROM OTHER ENERGY SOURCES
AND WITHIN THE INDUSTRY.
The Partnership competes for customers against suppliers of natural gas,
electricity and fuel oil. Because of the significant cost advantage of natural
gas over propane, propane is generally not competitive with natural gas
25
in these areas where natural gas is readily available. The expansion of the
nation's natural gas distribution systems has resulted in the availability of
natural gas in many areas that previously depended upon propane. Propane is
generally less expensive to use than electricity for space heating, water
heating and electricity on an equivalent BTU basis. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel
oil have generally developed their own distinct geographic markets. In
addition, given the cost of conversion from fuel oil to propane, potential
customers of propane generally will only switch from fuel oil if there is a
significant price advantage with propane.
Long-standing customer relationships are also typical to the retail propane
industry. Retail propane customers generally lease their storage tanks from
their suppliers. The lease terms and, in most states, certain fire safety
regulations, restrict the refilling of a leased tank solely to the propane
supplier that owns the tank. The cost and inconvenience of switching tanks
minimizes a customer's tendency to switch among suppliers of propane on the
basis of minor variations in price. As a result, the Partnership may
experience difficulty in acquiring new retail customers in areas where there
are existing relationships between potential customers and other propane
distributors.
PARTNERSHIP OPERATIONS ARE SUBJECT TO OPERATING RISKS
The Partnership's operations will be subject to all operating hazards and
risks normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, the Partnership is a defendant in various legal proceedings and
litigation arising in the ordinary course of business. The Partnership
maintains insurance policies with insurers in such amounts and with such
coverages and deductibles as the General Partner believes are reasonable and
prudent. However, there can be no assurance that such insurance will be
adequate to protect the Partnership from all material expenses related to
potential future claims for personal injury and property damage or that such
levels of insurance will be available in the future at economical prices.
After taking into account the pending and threatened matters against the
Partnership and the insurance coverage and reserves to be maintained by the
Partnership, the General Partner is of the opinion that there are no known
contingent claims or uninsured claims that are likely to have a material
adverse effect on the results of operations or financial condition of the
Partnership. See "Business--Litigation." The General Partner will neither
guarantee nor indemnify the Partnership against any claims, whether known or
unknown, or contingent liabilities. The occurrence of an event not fully
covered by insurance, or the occurrence of a large number of claims that are
self-insured, may have a material adverse effect on the results of operations
or financial position of the Partnership.
THE PARTNERSHIP MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS
The Partnership has historically expanded its business through acquisitions.
The Partnership intends to consider and evaluate opportunities for growth
through acquisitions in its industry. There can be no assurance that the
Partnership will find attractive acquisition candidates in the future, or that
the Partnership will be able to acquire such candidates on economically
acceptable terms.
THE GENERAL PARTNER MANAGES AND OPERATES THE PARTNERSHIP
The General Partner manages and operates the Partnership. The control
exercised by the General Partner, which is a wholly owned subsidiary of
Ferrell, may make it more difficult for others to gain control or influence
the activities of the Partnership.
THE GENERAL PARTNER AND ITS AFFILIATES MAY HAVE CONFLICTS WITH THE PARTNERSHIP
Conflicts of interest could arise between the Partnership, on the one hand,
and the General Partner and its affiliates, on the other hand. The directors
and officers of the General Partner have fiduciary duties to manage the
General Partner in a manner beneficial to the shareholders of the General
Partner. At the same time, the General Partner has fiduciary duties to manage
the Partnership in a manner beneficial to the Partnership. The
26
duties of the General Partner to the Partnership therefore may conflict with
the duties of its directors and officers to its shareholders. Such conflicts
of interest might arise in the following situations, among others: (i) the
Partnership will rely solely on employees of the General Partner and its
affiliates, (ii) the Partnership will reimburse the General Partner and its
affiliates for costs incurred in the Partnership's operations, (iii) the
General Partner intends to limit, whenever possible, its liability under
contractual arrangements of the Partnership, (iv) the contractual arrangements
between the Partnership, on the one hand, and the General Partner and its
affiliates, on the other hand, may not be the result of arms-length
negotiations (although the Indenture requires that transactions between the
Partnership and its affiliates must be fair and reasonable to the Partnership
and on terms at least as favorable to the Partnership as those which could
have been obtained on an arm's-length basis), and (v) the Partnership
Agreement (as hereinafter defined) does not restrict the General Partner and
its affiliates from engaging in activities that may be in competition with the
Partnership, except that the General Partner and its affiliates may not engage
in the retail sale of propane to end users in the continental Unites States.
The Audit Committee (as hereinafter defined) of the Partnership will be able,
at the General Partner's discretion or as required by the terms of the Senior
Notes, to review matters involving potential conflicts of interest. See
"Management--Partnership Management."
ENERGY EFFICIENCY AND TECHNOLOGY TRENDS MAY AFFECT DEMAND FOR PROPANE
Retail customers primarily use propane as a heating fuel. The national trend
toward increased conservation and technological advances, including
installation of improved insulation and the development of more efficient
furnaces and other heating devices, has slowed the growth of demand for
propane by retail gas customers. The General Partner is not able to predict
the effect that future conservation measures or technological advances in
heating, conservation or other devices might have on the Partnership's
operations.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Issuers are under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted by the Issuers for exchange will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof under the Securities Act. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or any other trading activities, must
acknowledge in the Letter of Transmittal that accompanies this Prospectus that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Private Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Private Notes could be adversely affected due to the limited amount, or
"float," of the Private Notes that are expected to remain outstanding
following the Exchange Offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result
in lower prices for such security. For the same reason, to the extent that a
large amount of Private Notes are not tendered or are tendered and not
accepted in the Exchange Offer, the trading market for the Exchange Notes
could be adversely affected. See "Plan of Distribution" and "The Exchange
Offer."
27
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Issuers on April 26, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently resold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) a limited number of
institutional "accredited investors" ("Accredited Institutions"), as defined
in Rule 501(a)(1),(2), (3) or (7) under the Securities Act. As a condition to
the sale of the Private Notes pursuant to the Purchase Agreement, the Issuers,
the Operating Partnership and the Initial Purchasers entered into the
Registration Rights Agreement pursuant to which the Issuers and the Operating
Partnership agreed that, unless the Exchange Offer is not permitted by
applicable law or Commission policy, they would (i) file with the Commission a
Registration Statement under the Securities Act with respect to the Exchange
Notes within 60 days after the Closing Date, (ii) use their best efforts to
cause such Registration Statement to become effective under the Securities Act
on or prior to November 30, 1996 and (iii) use their best efforts to
consummate the Exchange Offer within 30 business days after such Registration
Statement is declared effective. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Registration Statement is intended to satisfy
certain obligations of the Issuers and the Operating Partnership under the
Registration Rights Agreement and the Purchase Agreement. The term "holder"
with respect to the Exchange Offer means any person in whose name the Private
Notes are registered on the books of the Issuers or any other person who has
obtained a properly completed bond power from the registered holder.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Issuers believe that a holder who exchanges Private Notes for
Exchange Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement with any
person to participate, in a distribution of the Exchange Notes, will be
allowed to resell Exchange Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the
Exchange Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain no-
action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Issuers
have agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any
resale for a period of 180 days from the date on which the Registration
Statement of which this Prospectus is a part is declared effective by the
Commission. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept for exchange any and
all Private Notes validly tendered and not withdrawn prior to
28
5:00 p.m., New York City time, on the Expiration Date. The Issuers will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Private Notes surrendered pursuant to the
Exchange Offer. Private Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness and be secured by the same collateral as the Private Notes (which
they replace) and will be issued under, and be entitled to the benefits of,
the Indenture, which also authorized the issuance of the Private Notes, such
that both series of Senior Notes will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $160,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Private Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Issuers.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1996, unless the Issuers, in their sole discretion, extend the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. The Issuers also
reserve the right to amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders. If the Exchange Offer is amended in a manner determined by the
Issuers to constitute a material change, the Issuers will promptly disclose
such amendment by
29
means of a prospectus supplement that will be distributed to the registered
holders, and the Issuers will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Issuers may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9 3/8% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
each June 15 and December 15, commencing December 15, 1996. Holders of
Exchange Notes will receive interest on December 15, 1996 from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Private Notes from the date of initial delivery to the date of
exchange thereof for Exchange Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Private Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Private Notes, if such procedure is available, into the
Exchange Agent's account at the Depositary pursuant to the procedure for book-
entry transfer described below, must be received by the Exchange Agent prior
to the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures described below. See "--Guaranteed Delivery Procedures."
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
30
Signatures on a Letterletter of Transmittaltransmittal or a notice of withdrawal as described below (see "--Withdrawalin “—Withdrawal of Tenders"),Tenders” below, as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc.,Financial Industry Regulatory Authority, a commercial bank or trust company having an office or correspondent in the United States or an "eligible“eligible guarantor institution"institution” within the meaning of Rule 17Ad-15 under the Exchange Act, which isunless the unregistered notes tendered pursuant thereto are tendered:
· by a member of oneregistered holder of the recognized signature guarantee programs
identified inunregistered notes who has not completed the Letterbox entitled “Special Registration Instructions” or “Special Delivery Instructions” on the letter of Transmittal (an "Eligible Institution").
transmittal; or
· for the account of an “eligible guarantor institution.”
If the Letterletter of Transmittaltransmittal is signed by a person other than the registered holder of any Private Notesunregistered notes listed therein, such Private Notesthe unregistered notes must be endorsed or accompanied by a properly completedappropriate bond power, signed by suchpowers which authorize the person to tender the unregistered notes on behalf of the registered holder, in either case signed as suchthe name of the registered holder's nameholder or holders appears on such Private
Notes.the unregistered notes. If the Letterletter of Transmittaltransmittal or any Private Notesunregistered notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the
Issuers,us, evidence satisfactory to the Issuersus of their authority to so act must be submitted with the Letterletter of Transmittal.
transmittal.
The Exchange Agentexchange agent and the DepositaryDTC have confirmed that any financial institution that is a participant in the Depositary'sDTC’s system may utilize the
Depositary's Automated Tender Offer Programuse DTC’s ATOP to tender Private Notes.
Allunregistered notes. DTC participants may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, electronically transmit their acceptance of the exchange offer by causing DTC to transfer the unregistered notes to the exchange agent. DTC will then send an agent’s message to the exchange agent.
An “agent’s message” is a message, transmitted by DTC and received by the exchange agent and forming a part of the book-entry confirmation, stating that (i) DTC has received instructions from the participant to tender the unregistered notes that are the subject of the book-entry confirmation, (ii) the participant has received and agrees to be bound by the letter of transmittal, or, in the case of an agent’s message relating to guaranteed delivery, that such participant has received and agrees to be bound by the notice of guaranteed delivery and (iii) we may enforce such agreement against the participant.
We will determine in our sole discretion all the questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered Private Notes will be
determined by the Issuers in their sole discretion, which determinationunregistered notes. Our determinations will be final and binding. The IssuersWe reserve the absolute right to reject any and all Private Notesunregistered notes not properlyvalidly tendered or any Private Notes the Issuers'unregistered notes our acceptance of which would, in the opinion of our counsel, for the Issuers, be unlawful. The IssuersWe also reserve the absolute right to waive any defects irregularities or conditionsirregularities of tender as to particular Private Notes. The
Issuers'unregistered notes. Our interpretation of the terms and conditions of the Exchange Offer
(includingexchange offer, including the instructions in the Letterletter of Transmittal)transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notesunregistered notes must be cured within such time as we will determine. Neither we, the Issuersexchange agent nor any other person shall determine. Although the Issuers intendbe under any duty to notify holdersgive notification of defects or irregularities with respect to tenders of Private Notes, neither
the Issuers, the Exchange Agentunregistered notes nor shall any other person shallof
them incur any liability for failure to give such notification. Tenders of Private Notesunregistered notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Private Notesunregistered notes received by the Exchange Agentexchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the Exchange Agentexchange agent to the tendering holders,holder of such unregistered notes unless otherwise provided in the Letterletter of Transmittal, as soon as
practicabletransmittal, promptly following the Expiration Date.
Whileexpiration or termination of the Issuers have no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Issuersexchange offer.
In addition, we reserve the right in theirour sole discretiondiscretion:
· to purchase or make offers for any Private Notesunregistered notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offerexpiration date; and
· to the extent permitted by applicable law, purchase Private Notesunregistered notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers couldmay differ from the terms of the Exchange Offer.
By tendering, each holderexchange offer.
Acceptance and Delivery
Upon satisfaction or waiver of Private Notes will representall of the conditions to the Issuers
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection withexchange offer, we will accept, promptly after the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distributionexpiration of the Exchange Notes, (iii) such holder acknowledgesexchange offer, all unregistered notes that have been validly tendered and agrees
that any person who is a broker-dealer registered undernot validly withdrawn. We will issue the Exchange Act or is
participating inexchange notes promptly after the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirementsexpiration of the Securities Act in connection with a secondary resale
31
transactionexchange offer and the acceptance of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Issuers should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule 405 under the Securities Act,
of the Issuers. If the holder is a broker-dealer thatunregistered notes. We will receive Exchange
Notes for such holder's own account in exchange for Private Notes that were
acquired as a result of market-making activities or other trading activities,
such holder will be required to acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" withinhave accepted for exchange validly tendered unregistered notes when and if we have given oral, promptly confirmed in writing, or written notice of acceptance to the meaning of the Securities Act.
exchange agent.
In all cases, issuance of Exchange Noteswe will issue exchange notes for Private Notesunregistered notes that arewe have accepted for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of Private Notes or a timely Book-Entry
Confirmation of such Private Notes into the Exchange Agent's account at the
Depositary, a properly completed and duly executed Letter of Transmittal and
all other required documents.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Private Notes desires to tender such Private Notes
and the Private Notes are not immediately available, or time will not permit
such holder's Private Notes or other required documents to reach the Exchange
Agent before the Expiration Date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if:
(a) The tender is made through an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agentagent receives, from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery substantially in the form
provided by the Issuers (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Private Notes, the
certificate number(s) of such Private Notes and the principal amount of
Private Notes tendered, stating that the tender is being made thereby and
32
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or a facsimile thereof),
together with the certificate(s) representing the Private Notes in proper
form for transfer or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.expiration date:
· a properly completed, signed and dated letter of transmittal and any other documents required by the letter of transmittal or a properly transmitted agent’s message; and
· certificates for the original unregistered notes or a confirmation of book-entry transfer of such unregistered notes into the exchange agent’s account at DTC.
Book-Entry Delivery Procedures
Promptly after the date of this prospectus, the exchange agent will establish an account for the unregistered notes at DTC for purposes of facilitating the exchange offer. Any financial institution that is a participant in DTC’s system may make book-entry delivery of the unregistered notes by causing DTC to transfer those unregistered notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for such transfer. To be timely, book-entry delivery of outstanding notes requires receipt of a confirmation of a book-entry transfer prior to the expiration of the exchange offer. In addition, although delivery of outstanding notes may be effected through book-entry transfer into the exchange agent’s account at DTC, the letter of transmittal, together with any required signature guarantees and any other required documents, or an agent’s message in connection with a book-entry transfer, must, in any case, be delivered or transmitted to and received by the exchange agent prior to the expiration of the exchange offer to receive exchange notes for tendered unregistered notes, or the guaranteed delivery procedure described below must be complied with. Tender will not be deemed made until such documents are received by the exchange agent. Delivery of documents to DTC does not constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
Holders who wish to tender their unregistered notes and:
· who cannot deliver their unregistered notes, the letter of transmittal, or any other required documents to the exchange agent prior to the expiration of the exchange offer; or
· who cannot comply with DTC’s ATOP procedures before the expiration of the exchange offer,
may tender their unregistered notes if:
· the tender is made through an eligible institution;
· before the expiration of the exchange offer, the exchange agent receives from the eligible institution either a properly completed and duly executed notice of guaranteed delivery in the form accompanying this prospectus, by facsimile transmission, mail or hand delivery, or a properly transmitted agent’s message in lieu of notice of guaranteed delivery:
· setting forth the name and address of the holder and the registered number(s), the certificate number or numbers of the unregistered notes tendered and the principal amount of unregistered notes tendered;
· stating that the tender offer is being made by guaranteed delivery;
· guaranteeing that, within three business days after expiration of the exchange offer, the letter of transmittal, or facsimile of the letter of transmittal, together with the unregistered notes tendered or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and
· the exchange agent receives the properly completed and executed letter of transmittal as well as all tendered unregistered notes in proper form for transfer or a book-entry confirmation of the transfer of the unregistered notes into the exchange agent’s DTC account, and all other documents required by the letter of transmittal, within three business days after expiration of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their unregistered notes according to the guaranteed delivery procedures set forth above.
Withdrawal of tenders
Except as otherwise provided herein, tenders of unregistered notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on , 2017, the expiration date of the exchange offer, unless we decide to extend the exchange offer in our sole discretion.
For a withdrawal to be effective:
· the exchange agent must receive a written notice, which may be by facsimile transmission or letter, of withdrawal at the address set forth below under “—Exchange Agent”; or
· holders must comply with the appropriate ATOP procedures.
Any notice of withdrawal must (i)must:
· specify the name of the person having depositedwho tendered the Private Notesunregistered notes to be withdrawn;
· identify the unregistered notes to be withdrawn, (the
"Depositor"), (ii) identify the Private Notes to be withdrawn (includingincluding the certificate number or numbers and principal amount of such Private Notes or,
in the case of Private Notes transferred by book-entry transfer, the name and
number of the account at the Depositoryunregistered notes to be credited), (iii)withdrawn;
· be signed by the holderperson who tendered the unregistered notes in the same manner as the original signature on the Letterletter of Transmittal by which such Private Notes were tendered (includingtransmittal, including any required signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee register the transfer of such Private Notes into the name of
the person withdrawing the transfer,guarantees; and (iv)
· specify the name in which any
such Private Notesthe unregistered notes are to be registered,re-registered, if different from that of the withdrawing holder.
If certificates for unregistered notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, you must also submit:
· the serial numbers of the particular certificates to be withdrawn; and
· a signed notice of withdrawal with signatures guaranteed by an eligible institution unless you are an eligible guarantor institution.
If unregistered notes were tendered pursuant to the DTC’s book-entry procedures, any notice of withdrawal must:
· specify the name and number of the Depositor. Allaccount at DTC from which the unregistered notes were tendered;
· specify the name and number of the account at DTC to be credited with the withdrawn unregistered notes; and
· otherwise comply with the ATOP procedures.
We will determine all questions as to the validity, form and eligibility (including time of receipt) offor such withdrawal notices, will be determined by the Issuers in their
sole discretion, whoseand our determination shall be final and binding on all parties.
Any Private Notesunregistered notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offerexchange offer, and no Exchange Notesexchange notes will be issued with respect thereto unless the Private Notesunregistered notes so withdrawn are validly retendered.re-tendered. Any unregistered notes that have been tendered but that are not accepted for exchange will be returned to the holder without cost to such holder promptly after withdrawal. Properly withdrawn Private Notesunregistered notes may be retenderedre-tendered by following one of the procedures described above under "The Exchange Offer--
“—Procedures for Tendering"Tendering” at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other termexpiration of the Exchange Offer, and subjectexchange offer.
Consequences of Failure to their
obligationsExchange
If you do not tender your unregistered notes to be exchanged in this exchange offer, they will remain “restricted securities” within the meaning of Rule 144(a)(3) of the Securities Act. Accordingly, they may be resold only if:
· registered pursuant to the Registration Rights Agreement,Securities Act;
· an exemption from registration is available; or
· neither registration nor an exemption is required by law; and
they shall continue to bear a legend restricting transfer in the Issuers shall
notabsence of registration or an exemption therefrom.
As a result of the restrictions on transfer and the availability of the exchange notes, the unregistered notes are likely to be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Private Notes, and may terminate the Exchange Offer as provided
hereinmuch less liquid than before the acceptance of such Private Notes, if the Exchange Offer
violates applicable law, rules or regulations or an applicable interpretation
of the staff of the Commission.
If the Issuers determine in their sole discretion that any of these
conditions are not satisfied, the Issuers may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Issuers
will extend the Exchange Offer for a period of five to ten business
33
days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
The Exchange Offer is not conditioned on any minimum principal amount of
Private Notes being tendered for exchange.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Issuer's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Private Notes by broker-dealers for a period of
up to 180 days from the Expiration Date and (iv) to provide copies of the
latest version of the Prospectus to broker-dealers upon their request for a
period of up to 180 days after the Expiration Date.
LIQUIDATED DAMAGES
In the event of a Registration Default (as defined in the Registration
Rights Agreement), the Issuers are required to pay Liquidated Damages (as
defined in the Registration Rights Agreement) to each holder of Transfer
Restricted Securities (as defined below), during the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to 0.50% per annum per $1,000 principal amount of Private Notes
constituting Transfer Restricted Securities held by such holder. Such
Liquidated Damages will increase by an additional 0.50% per annum at the
beginning of each subsequent 90-day period during which the Registration
Default continues. Transfer Restricted Securities shall mean each Private Note
until (i) the date on which such Private Note has been exchanged for an
Exchange Note in the Exchange Offer, (ii) the date on which such Private Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement (as defined in the
Registration Rights Agreement) or (iii) the date on which such Private Note is
distributed to the public pursuant to Rule 144(k) under the Securities Act.
The amount of the Liquidated Damages will increase by an additional 0.50% per
annum per $1,000 principal amount of Private Notes constituting Transfer
Restricted Securities for each subsequent 90-day period until all Registration
Defaults have been cured, up to maximum Liquidated Damages of 1.0% per annum
per $1,000 principal amount of Private Notes constituting Transfer Restricted
Securities.exchange offer. Following the cure of all Registration Defaults, the payment of
Liquidated Damages will cease. The filing and effectiveness of the
Registration Statement of which this Prospectus is a part and the consummation of the Exchange Offer will eliminate all rights of theexchange offer, in general, holders of Private
Notes eligible to participate inunregistered notes will have no further registration rights under the registration rights agreement.
Exchange Offer to receive damages that
would have been payable if such actions had not occurred.
34
EXCHANGE AGENT
AmericanAgent
U.S. Bank National Association has been appointed as Exchange Agentthe exchange agent for the exchange of the Exchange Offer.unregistered notes. Questions and requests for assistance requests for
additional copies of this Prospectus orrelating to the exchange of the Letter of Transmittal and
requests for Notice of Guaranteed Deliveryunregistered notes should be directed to the Exchange
Agentexchange agent addressed as follows:
By Registered or Certified Mail, By Overnight Delivery,
or By Hand Delivery:
American
U.S. Bank National Association
101 East 5th Street, 9th Floor
Corporate Trust Services
111 Fillmore Avenue
St. Paul, Minnesota 55101
Attn: Corporate Trust Department
By Facsimile: Confirm by Telephone:
612-229-6415 612-229-6415
The Exchange Agent also acts as trustee under55107
Telephone number: (800) 934-6802
Facsimile number (for Eligible Institutions only): (651) 466-7367
Fees and Expenses
We will bear the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne bypursuant to the Issuers.exchange offer. The principal solicitation for tenders pursuant to the exchange offer is being made by mail; however, additional solicitationelectronic transmission.
Additional solicitations may be made by telegraph, telephone or in person byour officers and regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-managerour affiliates in connection with the
Exchange Offer andperson, by telecopy, mail or telephone.
We will not make any payments to brokers, dealers or othersother persons soliciting acceptances of the Exchange Offer. The Issuers,exchange offer. We, however, will pay the Exchange Agentexchange agent reasonable and customary fees for its services and will reimburse itthe exchange agent for its related reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal feesfees. We may also pay brokerage houses and printing costs,
among others.
The Issuersother custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the unregistered notes and in handling or forwarding tenders for exchange.
We will pay all transfer taxes, if any, applicable to the exchange of Private Notesunregistered notes pursuant to the Exchange Offer. If,exchange offer. The tendering holder, however, will be required to pay any transfer taxes whether imposed on the registered holder or any other person, if:
· exchange notes or unregistered notes for principal amounts not tendered or accepted for exchange are to be registered in the name of any person other than the registered holder of unregistered notes tendered;
· tendered unregistered notes are registered in the name of any person other than the person signing the letter of transmittal; or
· a transfer tax is imposed for any reason other than the exchange of unregistered notes under the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. exchange offer.
If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letterletter of Transmittal,transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation
Accounting Treatment
We will record the exchange notes in our accounting records at the Exchange Offersame carrying value as the unregistered notes, which is voluntary. Holdersthe aggregate principal amount, net of unamortized discount, as reflected in our accounting records on the date of the Private
Notesexchange, as the terms of the exchange notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuantsubstantially identical to the Exchange Offer will remain "restricted securities" (within the meaningterms of the Securities Act).unregistered notes. Accordingly, such Private Notes may be resold only (i) to
a person whom the seller reasonably believes is a QIB in a transaction meeting
the requirements of Rule 144A, (ii) in a transaction meeting the requirements
of Rule 144 under the Securities Act, (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, (iv) in accordance with another exemption from the
registration requirements of the Securities
35
Act (and based upon an opinion of counsel if the Issuers so request), (v) to
the Issuers or (vi) pursuant to an effective registration statement and, in
each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
The Issuerswe will not recognize any gain or loss for accounting purposes as a
resultupon the consummation of the Exchange Offer.exchange offer. We will capitalize the expenses relating to the exchange offer.
Other
Participating in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered unregistered notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any unregistered notes that are not tendered in the exchange offer.
DESCRIPTION OF OTHER INDEBTEDNESS
Operating Partnership’s Secured Credit Facility
Our operating partnership has a $575 million secured credit facility, with a $200 million letter of credit sub-facility. The expensessecured credit facility matures in October 2018. The obligations under this credit facility are secured by substantially all assets of the Exchange Offeroperating partnership, the general partner and certain subsidiaries of the operating partnership but specifically excluding (a) assets that are subject to the operating partnership’s accounts receivable securitization facility, (b) the general partner’s equity interest in Ferrellgas Partners and (c) equity interests in certain unrestricted subsidiaries. The obligations under the secured credit facility are guaranteed by our general partner and all of our subsidiaries, other than certain special purpose subsidiaries formed for use in connection with accounts receivables securitizations and certain immaterial subsidiaries. Borrowings under our secured credit facility will be amortized overstructurally senior to the termexchange notes.
As of April 30, 2017, we had total borrowings outstanding under our secured credit facility of $213.6 million, of which $175.2 million was classified as long-term debt. Additionally, the Exchange Notes.
36
USE OF PROCEEDS
The Exchange offer is intended to satisfy certain obligationsoperating partnership had $237.9 million of the Issuers
and the Operating Partnershipavailable borrowing capacity under the Registration Rights Agreement. The
Issuers will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated by this Prospectus, the Issuers will receive in exchange Private
Notes in like principal amount, the terms of which are substantially identical
to the terms of the Exchange Notes. The Private Notes surrendered in exchange
for Exchange Notes will be returned and cancelled and cannot be reissued.
Accordingly, the issuance of the Exchange Notes will not result in any
increase or decrease in the indebtedness of either of the Issuers.
The net proceeds from the sale of the Private Notes were approximately
$155.4 million (after deducting discounts and commissions to the Initial
Purchasers and estimated offering expenses). The net proceeds were contributed
to the Operating Partnership and used to retire indebtedness under the
Operating Partnership's Credit Facility. For a description of the Credit
Facility, see "Description of Existing Indebtedness--Credit Facility."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Partnership at April 30, 1996 and the pro forma capitalization of the
Partnership at such date after giving effect to the completion of the Skelgas
Acquisition. The table should be read in conjunction with the historical and
pro forma consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
APRIL 30, 1996
-------------------
PRO
HISTORICAL FORMA
(IN THOUSANDS)
Short-term debt, including current portion of long-term
debt(1).................................................. $ 1,386 $ 1,786
======== ========
Long-term debt:
9 3/8% Senior Secured Notes due 2006.................... $160,000 $160,000
10% Fixed Rate Senior Notes of Operating Partnership,
due 2001............................................... 200,000 200,000
Floating Rate Senior Notes of Operating Partnership,
interest at
Applicable LIBOR Rate plus 3.125%, due 2001............ 50,000 50,000
Credit Facility of Operating Partnership:
Revolving credit loans due 1997....................... -- --
Term loans due 1997................................... 15,000 15,000
Noncompete agreements................................... 5,271 6,071
Other notes payable..................................... 2,036 2,036
-------- --------
Total long-term debt................................ 432,307 433,107
Partners' capital:
Limited partners........................................ 185,853 186,778
General partner......................................... (57,580) (57,580)
-------- --------
Total partners' capital............................. 128,273 129,198
-------- --------
Total capitalization................................ $560,580 $562,305
======== ========
- --------
(1) Short-term debt on an historical basissecured credit facility as of April 30, 1996 includes
$1,386,000 of current maturities of long-term debt which is included in
other current liabilities in the Partnership's Consolidated Balance Sheet
as of2017.
Borrowings outstanding at April 30, 1996. Short-term debt on a pro forma basis as of April 30,
1996 includes the pro forma effects of $400,000 representing the current
portion of the amounts to be paid pursuant to the noncompete agreement
with the Seller.
37
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following sets forth the Partnership's Unaudited Pro Forma Combined
Statement of Earnings and Other Data by giving effect to the issuance of the
$160,000,000 of 9-3/8% Senior Secured Notes due 2006 (the "Senior Notes") and
the Skelgas Propane, Inc. Acquisition (the "Skelgas Acquisition" or "Skelgas")
transactions described in Note 1 of the Notes to the Unaudited Pro Forma
Combined Financial Statements as if such transactions had been consummated at
August 1, 1994. Additionally, the Partnership's Unaudited Pro Forma Combined
Balance Sheet gives effect to the Skelgas Acquisition described in Note 1 of
the Notes to the Unaudited Pro Forma Combined Financial Statements as if such
transaction had been consummated on April 30, 1996. The Unaudited Pro Forma
Combined Financial Statements of the Partnership do not purport to present the
financial position or results of operations of the Partnership had the
transactions assumed herein occurred on the dates indicated, nor are they
necessarily indicative of the results of operations which may be expected to
occur in the future.
The Partnership's operating data for the twelve-month period ended July 31,
1995, was derived from the Partnership's Statement of Earnings for the twelve
months ended July 31, 1995. The Partnership's operating data for the nine-
month period ended April 30, 1996 was derived from the Partnership's unaudited
Statement of Earnings for the nine months ended April 30, 1996. Skelgas'
operating data for the twelve-month period ended July 31, 1995 was derived
from Skelgas' unaudited Statements of Income (Loss) for the twelve months
ended July 31, 1995. Skelgas' operating data for the nine-month period ended
April 30, 1996 was derived from Skelgas' unaudited Statement of Income (Loss)
for the nine months ended April 30, 1996.
The propane industry is seasonal in nature because propane is used primarily
for heating in residential and commercial buildings. Therefore, the Pro Forma
Combined Statement of Earnings and Other Data for the nine months ended April
30, 1996 are not necessarily indicative of the results to be expected for a
full year.
The Skelgas Acquisition has been accounted for as a purchase whereby the
basis for accounting for Skelgas' assets and liabilities has been based upon
their estimated fair market values. Pro forma adjustments, including the
preliminary purchase price allocation and estimated cost savings resulting
from the Skelgas Acquisition as described in Notes 1, 3 and 9 of the Notes to
the Unaudited Pro Forma Combined Financial Statements, represent the
Partnership's preliminary determination of these adjustments and are based
upon preliminary information, assumptions and operating decisions which the
Partnership considers reasonable2017 under the circumstances. Final amounts may
differ from those set forth herein.
The Operating Partnership is a potential guarantor of Senior Notes that were
issued by the Partnership, its Parent, in a Private Placement under Regulation
144A on April 26, 1996. Such potential guarantee will only become effective if
and when the Operating Partnership meets certain financial requirements in the
future. There can be no assurance that these financial requirements will be
met and the guarantee will become effective.
The proceeds of the Senior Notes were contributed by the Partnership to the
Operating Partnership as a capital contribution. Pro Forma Combined Financial
Statements of the Operating Partnership are not presented herein as the
Operating Partnership is consolidated with and included in the Unaudited Pro
Forma Combined Financial Statements of the Partnership which are herein
presented. In addition, the only substantial difference between such Pro Forma
Combined Financial Statements would be interest expense on the Senior Notes.
38
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS AND OTHER DATA
NINE MONTHS ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
-------------- ------------- ----------- --------
REVENUES:
Gas liquids and related
product sales......... $522,446 $ 79,595 $(3,810)(2) $598,231
Other.................. 31,266 -- 627 (2) 31,893
-------- -------- ------- --------
TOTAL REVENUES....... 553,712 79,595 (3,183) 630,124
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)....... 300,844 46,457 (3,183)(2) 344,118
-------- -------- ------- --------
GROSS PROFIT............. 252,868 33,138 -- 286,006
Operating expense........ 134,363 26,011 (4,088)(3) 156,286
Depreciation and
amortization expense.... 25,839 54,338 (49,054)(4) 31,123
General and
administrative expense.. 9,535 2,626 (1,781)(3) 10,380
Vehicle leases expense... 3,621 -- -- 3,621
-------- -------- ------- --------
OPERATING INCOME (LOSS).. 79,510 (49,837) 54,923 84,596
Interest expense......... (26,775) (57) (7,676)(5) (34,508)
Interest income.......... 1,068 -- -- 1,068
Loss on disposal of
assets.................. (1,084) -- -- (1,084)
-------- -------- ------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST....... 52,719 (49,894) 47,247 50,072
Income taxes............. -- 381 (381)(6) --
Minority interest........ 534 -- (28) 506
-------- -------- ------- --------
NET EARNINGS (LOSS)...... 52,185 $(50,275) 47,656 49,566
========
General partner's
interest in net
earnings................ 522 (26) 496
-------- ------- --------
Limited partners'
interest in net
earnings................ $ 51,663 $(2,593) $ 49,070
======== ======= ========
NET EARNINGS PER LIMITED
PARTNER UNIT............ $ 1.66 $ (0.08) $ 1.58
======== ======= ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 31,103 41 31,144
======== ======= ========
OTHER DATA:
Retail propane sales
volume (in gallons)... 557,897 86,776 -- 644,673
Capital expenditures... $ 38,078 $ 2,857 $ -- $ 40,935
EBITDA(7).............. 105,349 4,501 5,869 115,719
Ratio of earnings to
fixed charges(8)...... 2.8x -- -- 2.4x
Ratio of EBITDA to
interest expense(7)... 3.9x -- -- 3.4x
See accompanying notes to unaudited pro forma combined financial statements.
39
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS AND OTHER DATA
TWELVE MONTHS ENDED JULY 31, 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
-------------- ------------- ----------- --------
REVENUES:
Gas liquids and related
product sales......... $565,607 $74,844 $(4,433)(2) $636,018
Other.................. 30,829 -- 1,702 (2) 32,531
-------- ------- ------- --------
TOTAL REVENUES....... 596,436 74,844 (2,731) 668,549
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)....... 339,641 38,983 (2,731)(2) 375,893
-------- ------- ------- --------
GROSS PROFIT............. 256,795 35,861 -- 292,656
Operating expense........ 153,226 24,943 (5,450)(9) 172,719
Depreciation and
amortization expense.... 32,014 9,576 (3,408)(10) 38,182
General and
administrative expense.. 11,357 4,053 (2,375)(9) 13,035
Vehicle leases expense... 4,271 -- -- 4,271
-------- ------- ------- --------
OPERATING INCOME (LOSS).. 55,927 (2,711) 11,233 64,449
Interest expense......... (31,993) (261) (10,280)(11) (42,534)
Interest income.......... 1,268 -- -- 1,268
Loss on disposal of
assets.................. (1,139) -- -- (1,139)
-------- ------- ------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST....... 24,063 (2,972) 953 22,044
Income taxes............. -- 64 (64)(6) --
Minority interest........ 243 -- (20) 223
-------- ------- ------- --------
NET EARNINGS (LOSS)...... 23,820 $(3,036) 1,037 21,821
======== ======= ======= ========
General partner's
interest in net
earnings................ 238 (20) 218
-------- ------- --------
Limited partners'
interest in net
earnings................ $ 23,582 $(1,979) $ 21,603
======== ======= ========
NET EARNINGS PER LIMITED
PARTNER UNIT............ $ 0.76 $ (0.06) $ 0.70
======== ======= ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 30,908 41 30,949
======== ======= ========
OTHER DATA:
Retail propane sales
volume (in gallons)... 575,935 94,885 -- 670,820
Capital expenditures... $ 89,791 $ 3,536 $ -- $ 93,327
EBITDA(7).............. 87,941 6,865 7,825 102,631
Ratio of earnings to
fixed charges(12)..... 1.7x -- -- 1.5x
Ratio of EBITDA to
interest expense(7)... 2.8x -- -- 2.4x
See accompanying notes to unaudited pro forma combined financial statements.
40
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
APRIL 30, 1996
(IN THOUSANDS)
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
ASSETS PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
------ -------------- ------------- ----------- --------
CURRENT ASSETS:
Cash and cash
equivalents........... $ 87,809 $ 9,335 $ (89,250)(1) $ 7,894
Accounts and notes
receivable............ 80,639 7,494 -- 88,133
Inventories............ 24,316 4,648 -- 28,964
Prepaid expenses and
other current assets.. 5,619 2,206 -- 7,825
-------- -------- --------- --------
TOTAL CURRENT ASSETS. 198,383 23,683 (89,250) 132,816
Property, plant and
equipment, net.......... 342,593 49,645 10,655 (13) 402,893
Intangible assets, net... 98,697 9,201 1,160 (14) 109,058
Other assets, net........ 11,455 1,232 -- 12,687
-------- -------- --------- --------
TOTAL ASSETS......... $651,128 $ 83,761 $ (77,435) $657,454
======== ======== ========= ========
LIABILITIES AND PARTNERS'
CAPITAL
- -------------------------
CURRENT LIABILITIES:
Accounts payable....... $ 44,912 $ 1,330 $ -- $ 46,242
Other current
liabilities........... 30,446 4,871 (1,600)(15) 33,717
-------- -------- --------- --------
TOTAL CURRENT
LIABILITIES......... 75,358 6,201 (1,600) 79,959
Long-term debt........... 432,307 9 791 (16) 433,107
Other liabilities........ 12,288 -- -- 12,288
Contingencies and
commitments
Minority interest........ 2,902 -- -- 2,902
STOCKHOLDER'S EQUITY:
Capital Stock.......... -- 155,000 (155,000)(17) --
Accumulated Deficit.... -- (77,449) 77,449 (17) --
-------- -------- --------- --------
TOTAL STOCKHOLDER'S
EQUITY.............. -- 77,551 (77,551) --
-------- -------- --------- --------
PARTNERS' CAPITAL:
Common units........... 91,073 -- 925 (1) 91,998
Subordinated units..... 94,780 -- -- 94,780
General partner........ (57,580) -- -- (57,580)
-------- -------- --------- --------
TOTAL PARTNERS'
CAPITAL............. 128,273 -- 925 129,198
-------- -------- --------- --------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL... $651,128 $ 83,761 $ (77,435) $657,454
======== ======== ========= ========
See accompanying notes to unaudited pro forma combined financial statements.
41
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Presentation:
The Partnership's Unaudited Pro Forma Combined Financial Statements assume:
(1) transactions a. and b. occurred at August 1, 1994 for purposes of the
Unaudited Pro Forma Combined Statements of Earnings and Other Data and (2)
transaction a. occurred on April 30, 1996 for purposes of the Unaudited Pro
Forma Combined Balance Sheet:
a. The Skelgas Acquisition--On April 30, 1996, Ferrellgas, Inc.
("Ferrellgas") as the general partner of the Partnership purchased all
of the outstanding capital stock of Skelgas for a cash purchase price of
$89.3 million and a $1.2 million noncompete agreement payable in three
equal annual installments commencing on the closing date. The purchase
price will be adjusted upward or downward based on a final determination
of working capital balances acquired.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a
short-term acquisition loan. As of May 1, 1996 Skelgas and its operating
subsidiaries were merged into Ferrellgas and all of the Skelgas Assets
were contributed by Ferrellgas to the Operating Partnership as a capital
contribution. In connection with these transactions, the Operating
Partnership assumed the obligation to repay the short-term acquisition
loan and issued a limited partner interest in the Operating Partnership
to Ferrellgas. Following the contribution of the Skelgas Assets to the
Partnership, Ferrellgas contributed the limited partner interest in the
Operating Partnership to the Partnership in exchange for Common Units of
the Partnership with a value of approximately $925,000, which represents
consideration for certain tax liabilities retained by Ferrellgas. The
Operating Partnership utilized an existingsecured credit facility withhad a bank
syndicate (the "Credit Facility") to discharge its assumed obligations
under the short-term acquisition loan.
The preliminary purchase price allocation is as follows (In thousands):
Pro forma purchase price--
Cash.......................................................... $89,250
Noncompete agreement--$400 paid at closing; $800 over two
years........................................................ 1,200
Common units issued for income tax liabilities incurred by
Ferrellgas................................................... 925
Transaction costs............................................. 2,000
Receivable from Seller due to working capital adjustment...... (4,000)
-------
Total pro forma purchase price.............................. $89,375
=======
Allocation of purchase price--
Working capital............................................... $17,482
Property, plant and equipment................................. 60,300
Goodwill...................................................... 2,273
Noncompete agreement with Seller.............................. 1,200
Existing noncompete agreement of Skelgas...................... 6,888
Other assets ................................................. 1,232
-------
Total pro forma allocation of purchase price................ $89,375
=======
The foregoing preliminary purchase price allocation is based on
available information and certain assumptions the Partnership considers
reasonable. The final purchase price allocation will be based upon a
final determination of the fair market value of the net assets acquired
at the date of the Skelgas Acquisition as determined by valuations and
other studies which are not yet complete. The final purchase price
allocation may differ from the preliminary allocation.
42
b. The issuance of the $160,000,000 of 9 3/8% Senior Secured notes due 2006.
The Partnership's unaudited Pro Forma Combined Financial Statements of
Earnings and Other Data assume that issuance of the Senior Notes
occurred on August 1, 1994. No pro forma adjustments related to the
Senior Notes were required in the pro forma balance sheet as of April
30, 1996, because the issuance of the Senior Notes and the subsequent
repayment of $70.7 million of existing indebtedness occurred prior to
April 30, 1996.
2. The pro forma adjustments to reclassify Skelgas' revenue and cost of
product sold presentation to conform with the Partnership's presentation.
3. The pro forma adjustments to operating expense and general and
administrative expense for the nine months ended April 30, 1996:
Because the Skelgas Acquisition has recently been consummated, the
Partnership has begun, but not completed, its strategic and operating plans
for the integration of Skelgas' operations into those of the Partnership.
Based on preliminary information, assumptions and operating decisions, the
Partnership estimates that it can eliminate duplicative costs through the
combination of the two entities as described below. However, the actual
cost savings may differ from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Skelgas Acquisition assumes the following preliminary estimates of
expected cost savings (In thousands):
GENERAL AND
OPERATING ADMINISTRATIVE
EXPENSE EXPENSE
--------- --------------
Consolidation of field service functions........... $1,632 $ --
Elimination of duplicative field service management
costs............................................. 2,456 --
Elimination of corporate general and administrative
costs............................................. -- 1,781
------ ------
Pro forma adjustments............................ $4,088 $1,781
====== ======
In addition to the cost savings initiatives and estimated cost savings
described above, the Partnership estimates that it can eliminate additional
annual duplicative costs through the combination of the two entities.
However, such amounts cannot be quantified at this time and have not been
reflected in the pro forma adjustments.
4. The pro forma adjustment to depreciation and amortization expense for the
nine months ended April 30, 1996 (In thousands):
Elimination of historical depreciation and amortization expense
of Skelgas...................................................... $(53,681)
Additional depreciation and amortization expense reflecting the
preliminary
allocation of purchase price:
Record depreciation of amount allocated to buildings and
equipment..................................................... 3,106
Record amortization of amount allocated to goodwill ........... 114
Record amortization of amount allocated to noncompete agreement
with
Seller........................................................ 300
Record amortization of amount allocated to existing noncompete
agreement of Skelgas.......................................... 1,107
--------
Pro forma adjustment......................................... $(49,054)
========
This historical depreciation and amortization expense of Skelgas includes a
nonrecurring writedown of goodwill in the amount of $47.6 million.
43
5. The pro forma adjustment to interest expense for the nine months ended
April 30, 1996 (In thousands):
Elimination of interest related to repayment of a portion of the
Operating
Partnership's Credit Facility.................................... $ 3,921
Additional interest expense related to--
Issuance of Senior Notes at a 9.375% interest rate.............. (11,250)
Amortization of deferred issuance costs related to the Senior
Notes.......................................................... (347)
--------
Pro forma adjustment.......................................... $ (7,676)
========
The elimination of interest expense related to the Operating Partnership's
Credit Facility was determined based on (i) repayment of $70.7 million of
existing indebtedness from proceeds of the Offering and (ii) anweighted average interest rate of 7.395%5.5%. 6. The pro forma adjustmentAll borrowings under the secured credit facility bear interest, at our option, at a rate equal to either:
· for Base Rate Loans or Swing Line Loans, the provisionBase Rate, which is defined as the higher of i) the federal funds rate plus 0.50%, ii) Bank of America’s prime rate; or iii) the Eurodollar Rate plus 1.00%; plus a margin varying from 0.75% to 3.00%, depending on our leverage ratio; or
· for income taxes recognizes thatEurodollar Rate Loans, the PartnershipEurodollar Rate, which is not subjectdefined as the LIBOR Rate plus a margin varying from 1.75% to income tax.
7. EBITDA is calculated as operating income (loss) plus depreciation4.00%, depending on our leverage ratio.
As of April 30, 2017, the federal funds rate and amortization. EBITDA is not intended to represent cash flowBank of America’s prime rate were 0.89% and does not
represent a measure4.00%, respectively. As of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluatingApril 30, 2017, the Partnership's ability to service its debt. one-month and three-month Eurodollar Rates were 1.00% and 1.17%, respectively.
In addition, EBITDAan annual commitment fee is not
intended as an alternativepayable at a per annum rate ranging from 0.35% to earnings (loss) from continuing operations or
net earnings (loss).
8. For purposes0.50% times the actual daily amount by which the secured credit facility exceeds the sum of determining(i) the ratiooutstanding amount of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consistrevolving credit loans and (ii) the outstanding amount of interest expense
on all indebtedness (including amortizationletter of deferred debt issuance cost)
and the portioncredit obligations.
Letters of operating lease rental expense that is representative of
the interest factors. Earnings from continuing operations for the period
presented were reduced by certain noncash expenses, consisting principally
of depreciation and amortization. Such non-cash charges total $29.8 million
for the pro forma combined nine months endedcredit outstanding at April 30, 1996.
9. The pro forma adjustments2017 totaled $123.5 million and were used primarily to operating expensesecure insurance arrangements and general administrative
expense for the twelve months ended July 31, 1995:
Because the Skelgas Acquisition has recently been consummated, the
Partnership has begun, but not completed, its strategic and operating plans
for the integration of Skelgas' operations into those of the Partnership.
Based on preliminary information, assumptions and operating decisions, the
Partnership estimates that it can eliminate duplicative costs through the
combination of the two entities as described below. However, the actual
cost savings may differ from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Skelgas Acquisition assumes the following preliminary estimates of
expected cost savings (In thousands):
The secured credit facility contains various affirmative and 1995, respectively, $32.0 million for the
year ended July 31, 1995, $28.8 million for the pro forma year ended July
31, 1994, $2.4 million for the one month ended July 31, 1994, $26.5
million for the eleven months ended June 30, 1994,negative covenants and $33.0 million,
$33.5 million and $38.5 million for the years ended July 31, 1993, 1992
and 1991, respectively.
(7) In August 1991, the Predecessor revised the estimated useful lives of
storage tanks from 20 to 30 years in order to more closely reflect
expected useful lives of the assets. The effect of the change in
accounting estimates resulted in a favorable impact on loss from
continuing operations of approximately $3.7 million for the fiscal year
ended July 31, 1992.
49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources of the Partnership and
should be read in conjunction with "Selected Historical Consolidated Financial
Data" and with the Consolidated Financial Statements of the Partnership and
the related notes thereto included elsewhere in this Prospectus.
GENERAL
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The Partnership's revenue is derived
primarily from the retail propane marketing business. The General Partner
believes the Partnership is the second largest retail marketer of propane in
the United States based on gallons sold, serving more than 800,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through approximately 487 retail outlets and 251
satellite locations. Annual retail propane sales volumes were approximately
645 million and 671 million gallons, respectively, for the pro forma nine
months ended April 30, 1996 and the pro forma twelve months ended July 31,
1995.
The retail propane business of the Partnership consists principally of
transporting propane purchased in the contract and spot markets, primarily
from major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises,default provisions, as well as to portable propane cylinders.
In the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market, propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use
as an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
drying processes.
The Partnership is also engaged in the trading of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing.
Through its natural gas liquids trading operations and wholesale marketing,
the Partnership is one of the largest independent traders of propane and
natural gas liquids in the United States. In the pro forma nine months ended
April 30, 1996 and the pro forma twelve months ended July 31, 1995, the
wholesale and trading sales volume was approximately 1.4 billion and 1.6
billion gallons, respectively, of propane and other natural gas liquids, of
which 46% and 60%, respectively, was propane. For the pro forma nine months
ended April 30, 1996 and the pro forma twelve months ended July 31, 1995, the
net revenues from trading activities were $5.1 million and $5.8 million,
respectively.
RECENTLY COMPLETED ACQUISITIONS
On April 30, 1996, Ferrellgas acquired all of the outstanding capital stock
of Skelgas from the Seller. Ferrellgas paid $89.3 million in cash for the
stock of Skelgas. In addition, Ferrellgas will pay $1.2 million for a
noncompete agreement with the Seller, payable in three equal annual
installments of $400,000 commencing on the closing date. During the year ended
December 31, 1995, Skelgas had revenues of $75.2 million and sold
approximately 96 million gallons of propane.
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior from the Heaths. During the year ended July 31, 1995, Superior had
revenues of $12.7 million and sold approximately 11.5 million gallons of
propane. Ferrellgas paid $18.9 million for the stock of Superior, $15.5
million of which was paid in cash at closing and $3.4 million of which was
paid at closing in the form of 6% promissory notes having a term of five
years. In addition, Ferrellgas will pay a total of $1.0 million for noncompete
agreements with the Heaths, payable in installments over five years.
The Partnership expects these acquisitions to expand its presence in both
new and existing residential and commercial/retail propane markets thus
following the Partnership's long held strategy of focusing on residential and
commercial retail propane operations.
50
RESULTS OF OPERATIONS
The propane industry is seasonal in nature with peak activity during the
winter months. Due to the seasonality of the business, results of operations
for the nine months ended April 30, 1996 and 1995, are not necessarily
indicative of the results to be expected for a full year. Other factors
affecting the results of operations include competitive conditions, demand for
product, variations in weather and fluctuations in propane prices. See "--
Selected Quarterly Financial Data of the Partnership."
NINE MONTHS ENDED APRIL 30, 1996 VERSUS NINE MONTHS ENDED APRIL 30, 1995
Total Revenues. Total revenues increased 9.4% to $553,712,000 as compared to
$506,087,000 for the prior period. The increase is primarily attributable to
the impact of colder weather on retail volumes and increased sales price per
gallon in the second and third quarters and acquisitions of propane
businesses, partially offset by declines in revenues in other operations (net
trading operations, wholesale marketing and chemical feedstocks marketing)
which decreased 22.9% to $84,433,000, and the impact of warmer weather in the
first quarter. To date, fiscal 1996 winter temperatures, as reported by the
American Gas Association, are 14.3% colder than the same period last year and
3.0% colder than normal. The decrease in revenues from other operations is
primarily due to a decrease in chemical feedstocks marketing revenues due to a
decrease in sales volume and selling price. Both volume and margins decreased
as a result of decreased availability of product from refineries and decreased
demand from petrochemical companies.
Gross Profit. Gross profit increased 14.4% to $252,868,000 as compared to
$221,028,000 for the prior period. The increase is primarily attributable to a
$24,673,000 increase from retail sales gross profit. Retail operations results
increased primarily due to an increase in gallons sold to 557,897,000 gallons
as compared to 493,584,000 for the prior period and improved sales mix,
partially offset by a slight decrease in retail margins. The increase in
gallons is primarily attributable to favorable weather and acquisition related
growth. Increased sales to the residential customer base improved the sales
mix, while greater price competition by independent operators and some major
marketers slightly reduced the overall gross margin per gallon. Other
operations increased gross profit due to the impact of the colder weather.
Operating Expenses. Operating expenses increased 11.7% to $134,363,000 as
compared to $120,335,000 for the prior period. The increase is primarily
attributable to acquisitions of propane businesses as well as increases in
payroll and delivery costs associated with higher retail and wholesale
volumes.
Depreciation and Amortization. Depreciation and amortization expense
increased 8.3% to $25,839,000 as compared to $23,855,000 for the prior period
due primarily to acquisitions of propane businesses.
Interest Expense. Interest expense increased 13.8% to $26,775,000 as
compared to $23,536,000 in the prior period. This increase is primarily the
result of the increase in the net borrowings from the Operating Partnership's
revolving credit loans, partially offset by decreasing interest rates. The
Partnership expects interest expense to increase due to the effect of the
issuance of the Senior Notes in April 1996.
FISCAL YEAR ENDED JULY 31, 1995 VERSUS PRO FORMA YEAR ENDED JULY 31, 1994
The pro forma year ended July 31, 1994 equals the sum of the Predecessor's
eleven months ended June 30, 1994 and the Partnership's one month ended July
31, 1994, adjusted for the effects of the transactions consummated in
connection with the formation of the Partnership (principally related to the
reduction in interest expense resulting from early retirement of debt, net of
additional borrowings).
Total Revenues. Total revenues increased 13.3% to $596,436,000 as compared
to $526,556,000 for the prior year. The increase is attributable to
acquisitions of propane businesses during November 1994 and to revenues from
other operations (net trading operations, wholesale propane marketing and
chemical feedstocks marketing) increasing 82.4% to $131,948,000. The increase
in revenues from other operations is primarily due to an
51
unusually strong demand for chemical feedstocks driving increased prices and
volumes. These increases were offset by a decrease in revenues from existing
retail operations due to warmer temperatures as compared to normal and to the
prior period that affected the majority of the Operating Partnership's areas
of operation. Unrealized gains and losses on options, forwards, and futures
contracts were not significant in fiscal 1995 and 1994. Fiscal 1995 winter
temperatures, as reported by the American Gas Association, were 10.3% warmer
than normal and 12.4% warmer than the prior year. The average degree days in
regions served by the Partnership have historically varied on an annual basis
by a greater amount than the average national degree days.
Gross Profit. Total retail gallons sold increased 2.1% to 576 million as
compared to 564 million for the prior year. This increase is due to sales
contributed by acquisitions, partially offset by warmer temperatures. Despite
the increase in sales volume, gross profit was essentially flat at
$256,795,000 as compared with $257,250,000 for the prior year due primarily to
the weather impact on higher margin residential sales. Other operations is
comprised of low margin sales, therefore, the increase in revenues did not
impact gross profit significantly.
Operating Expenses. Operating expenses increased 5.6% to $153,225,000 as
compared to $145,136,000 for the prior year. The increase is primarily
attributable to acquisitions of propane businesses offset by a reduction in
expenses of the base business (primarily personnel and vehicle expenses) as
compared to the prior year.
Depreciation and Amortization. Depreciation and amortization expense
increased 11.0% to $32,014,000 as compared to $28,835,000 for the prior year
due primarily to acquisitions of propane businesses.
Net Earnings. Net earnings decreased to $24,064,000 as compared to
$40,312,000 for the prior year. This decrease is due to acquisition-driven
increases in expenses, including interest expense, combined with the warm
weather impact on gross profit.
INCEPTION TO JULY 31, 1994 VERSUS PRO FORMA JULY 1993
INCEPTION
TO
JULY 31, PRO FORMA
1994 JULY 1993
----------- -----------
Revenues.......................................... $24,566,000 $26,535,000
Gross profit...................................... 11,355,000 10,235,000
Operating expense................................. 10,078,000 8,299,000
Extraordinary loss................................ 60,062,000 --
Net loss.......................................... 65,139,000 4,322,000
Total Revenues. Total revenues decreased 7.4% to $24,566,000 as compared
with $26,535,000 for the prior period. The overall decrease was attributable
to revenues from other operations (net trading operations, wholesale propane
marketing and chemical feedstocks marketing) decreasing 38.5% to $4,918,000,
offset by revenues from retail operations increasing 6.0% to $19,648,000.
The decrease in revenues from other operations was primarily due to
fluctuating chemical feedstock market opportunities.
The increase in revenues from retail operations was primarily due to (i) an
increase in sales volume and (ii) an increase in other income. The volume of
gallons sold, excluding acquisitions, increased revenues by $361,000. Fiscal
year 1994 and 1993 acquisitions increased revenues by $160,000. Other income
increased revenue by $592,000 primarily due to inventory gas gains recognized
from the emptying of an underground storage facility and storage rental
income.
Gross Profit. Gross profit increased 10.9% to $11,355,000 as compared with
$10,235,000 for the prior period, due to an increase in retail operations
gross profit offset by a decrease in other operations' revenue due to normal
market fluctuations. Retail operations results improved due to increased sales
volume as discussed previously, margin increases as a result of favorable
changes in the competitive pressures of the industry and normal fluctuations
in the Operating Partnership's product mix and other income as discussed
above.
52
Operating Expenses. Operating expenses increased 21.4% to $10,078,000 as
compared with $8,299,000, for the prior period, primarily due to an increase
in general liability and workers' compensation expense during July 31, 1994,
as compared to July 31, 1993. However, for the pro forma fiscal year ended
July 31, 1994, general liability and workers' compensation expense decreased
due to improved claims administration.
Extraordinary loss. The retirement of $477,600,000 of indebtedness assumed
by the Operating Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt repayment premiums, consent fees
and the write-off of unamortized discount and financing costs.
Net Loss. Net loss increased to $65,139,000 as compared to $4,322,000 for
the prior period, primarily due to the extraordinary loss described above.
ELEVEN MONTHS ENDED JUNE 30, 1994 VERSUS ELEVEN MONTHS ENDED JUNE 30, 1993
(PREDECESSOR)
ELEVEN ELEVEN
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1994 1993
------------ ------------
Revenues....................................... $501,990,000 $515,410,000
Gross profit................................... 245,895,000 233,677,000
Operating expense.............................. 135,058,000 131,318,000
Depreciation and amortization.................. 26,452,000 28,350,000
Net interest expense........................... 50,094,000 52,080,000
Net earnings................................... 11,470,000 3,374,000
Total Revenues. Total revenues decreased 2.6% to $501,990,000 as compared
with $515,410,000 for the prior period. The overall decrease was attributable
to revenues from other operations decreasing 17.2% to $67,386,000, offset by
revenues from retail operations increasing 0.1% to $434,604,000.
The decrease in revenues from other operations was primarily due to higher
sales of chemical feedstocks in the prior period resulting from sales of
chemical feedstocks that were designated for storage but were sold due to
storage limitations. Additional decreases in revenues were the result of lower
product costs for chemical feedstocks and wholesale propane marketing
resulting in lower sales prices.
The increase in revenues from retail operations was primarily due to an
increase in sales volume due to cooler temperatures than those which existed
in the prior period offset by a decrease in selling price. The volume of
gallons sold, excluding acquisitions, increased revenues by $6,203,000. Fiscal
year 1994 and 1993 acquisitions increased revenues by $1,915,000. Other income
increased revenue $954,000 primarily due to increased storage and equipment
rental and appliance sales. These increases were offset by a $8,473,000
decrease in sales price due to lower product costs.
Gross Profit. Gross profit increased 5.2% to $245,895,000 as compared with
$233,677,000 for the prior period, primarily due to an increase in retail
operations gross profit. Retail operations results improved due to increased
sales volume as discussed previously and to margin increases as a result of
favorable changes in the competitive pressures of the industry and to normal
fluctuations in the Predecessor's product mix.
Operating Expenses. Operating expenses increased 2.8% to $135,058,000 as
compared with $131,318,000 for the prior period, primarily due to (i) an
increase in incentive compensation expense, and (ii) an increase in overtime,
variable labor and vehicle expenses due to increased sales volume. These
increases were partially offset by a decrease in general liability and
workers' compensation expense due to improved claims administration and
decreased sales and use tax audit assessments.
Depreciation and Amortization. Depreciation expense decreased 6.7% to
$26,452,000 as compared with $28,350,000 for the prior period due primarily to
extending the use of the Predecessor's vehicles beyond the depreciable life
and to the reduction in the number of Predecessor owned vehicles.
53
Net Interest Expense. Net interest expense decreased 3.8% to $50,094,000 as
compared with $52,080,000 for the prior period due to the reacquisition of
$11,900,000 and $10,500,000 of senior notes in the third quarter of fiscal
1994 and in the fourth quarter of fiscal 1993, respectively, offset by
increased non-cash amortization of deferred financing costs.
Net Earnings. Net earnings increased to $11,470,000 as compared with
$3,374,000 for the prior period primarily due to the increase in retail
operations sales volume and margins offset by increased operating expenses and
the fiscal 1994 extraordinary loss from early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The ability of the Partnership to satisfy its obligations is dependent upon
future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond
its control. For the fiscal year ending July 31, 1996, the General Partner
believes that the Operating Partnership will generate sufficient cash flow
from operating activities to meet its obligations, and enable it to distribute
to the Partnership sufficient cash to permit the Partnership to meet its
obligationsrequirements with respect to the maintenance of specified financial ratios and limitations on the making of loans and investments.
In particular, our secured credit facility requires the operating partnership to maintain:
· a ratio of Consolidated Funded Senior Secured Indebtedness at a quarter end to Consolidated EBITDA of the operating partnership and its restricted subsidiaries on a consolidated basis for the four quarters then ended of 2.75 to 1.00 or less;
· a ratio of Consolidated EBITDA to Consolidated Interest Charges, in each case, of the operating partnership and its restricted subsidiaries on a consolidated basis for the four quarters then ended to be no less than 1.75 to 1.00 for the quarters ending on or before April 30, 2018 and no less than 2.50 to 1.00 for the quarters ending after April 30, 2018; and
· a ratio of Consolidated Funded Indebtedness at a quarter end to Consolidated EBITDA for the four quarters then ended, in each case, of the operating partnership and its restricted subsidiaries on a consolidated basis of 7.75 to 1.00 or less for the quarters ending on or before April 30, 2018 and 5.50 to 1.00 or less for the quarters ending after April 30, 2018.
Existing Senior Notes
The operating partnership has a total of $1.475 billion aggregate principal amount of senior notes outstanding, consisting of $500 million aggregate principal amount of its 6.50% Senior Notes due 2021, $475 million aggregate principal amount of its 6.75% Senior Notes due 2022 and to distribute$500 million aggregate principal amount of its 6.75% senior notes due 2023. The operating partnership’s senior notes are unsecured and are guaranteed by the Minimum
Quarterly Distribution (as hereinafter defined) of $0.50 per Unit on all
Common Units and Subordinated Units. Future maintenance and working capital
needssubsidiaries of the Operating Partnership are expectedoperating partnership that guarantee the operating partnership’s obligations under its secured credit facility. The operating partnership’s senior notes will be structurally senior to be provided by cash
generated from future operations, existing cash balancesthe exchange notes offered hereby.
Ferrellgas Partners has $357 million aggregate principal amount of 85/8% Senior Notes due 2020 outstanding, consisting of $182 million aggregate principal amount of the original notes and $175 million aggregate principal amount of the unregistered notes. The original notes and the working
capital borrowing facility. unregistered notes have substantially the same terms as the exchange notes, except as described herein with respect to the unregistered notes. See “Description of the Exchange Notes—Brief Description of the Notes.”
The agreements governing our notes contain various negative and affirmative covenants that limit our ability to, among other things:
· incur additional indebtedness;
· engage in transactions with affiliates;
· create liens on our assets;
· sell assets;
· make restricted payments;
· enter into business combinations and transactions involving the sale of all or substantially all of our assets; and
· engage in other lines of business.
In orderthe event of a default under our notes, the holders of each series of our notes may accelerate the maturity thereof and cause all outstanding amounts thereunder to fund expansive capital projectsbecome immediately due and future acquisitions, the Operating Partnership may borrow on existing bank
lines or the Partnership may issue additional Common Units. Toward this
purpose, the Partnership maintains a shelf registration statement filed with
the Commission registering 2,400,000 Common Units representing limited partner
interests in the Partnership. The Common Units may be issued from timepayable.
We are permitted to time
by the Partnership in connection with acquisitions of other businesses,
properties or securities in business combination transactions.
The following table summarizes themake quarterly cash distributions to unitholders sinceour partners so long as each distribution does not exceed a specified amount, we meet a specified financial ratio and no default exists or would result from such distribution.
Other Financial Obligations
The operating partnership utilizes an accounts receivable securitization facility for the inceptionpurpose of providing additional short-term working capital funding, especially during the winter heating months. This facility was entered into during January 2012 and matures on the earlier of the Partnership.
We do not provide any guarantee or similar support with respect to the collectability of these accounts receivables. We remit daily to Ferrellgas Receivables, LLC funds collected on its pool of trade accounts receivables. The level of funding available under the facility is currently limited to $225 million during the months of January and February, $175 million during the months of March, April, November and December and $145 million for all other months, depending on available undivided interests in our accounts receivable from certain customers. As of April 30, 2017, $143.3 million of trade accounts receivable had been sold to Ferrellgas Receivables, LLC, .and we had received cash distribution coveredproceeds of $91.0 million related to such sale of our trade accounts receivable, with no
remaining capacity to receive additional proceeds. As of April 30, 2017, the period from July 5, 1994, when
the Partnership began operations, to October 31, 1994, the end of the
first full fiscal quarter. Accordingly, the distribution was prorated.
Cash Flows From Operating Activities. Cash provided by operating activities
was $66,013,000weighted average cost for the nine months ended April 30, 1996. This slight increase
of $567,000 as comparedsale was 3.0%.
Additionally, we maintain various non-cancelable operating leases with respect to the nine months ended April 30, 1995 is primarily
due to the increased net income offset by the increase in accounts receivable.
Accounts receivable increased due to colder weather impact of increased
deliveries of product in the third quarter of 1996 as compared to the same
period last year.
Cash provided by operating activities was $66,030,000 for the year ended
July 31, 1995, compared to $41,766,000 in the prior year. This increase is due
to the year to year reduction in debt which resulted in the $41,856,000
decrease in interest payments offset by lower earnings before interest, taxes,
depreciation and amortization. The decrease in interest payments resulted from
debt retirements made subsequent to the formation of the Partnership.
54
Cash Flows From Investing Activities. During the nine months ended April 30,
1996, the Operating Partnership made total acquisition capital expenditures of
$29,322,000 (including working capital acquired of $1,015,000). This amount
was financed by $3,342,000 cash, $20,956,000 debt incurred, $3,900,000
issuance of Common Units, and $1,124,000 other costs and consideration. The
Partnership continues seeking to expand its operations through strategic
acquisitions of smaller retain propane operations located throughout the
United States. These acquisitions will be funded through internal cash flow,
external borrowings or the issuance of additional Partnership interests. See
"Subsequent Event" below for discussion of a significant acquisition
consummated in May, 1996.
During the nine months ended April 30, 1996, the Partnership made aggregate
growth and maintenance capital expenditures of $10,391,000 consisting
primarily of the following: 1) additions to Partnership-owned customers tanks
and cylinders, 2) vehicle lease buyouts, 3) relocating and upgrading district
plant facilities, and 4) development and upgrading computer equipment and
software. Capital requirements for repair and maintenance of property, plant
and equipment are relatively low since technological change is limited and the
useful lives of propane tanks and cylinders, the Operating Partnership's
principal physical assets, are generally long. The Operating Partnership
maintains its vehicle and transportation equipment fleet primarily by leasing
light- and medium-duty trucks and trailers. The General Partner believes
vehicle leasing is a cost effective method for meeting the Partnership's
transportation equipment needs. The Partnership does not have any material
commitments of funds for capital expenditures other than to support the
current level of operations.
On November 1, 1994, the General Partner completed the acquisition of Vision
for a cash purchase price of $45 million. Following the closing of the
acquisition, the General Partner contributed the net assets (excluding income
tax liabilities) of Vision to the Operating Partnership, in exchange for the
assumption of a $45 million loan obligation and issuance of $3,100,000 in
Common Units for the value of the income tax liabilities retained by the
General Partner. Including the Vision acquisition, the Partnership made total
acquisition capital expenditures of $73,351,000 (including working capital
acquired of $3,282,000) during the fiscal year ended July 31, 1995. This
amount was funded by $45,000,000 debt assumed, $19,677,000 cash payments,
$6,600,000 Common Units issued, and $2,074,000 in other costs and
consideration.
During the year ended July 31, 1995, the Partnership made growth and
maintenance capital expenditures of $19,722,000 consisting primarily of the
following: (1) additions to Partnership-owned customer tanks and cylinders,
(2) relocating and upgrading district plant facilities, and (3) development
and upgrading computer equipment and software. Capital requirements for repair
and maintenance of property, plant and equipment are relatively low since
technological change is limited and the useful lives of propane tanks and
cylinders, the Partnership's principal physical assets, are generally long.
The Partnership maintains its vehicle and transportation equipment fleet by
initially leasingcomputers, light and medium duty trucks, tractors and tractors. The General
Partner believes vehicle leasing is a cost effective method for meeting the
Partnership's transportation equipment needs. The Partnership continues
seeking to expand its operations through strategic acquisitions of smaller
retail propane operations located throughout the United States. These
acquisitions will be funded through internal cash flow, external borrowings or
the issuance of additional Partnership interests. The Partnership does not
have any material commitments of funds for capital expenditures other than to
support the current level of operations.
Cash Flows From Financing Activities. On April 26, 1996, the Partnership
issued $160,000,000 of 9-3/8% Senior Secured Notes due 2006. These notes will
be redeemable at the option of the Partnership, in whole or in part, at any
time on or after June 21, 2001. Interest is payable semi-annually in arrears
on June 15 and December 15 of each commencing on December 15, 1996. A portion
of the net proceeds was used to retire outstanding indebtedness of $88,800,000
under the Operating Partnership's credit facility. The remaining was held in
cash equivalents to be used for future acquisitions. See "Subsequent Event"
below for discussion of a significant acquisition consummated in May 1996.
On November 14, 1994, the Partnership filed Amendment No. 1 to Form S-1
Registration Statement with the Commission to register 2,400,000 Common Units
representing limited partner interests in the Partnership. The registration
statement was declared effective November 15, 1994. The Common Units may be
issued from
55
time to time by the Partnership in exchange for other businesses, properties
or securities in business combination transactions. During the year ended July
31, 1995, the Partnership issued 298,942 Common Units in connection with the
acquisition of propane businesses.
On July 21, 1995, the Operating Partnership entered into an amendment to its
$185,000,000 Credit Facility with Bank of America National Trust & Savings
Association ("BofA"), as Agent, which increased the maximum borrowing amount
to $205,000,000, effective August 1, 1995. The amended Credit Facility permits
borrowings of up to $95,000,000 on a senior unsecured revolving line of credit
basis (the "Working Capital Facility"), to fund working capital and general
Partnership requirements (of which up to $50,000,000 is available to support
letters of credit). At July 31, 1995, $20,000,000 of borrowings were
outstanding under the Working Capital Facility, and letters of credit
outstanding, used primarily to secure obligations under certain insurance
arrangements, totaled $24,471,000. In addition, the amended Credit Facility
permits borrowings under an Expansion Facility of up to $110,000,000 on a
senior unsecured basis, of which $85,000,000 was borrowed and outstanding at
July 31, 1995, and, at July 31, 1995, $25,000,000 was available to finance
acquisitions and for capital additions and improvements.
During the year ended July 31, 1995, the Operating Partnership borrowed
$102,000,000 under its Credit Facility. These borrowings, along with cash
provided by operations, were used to fund acquisitions of propane businesses
and purchases of property, plant and equipment, and to fund working capital
needs.
Effects of Inflation. In the past the Partnership has generally been able to
adjust its sales price of product in response to market demand, cost of
product, competitive factors and other industry trends. Consequently, changing
prices as a result of inflationary pressures has not had a material adverse
effect on profitability although revenues may be affected. Inflation has not
materially impacted the results of operations and management does not believe
normal inflationary pressures will have a material adverse effect on the
profitability of the Partnership in the future.
Subsequent Events. On April 30, 1996, Ferrellgas purchased all of the stock
of Skelgas for a cash purchase price of $89,650,000 (including working capital
and the first installment on a noncompete agreement of $400,000). As of May 1,
1996 Ferrellgas (i) caused Skelgas and each of its subsidiaries to be merged
into Ferrellgas and (ii) transferred all of the assets of Skelgas and its
subsidiaries to the Operating Partnership. In exchange, the Operating
Partnership assumed substantially all of the liabilities, whether known or
unknown, associated with Skelgas and its subsidiaries and their propane
business (excluding income tax liabilities). In consideration of the retention
by Ferrellgas of certain income tax liabilities, the Partnership issued 41,203
Common Units to Ferrellgas. The liabilities assumed by the Operating
Partnership included the obligations of Ferrellgas under the BofA Acquisition
Loan. Immediately following the transfer of assets and related transactions
described above, the Operating Partnership repaid the BofA Acquisition Loan
with cash and borrowings under the Operating Partnership's existing
acquisition bank credit line.
On July 31, 1996, the Operating Partnership expects to enter into an
amendment to its $205,000,000 Credit Facility with BofA, which will increase
the maximum borrowing amount to $255,000,000. The amended Credit Facility will
permit borrowings of up to $20,000,000 on a senior unsecured revolving line of
credit basis (the "Working Capital Facility") to fund working capital and
borrowings of up to $185,000,000 on a senior unsecured revolving line of
credit basis (the "Revolving Credit Facility") for general Partnership
requirements (of which up to $50,000,000 will be available to support letters
of credit). In addition, the amended Credit Facility will provide for a senior
unsecured term loan in the amount of $50,000,000 with the proceeds to be used
to redeem the Operating Partnership's Floating Rate Notes in the aggregate
principal amount of $50,000,000. The Operating Partnership expects to borrow
the full amount of the term loan and redeem its Floating Rate Notes on July
31, 1996.
ADOPTION OF NEW ACCOUNTING STANDARDS
On July 31, 1995, the Partnership adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of," which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present, and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Adoption of SFAS No. 121 had no impact on
the Partnership's financial statements.
56
Effective August 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will require increased disclosure of compensation expense
arising from stock compensation plans (including the Partnership's unit option
plan). The Statement encourages rather than requires entities to adopt a new
method that accounts for stock compensation awards based on their estimated
fair value at the date they are granted. Entities will be permitted, however,
to continue accounting under APB Opinion No. 25 which requires compensation
cost to be recognized based on the excess, if any, between the quoted market
price of the units at the date of grant and the amount an employee must pay to
acquire the units. The Partnership will continue to apply APB Opinion No. 25
in its consolidated financial statements and will disclose pro forma net
income and earnings per unit in a footnote to its consolidated financial
statements, determined as if the new method were applied.
SELECTED QUARTERLY FINANCIAL DATA OF THE PARTNERSHIP
(In thousands)
Due to the seasonality of the retail propane business, first and fourth
quarter revenues, gross profit and net earnings are consistently less than the
comparable second and third quarter results. The following presents Ferrellgas
Partners, L.P. selected quarterly financial data for the nine months ended
April 30, 1996 and the two years ended July 31, 1995 respectively.
NINE MONTHS ENDED APRIL 30, 1996
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
-------- -------- --------
Revenues.............................. $124,588 $238,381 $190,743
Gross profit.......................... 55,479 111,909 85,480
Net earnings (loss)................... (7,303) 41,476 18,012
Net earnings (loss) per limited
partner unit......................... (0.23) 1.32 0.57
FISCAL YEAR ENDED JULY 31, 1995
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
Revenues.............................. $119,413 $218,661 $168,013 $90,349
Gross profit.......................... 52,002 95,772 73,254 35,767
Net earnings (loss)................... (666) 30,527 11,939 (17,980)
Net earnings (loss) per limited
partner unit......................... (0.02) 0.98 0.38 (0.58)
FISCAL YEAR ENDED JULY 31, 1994
PREDECESSOR
---------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
-------- -------- -------- ---------
Revenues.............................. $110,214 $193,922 $146,341 $76,079
Gross profit.......................... 49,699 98,458 72,994 36,099
Earnings (loss) before extraordinary
loss................................. (5,537) 19,580 6,313 (13,045)
Earning (loss) before extraordinary
loss per limited partner unit(2)..... N/A N/A N/A N/A
Net earnings (loss)................... (5,537) 19,580 5,446 (72,500)(3)
- --------
(1) The fourth quarter includes the sum of the historical data for Ferrellgas,
Inc. and its Subsidiaries (Predecessor) for the period from May 1, 1994
through June 30, 1994 and the historical data for Ferrellgas Partners,
L.P. from Inception to July 31, 1994.
(2) Earnings (loss) per limited partner unit is not relevant for the fiscal
year ended July 31, 1994 because the Partnership was not formed until
July, 1995.
(3) Reflects a $59,455 extraordinary loss on early retirement of debt.
57
BUSINESS
GENERAL
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The discussion that follows focuses
on the Partnership's retail operations and its other operations, which consist
primarily of propane and natural gas liquids trading operations, chemical
feedstocks marketing and wholesale propane marketing.
The Partnership believes it is the second largest retail marketer of propane
in the United States based on gallons sold, serving more than 800,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through approximately 487 retail outlets with 251
satellite locations in 38 states (some outlets serve interstate markets). The
Partnership's largest market concentrations are in the Midwest, Great Lakes
and Southeast regions of the United States. Ferrellgas, a wholly owned
subsidiary of Ferrell, serves as General Partner of the Partnership. The
Partnership acquired the propane business and assets of Ferrellgas in July
1994.
Retail propane sales volumes were approximately 645 million and 671 million
gallons, respectively, during the pro forma nine months ended April 30, 1996
and the pro forma twelve months ended July 31, 1995, respectively. Earnings
from continuing operations for the same respective periods were $49.6 million
and $21.8 million. See "Unaudited Pro Forma Combined Financial Statements."
The Partnership also believes it is a leading natural gas liquids trading
company. Annual propane and natural gas liquids trading, chemical feedstocks
and wholesale propane sales volumes were approximately 1.4 billion and 1.6
billion gallons during the pro forma nine months ended April 30, 1996 and the
pro forma twelve months ended July 31, 1995, respectively.
RETAIL OPERATIONS
Formation
Ferrell, the parent of Ferrellgas, was founded in 1939 as a single retail
propane outlet in Atchison, Kansas and was incorporated in 1954. In 1984, a
subsidiary was formed under the name Ferrellgas, Inc. to operate the retail
propane business previously conducted by Ferrell. Ferrell is primarily owned
by James E. Ferrell and his family. Ferrellgas' initial growth was largely the
result of small acquisitions in the rural areas of eastern Kansas, northern
and central Missouri, Iowa, western Illinois, southern Minnesota, South Dakota
and Texas. In July 1984, Ferrellgas acquired propane operations with annual
retail sales volumes of approximately 33 million gallons and in December 1986,
Ferrellgas acquired propane operations with annual retail sales volumes of
approximately 395 million gallons. These major acquisitions and many other
smaller acquisitions have significantly expanded and diversified Ferrellgas'
geographic coverage. In July 1994, the propane business and assets of
Ferrellgas were contributed to the Partnership.
Business Strategy
The Partnership's business strategy is to continue its historical focus on
residential and commercial retail propane operations and to expand its
operations and increase its market share both through the acquisition of local
and regional propane distributors and through internal growth by increased
competitiveness and the opening of new locations. Acquisitions will be an
important element of growth for the Partnership, as the overall demand for
propane is expected to remain relatively constant for the foreseeable future,
with year-to-year industry volumes being affected primarily by weather
patterns. The General Partner believes there are numerous potential
acquisition candidates because the propane industry is highly fragmented, with
over 5,000 retailers and with the ten largest retailers comprising 33% of
industry sales. The Partnership's retail operations accounted for
approximately 8% of the retail propane purchased in the United States in 1995,
as measured by gallons sold.
58
Historically, the Partnership and the Predecessor have been successful in
acquiring independent propane retailers and integrating them into their
existing operations at what they believe to be attractive returns. Since 1986,
and as of May 1, 1996, the Partnership and the Predecessor have acquired a
total of 95 smaller propane businesses. Except for the acquisition of Vision
in November of 1995 and the acquisition of Skelgas, none of the acquisitions
was individually material. For the nine months ended April 30, 1996 and the
five fiscal years in the period ended July 31, 1995, the Partnership or the
Predecessor have invested approximately $27.7 million, $70.1 million, $3.4
million, $0.9 million, $10.1 million and $25.3 million respectively, to
acquire propane businesses with annual retail propane sales volumes of
approximately 15.1 million, 70.0 million, 2.5 million, 0.7 million, 8.6
million and 18.0 million gallons, respectively, at the time of acquisition.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which may result from such combination. However,
the Partnership will also pursue acquisitions which broaden its geographic
coverage. The Partnership's goal in any acquisition will be to improve the
operations and profitability of these smaller companies by integrating them
into the Partnership's established supply network. The General Partner
regularly evaluates a number of propane distribution companies which may be
candidates for acquisition. The General Partner believes that there are
numerous local retail propane distribution companies that are possible
candidates for acquisition by the Partnership and that the Partnership's
geographic diversity of operations helps to create many attractive acquisition
opportunities. The Partnership intends to fund acquisitions through internal
cash flow, external borrowings or the issuance of additional Common Units. The
Partnership's ability to accomplish these goals will be subject to the
continued availability of acquisition candidates at prices attractive to the
Partnership. There is no assurance the Partnership will be successful in
increasing the level of acquisitions or that any acquisitions that are made
will prove beneficial to the Partnership. See "The Skelgas and Superior
Acquisitions."
In addition to growth through acquisitions, the General Partner believes
that the Partnership may also achieve growth within its existing propane
operations. Historically, the Partnership and Ferrellgas have experienced
modest internal growth in their customer base. As a result of its experience
in responding to competition and in implementing more efficient operating
standards, the General Partner believes that it has positioned the Partnership
to be more successful in direct competition for customers. The Partnership
currently has marketing programs underway which focus specific resources
toward this effort.
Marketing
Natural gas liquids are derived from petroleum products and sold in
compressed or liquefied form. Propane, the predominant type of natural gas
liquid, is typically extracted from natural gas or separated during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed
into liquid form at relatively low pressures for storage and transportation.
Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source, recognized for its transportability and ease of
use relative to alternative forms of stand alone energy sources. In the
residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use
as an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
dry processes. Consumption of propane as a heating fuel peaks in winter
months.
The retail propane business of the Partnership consists principally of
transporting propane to its retail distribution outlets and then to tanks
located on its customers' premises by large numbers of small volume deliveries
averaging approximately 200 gallons each. The market areas are generally rural
but also include suburban areas where natural gas service is not available.
The Partnership utilizes marketing programs targeting both new and existing
customers emphasizing its superior ability to deliver propane to customers as
well as its
59
training and safety programs. The Partnership sells propane primarily to four
specific markets: residential, industrial/commercial, agricultural and other
(principally to other propane retailers and as engine fuel). During the pro
forma nine months ended April 30, 1996, sales to residential customers
accounted for 60% of the Partnership's retail gross profits, sales to
industrial/commercial customers accounted for 26% of the Partnership's retail
gross profits and sales to agricultural and other customers accounted for 14%
of the Partnership's retail gross profits. Residential sales generally have a
greater profit margin, and a more stable customer base and tend to be less
sensitive to price changes than the other markets served by the Partnership.
No single customer of the Partnership accounts for 10% or more of the
Partnership's consolidated revenues.
Profits in the retail propane business are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets, primarily from natural gas processing plants and major oil companies
on a short-term basis. Therefore, its supply costs generally fluctuate with
market price fluctuations. Should wholesale propane prices decline in the
future, the General Partner believes the Partnership's margins on its retail
propane distribution business should increase in the short-term because retail
prices tend to change less rapidly than wholesale prices. Should the wholesale
cost of propane increase, for similar reasons retail margins and profitability
would likely be reduced at least for the short-term until retail prices can be
increased.
Retail propane customers typically lease their stationary storage tanks from
their propane distributors. Approximately 70% of the Partnership's customers
lease their tank from the Partnership. The lease terms and, in most states,
certain fire safety regulations, restrict the refilling of a leased tank
solely to the propane supplier that owns the tank. The cost and inconvenience
of switching tanks minimizes a customer's tendency to switch among suppliers
of propane on the basis of minor variations in price.
The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). While the propane distribution business is seasonal
in nature and historically sensitive to variations in weather, management
believes that the geographical diversity of the Partnership's areas of
operations helps to minimize the Partnership's exposure to regional weather or
economic patterns. Furthermore, long-term, historic weather data from the
National Climatic Data Center indicate that the average annual temperatures
have remained relatively constant over the last 30 years with fluctuations
occurring on a year-to-year basis only. During times of colder-than-normal
winter weather, the Partnership has been able to take advantage of its large,
efficient distribution network to help avoid supply disruptions such as those
experienced by some of its competitors, thereby broadening its long-term
customer base.
The following chart illustrates the impact of annual variations in weather
on the Partnership's sales volumes. Set forth are (i) the population weighted
average national degree days (a measure of the relative warmth of a particular
year in which a larger number indicates a colder year) which are developed by
the National Weather Service Climate Prediction Center, (ii) degree days as a
percentage of average normal degree days (100.0% represents a normal year with
larger percentages representing colder-than-normal years and smaller
percentages representing warmer-than-normal years), and (iii) the annual
retail propane sales volumes of the Partnership for the five fiscal years
ended July 31, 1995. The average degree days in regions served by the
Partnership have historically varied on an annual basis by a greater amount
than the average national degree days and there can be no assurance that
average temperatures in future years will be close to the historical average.
SIX MONTHS
ENDED
JANUARY 31, FOR THE YEAR ENDED JULY 31,
------------ ---------------------------------
1996 1995 1995 1994 1993 1992 1991
National Degree Days(1)....... 2,739 2,366 4,242 4,650 4,688 4,346 4,129
Degree Days as % of Normal
Degree Days(1)............... 102.8% 88.8% 92.7% 101.6% 102.4% 92.7% 88.1%
Sales Volumes (in millions of
gallons)(2)................... 374 331 576 564 553 496 486
60
- --------
(1) National degrees days and normal degree days are based on population
weighted census data and are restated and revised by the National Weather
Service at certain times based on a variety of factors.
(2) From Fiscal 1991 through Fiscal 1995, 40 acquisitions were completed at a
total cost of approximately $109.8 million. The aggregate annual sales
volumes attributable to these acquisitions as of the date of each
acquisition were 70.0 million, 2.5 million, 0.7 million, 8.6 million and
18.0 million gallons for the five fiscal years ended July 31, 1995 back to
July 31, 1991, respectively.
Supply and Distribution
The Partnership purchases propane primarily from major domestic oil
companies. Supplies of propane from these sources have traditionally been
readily available, although no assurance can be given that supplies of propane
will be readily available in the future. As a result of (i) the Partnership's
ability to buy large volumes of propane and (ii) the Partnership's large
distribution system and underground storage capacity, the General Partner
believes that the Partnership is in a position to achieve product cost savings
and avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors. The Partnership is not
dependent upon any single supplier or group of suppliers, the loss of which
would have a material adverse effect on the Partnership. For the year ended
July 31, 1995, no supplier at any single delivery point provided more than 10%
of the Partnership's total domestic propane supply. A portion of the
Partnership's propane inventory is purchased under supply contracts which
typically have a one year term and a fluctuating price relating to spot market
prices. Certain of the Partnership's contracts specify certain minimum and
maximum amounts of propane to be purchased thereunder. The Partnership may
purchase and store inventories of propane in order to help insure
uninterrupted deliverability during periods of extreme demand. The Partnership
owns three underground storage facilities with an aggregate capacity of
approximately 184 million gallons. Currently, approximately 104 million
gallons of this capacity is leased to third parties. The remaining space is
available for the Partnership's use.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the
Partnership and highway transport trucks owned or leased by the Partnership.
The Partnership operates a fleet of transport trucks to transport propane from
refineries, natural gas processing plants or pipeline terminals to its retail
distribution outlets. Common carrier transport trucks may be used during the
peak delivery season in the winter months or to provide service in areas where
economic considerations favor common carrier use. Propane is then transported
from the Partnership's retail distribution outlets to customers by its fleet
of 1,462 bulk delivery trucks, which are fitted generally with 2,000 to 3,000
gallon propane tanks. Propane storage tanks located on the customers' premises
are then filled from the delivery truck. Propane is also delivered to
customers in portable cylinders.
INDUSTRY AND COMPETITION
Industry
Based upon information contained in the most recently available Energy
Information Administration's Annual Energy Review magazine, propane accounts
for approximately 3-4% of household energy consumption in the United States,
an average level which has remained relatively constant for the past 18 years.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required.
Propane is generally more expensive than natural gas on an equivalent BTU
basis in locations served by natural gas, although propane is often sold in
such areas as a standby fuel for use during peak demands and during
interruption in natural gas service. The expansion of natural gas into
traditional propane markets has historically been inhibited by the capital
costs required to expand distribution and pipeline systems. Although the
extension of natural gas pipelines tends to displace propane distribution in
the neighborhoods affected, the Partnership believes that new opportunities
for propane sales arise as more geographically remote neighborhoods are
developed. Propane is generally less expensive to use than
61
electricity for space heating, water heating and cooking and competes
effectively with electricity in those parts of the country where propane is
cheaper than electricity on an equivalent BTU basis. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel
oil have generally developed their own distinct geographic markets, lessening
competition between such fuels. Because residential furnaces and appliances
that burn propane will not operate on fuel oil, a conversion from one fuel to
the other requires the installation of new equipment. The Partnership's
residential retail propane customers, therefore, will have an incentive to
switch to fuel oil only if fuel oil becomes significantly less expensive than
propane. Likewise, the Partnership may be unable to expand its customer base
in areas where fuel oil is widely used, particularly the Northeast, unless
propane becomes significantly less expensive than fuel oil. Alternatively,
many industrial customers who use propane as a heating fuel have the capacity
to switch to other fuels, such as fuel oil, on the basis of availability or
minor variations in price. Propane generally is becoming increasingly favored
over fuel oil and other alternative sources of fuel as an environmentally
preferred energy source.
Competition
In addition to competing with marketers of other fuels, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition within the propane distribution industry stems from two
types of participants: the larger multi-state marketers, and the smaller,
local independent marketers. Based upon information contained in the National
Propane Gas Association's LP-Gas Market Facts and the June 1995 issue of LP
Gas magazine, the Partnership believes that the ten largest multi-state retail
marketers of propane, including the Partnership, account for 33% of the total
retail sales of propane in the United States. Based upon information contained
in industry publications, the Partnership also believes no single marketer has
a greater than 10% share of the total market in the United States and that the
Partnership is the second largest retail marketer of propane in the United
States, with a market share of approximately 8% as measured by volume of
national retail propane sales.
Most of the Partnership's retail distribution outlets compete with three or
more marketers or distributors. The principal factors influencing competition
among propane marketers are price and service. The Partnership competes with
other retail marketers primarily on the basis of reliability of service and
responsiveness to customer needs, safety and price. Each retail distribution
outlet operates in its own competitive environment because retail marketers
locate in close proximity to customers to lower the cost of providing service.
The typical retail distribution outlet has an effective marketing radius of
approximately 25 miles.
OTHER OPERATIONS
The Partnership is also engaged in (1) the trading of propane and other
natural gas liquids, (2) chemical feedstocks marketing and (3) wholesale
propane marketing. The Partnership, through its natural gas liquids trading
operations and wholesale marketing, has become one of the largest independent
traders of propane and natural gas liquids in the United States. The
Partnership owns no properties that are material to these operations. These
operations may utilize available space in the Partnership's underground
storage facilities in the furtherance of these businesses. In the pro forma
nine months ended April 30, 1996 and the pro forma twelve months ended July
31, 1995, the Partnership's annual wholesale and trading sales volume was
approximately 1.4 billion and 1.6 billion gallons of propane and other natural
gas liquids, respectively, of which 46% and 60%, respectively, was propane.
Because the Partnership possesses a large distribution system, underground
storage capacity and the ability to buy large volumes of propane, the General
Partner believes that the Partnership is in a position to achieve product cost
savings and avoid shortages during periods of tight supply to an extent not
generally available to other retail propane distributors.
Trading
The Partnership's traders are engaged in trading propane and other natural
gas liquids for the Partnership's account and for supplying the Partnership's
retail and wholesale propane operations. The Partnership primarily trades
products purchased from its over 150 suppliers, however, it also conducts
transactions on the New York
62
Mercantile Exchange. Trading activity is conducted primarily to generate a
profit independent of the retail and wholesale operations, but is also
conducted to insure the availability of propane during periods of short
supply. Propane represents between 45% and 60% of the Partnership's total
trading volume, with the remainder consisting principally of various other
natural gas liquids. The Partnership attempts to minimize trading risk through
the enforcement of its trading policies, which include total inventory limits
and loss limits, and attempts to minimize credit risk through credit checks
and application of its credit policies. However, there can be no assurance
that historical experience or the existence of such policies will prevent
trading losses in the future. For the pro forma nine months ended April 30,
1996 and the pro forma twelve months ended July 31, 1995, net revenues of $5.1
million and $5.8 million, respectively, were derived from trading activities.
Chemical Feedstocks Marketing
The Partnership is also involved in the marketing of refinery and
petrochemical feedstocks. Petroleum by-products are purchased from refineries
and sold to petrochemical plants. The Partnership leases 322 railroad tank
cars to facilitate product delivery. Revenues of $32.8 million and $91.9
million were derived from such activities for the pro forma nine months ended
April 30, 1996 and the pro forma twelve months ended July 31, 1995.
Wholesale Marketing
The Partnership engages in the wholesale distribution of propane to other
retail propane distributors. During the pro forma nine months ended April 30,
1996 and the pro forma twelve months ended July 31, 1995, the Partnership sold
73 million and 96 million gallons, respectively, of propane to wholesale
customers and had revenues attributable to such sales of $37.3 million and
$33.5 million, respectively.
EMPLOYEES
The Partnership has no employees and is managed by the General Partner
pursuant to the Partnership Agreement. At April 30, 1996 (and after giving
effect to the Skelgas Acquisition), the General Partner had 3,391 full-time
employees and 1,040 temporary and part-time employees. The number of temporary
and part-time employees is generally higher by approximately 350-500 people
during the winter heating season. The General Partner's full-time employees
were employed in the following areas:
Retail Locations.................................................... 2,893
Transportation and Storage.......................................... 170
Corporate Offices (Liberty, MO & Houston, TX)....................... 328
-----
Total............................................................... 3,391
=====
Approximately 1 percent of the General Partner's employees are represented
by 8 local labor unions, which are all affiliated with the International
Brotherhood of Teamsters. The General Partner has not experienced any
significant work stoppages or other labor problems.
The supply, trading, chemical feedstocks marketing, distribution scheduling
and product accounting functions are operated primarily out of the offices
located in Houston, by a total full-time corporate staff of 74 people.
GOVERNMENTAL REGULATION; ENVIRONMENTAL AND SAFETY MATTERS
From August 1971 until January 1981, the United States Department of Energy
regulated the price and allocation of propane. The Partnership is no longer
subject to any similar regulation.
Propane is not a hazardous substance within the meaning of federal and state
environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the
63
Partnership conducts a due diligence investigation to attempt to determine
whether any substance other than propane has been sold from or stored on any
such real estate prior to its purchase. Such due diligence includes
questioning the sellers, obtaining representations and warranties concerning
the sellers' compliance with environmental laws and visual inspections of the
properties, whereby employees of the General Partner look for evidence of
hazardous substances or the coexistence of underground storage tanks.
With respect to the transportation of propane by truck, the Partnership is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. National Fire
Protection Association Pamphlet No. 58, which establishes a set of rules and
procedures governing the safe handling of propane, or comparable regulations,
have been adopted as the industry standard in a majority of the states in
which the Partnership operates. There are no material environmental claims
pending and the Partnership complies in all material respects with all
material governmental regulations and industry standards applicable to
environmental and safety matters.
SERVICE MARKS AND TRADEMARKS
The Partnership markets retail propane under the "Ferrellgas" tradename and
uses the tradename "Ferrell North America" for its other operations. In
addition, the Partnership has a trademark on the name "FerrellMeter," its
patented gas leak detection device. Ferrellgas contributed all of its rights,
title and interest in such tradenames and trademark in the continental United
States to the Partnership. The General Partner will have an option to purchase
such tradenames and trademark from the Partnership for a nominal value if the
General Partner is removed as general partner of the Partnership other than
for cause. If the General Partner ceases to serve as the general partner of
the Partnership for any other reason, it will have the option to purchase such
tradenames and trademark from the Partnership for fair market value.
BUSINESS OF FERRELLGAS FINANCE CORP. AND FERRELLGAS PARTNERS FINANCE CORP.
Ferrellgas Finance Corp., a Delaware corporation (the "OLP Finance Corp."),
was formed on April 28, 1994 and is a wholly owned subsidiary of the Operating
Partnership. Finance Corp., a Delaware corporation (together with the OLP
Finance Corp., the "Finance Corps."), was formed on March 28, 1996, and is a
wholly owned subsidiary of the Partnership. The Finance Corps. have nominal
assets and do not conduct any operations, but serve as co-obligors for
securities issued by the Operating Partnership and the Partnership. Certain
institutional investors that might otherwise be limited in their ability to
invest in securities issued by partnerships by reasons of the legal investment
laws of their states of organization or their charter documents, may be able
to invest in the Operating Partnership's or Partnership's securities because
the Finance Corps. are co-obligors. Accordingly, a discussion of the results
of operations, liquidity and capital resources of the Finance Corps. is not
presented.
PROPERTIES
The Partnership owned or leased the following transportation equipment which
was utilized primarily in retail operations, except for railroad tank cars,
which are used primarily by chemical feedstocks operations.
OWNED LEASED TOTAL
----- ------ -----
Truck tractors......................................... 88 42 130
Transport trailers..................................... 117 10 127
Bulk delivery trucks................................... 981 481 1,462
Pickup and service trucks.............................. 1,066 375 1,441
Railroad tank cars..................................... -- 322 322
64
The highway transport trailers have an average capacity of approximately
9,000 gallons. The bulk delivery trucks are generally fitted with 2,000 to
3,000 gallon propane tanks. Each railroad tank car has a capacity of
approximately 30,000 gallons.
A typical retail distribution outlet is located on one to three acres of
land and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Partnership provides to its
retail customers for propane storage. The Partnership owns the land and
buildings of about 50% of its retail outlets and leases the remaining
facilities on terms customary in the industry and in the applicable local
markets.
Approximately 670,000 propane tanks are owned by the Partnership, most of
which are located on customer property and leased to those customers. The
Partnership also owns approximately 650,000 portable propane cylinders, most
of which are leased to industrial and commercial customers, for use in
manufacturing and processing needs, including forklift operations, and to
residential customers for home heating and cooking, and to local dealers who
purchase propane from the Partnership for resale.
The Partnership owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At April 30, 1996, the capacity of these
facilities approximated 92 million gallons, 88 million gallons and 21 million
gallons, respectively (an aggregate of approximately 201 million gallons). At
April 30, 1996, approximately 104 million gallons of this capacity were leased
to third parties. The remaining space is available for the Partnership's use.
The Partnership owns the land and two buildings (50,245 square feet of
office space) comprising its corporate headquarters in Liberty, Missouri, and
leases the 18,124 square feet of office space in Houston, Texas, where its
trading, chemical feedstocks marketing and wholesale marketing operations are
primarily located.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties and, although some of such properties
are subject to liabilities and leases and, in certain cases, liens for taxes
not yet currently due and payable and immaterial encumbrances, easements and
restrictions, the Partnership does not believe that any such burdens will
materially interfere with the continued use of such properties by the
Partnership in its business, taken as a whole. In addition, the Partnership
believes that it has, or is in the process of obtaining, all required material
approvals, authorizations, orders, licenses, permits, franchises and consents
of, and has obtained or made all required material registrations,
qualifications and filings with, the various state and local governmental and
regulatory authorities which relate to ownership of the Partnership's
properties or the operation of its business.
LITIGATION
Propane is a flammable, combustible gas. Serious personal injury and
property damage can occur in connection with its transportation, storage or
use. The Partnership, in the ordinary course of business, is threatened with
or is named as a defendant in various lawsuits which, among other items, seek
actual and punitive damages for products liability, personal injury and
property damage. The Partnership maintains liability insurance policies with
insurers in such amounts and with such coverages and deductibles as the
General Partner believes is reasonable and prudent. However, there can be no
assurance that such insurance will be adequate to protect the Partnership from
material expenses related to such personal injury or property damage or that
such levels of insurance will continue to be available in the future at
economical prices. It is not possible to determine the ultimate disposition of
these matters discussed above; however, management is of the opinion that
there are no known claims or known contingent claims that are likely to have a
material adverse effect on the results of operations or financial condition of
the Partnership.
65
THE SKELGAS AND SUPERIOR ACQUISITIONS
SKELGAS
On April 30, 1996 Ferrellgas acquired all of the outstanding capital stock
of Skelgas from the Seller.
Through its operating subsidiaries, Skelgas sells propane and related
appliances to industrial, commercial, residential and agricultural customers
in 11 states located in the north central region of the United States. During
the year ended December 31, 1995, Skelgas sold approximately 96 million
gallons of propane, generating revenues of $75.2 million and a net loss of
$(53.9) million (which includes a $47.6 million writedown of goodwill).
Ferrellgas paid $89.3 million in cash for the stock of Skelgas. In addition,
Ferrellgas will pay $1.2 million for a noncompete agreement with the Seller,
payable in three equal annual installments of $400,000 commencing on the
closing date.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a short
term acquisition loan. As of May 1, 1996, Skelgas and its operating
subsidiaries were merged into Ferrellgas and the Skelgas Assets were then
contributed by Ferrellgas to the Operating Partnership as a capital
contribution. In connection with this transaction, the Operating Partnership
assumed the obligation to repay the short term acquisition loan and issued a
limited partner interest in the Operating Partnership to Ferrellgas. Following
the contribution of the Skelgas Assets to the Operating Partnership,
Ferrellgas contributed the limited partner interest in the Operating
Partnership to the Partnership in exchange for Common Units of the Partnership
with a value of approximately $925,000, which represents consideration for
certain tax liabilities retained by Ferrellgas. The Operating Partnership
utilized the Credit Facility (see "Use of Proceeds") to discharge its assumed
obligations under the short term acquisition loan.
SUPERIOR
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior, which is not affiliated with the Seller in the Skelgas
Acquisition, from the Heaths.
Superior sells propane and related appliances to industrial, commercial and
residential customers in 11 counties in California and one county in Nevada.
In the fiscal year ending July 31, 1995, Superior sold approximately 11.5
million gallons of propane from its seven locations, generating revenues of
$12.7 million.
Ferrellgas paid $18.9 million for the stock of Superior, $15.5 million of
which was paid in cash at closing and $3.4 million of which was paid at
closing in the form of 6% promissory notes having a term of five years. In
addition, Ferrellgas will pay a total of $1.0 million for noncompete
agreements with the Heaths, payable in installments over five years.
The purchase price was based on the assumption that the current assets of
Superior at closing were equal to or greater than the amount of Superior's
total liabilities on the closing date. The purchase price will be adjusted
upward or downward to the extent the current assets of Superior on the closing
date are subsequently determined to be more or less than the total liabilities
of Superior on the closing date.
Immediately following the acquisition, Superior was merged into Ferrellgas
and all of the assets acquired by Ferrellgas in connection with such merger
were transferred to the Operating Partnership in a series of transactions
structured in a manner similar to that involved in transferring the Skelgas
Assets to the Operating Partnership. The Partnership delivered to Ferrellgas
Common Units of the Partnership with a value of approximately $700,000, which
represents consideration for certain tax liabilities retained by Ferrellgas.
66
MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner manages and operates the activities of the Partnership.
The General Partner anticipates that its activities will be limited to such
management and operation. Unitholders do not directly or indirectly
participate in the management or operation of the Partnership. The General
Partner owes a fiduciary duty to the Unitholders.
In September 1994, the General Partner appointed two persons who are neither
officers nor employees of the General Partner or any affiliate of the General
Partner to serve on a committee of the Partnership (the "Audit Committee")
with the authority to review, at the request of the General Partner, specific
matters as to which the General Partner believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the General Partner is fair and reasonable to the Partnership. The Audit
Committee only reviews matters relating to conflicts of interest at the
request of the General Partner, and the General Partner has sole discretion to
determine which matters, if any, to submit to the Audit Committee. Any matters
approved by the Audit Committee will be conclusively deemed to be fair and
reasonable to the Partnership, approved by all partners of the Partnership and
not a breach by the General Partner of any duties it may owe the Partnership
or the Unitholders.
The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. At April 30, 1996 (and after giving
effect to the Skelgas Acquisition), 3,391 full-time and 1,040 temporary and
part-time individuals were employed by the General Partner.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNERtrailers. The following table sets forth certain information with respect to the
directors and executive officers of the General Partner. The persons named
below are elected to their respective office or offices annually. The
executive officers are not subject to employment agreements.
DIRECTOR
NAME AGE SINCE POSITION
---- --- -------- --------
James E. Ferrell............ 56 1984 President, Chairman of the Board, Chief Executive
Officer and a Director of the General Partner
Danley K. Sheldon........... 37 Senior Vice President, Chief Financial Officer,
Treasurer and Managing Director
Shahid J. A. Malik.......... 36 Senior Vice President, Chief Operating Officer,
Ferrell North America and Managing Director
James M. Hake............... 35 Vice President, Acquisitions
Daniel M. Lambert........... 55 1994 Director of the General Partner
A. Andrew Levison........... 39 1994 Director of the General Partner
James E. Ferrell--Mr. Ferrell has been with Ferrellgas or its predecessors
and its affiliates in various executive capacities since 1965.
Danley K. Sheldon--Mr. Sheldon has been Chief Financial Officer of
Ferrellgas since January 1994 and has served as Treasurer since 1989. He
joined Ferrellgas in 1986.
Shahid J. A. Malik--Mr. Malik has been Chief Operating Officer of Ferrell
North America ("FNA") since August, 1994. He joined Ferrellgas in February,
1994 as Vice President of Business Development. Prior to joining Ferrellgas,
Mr. Malik was Commercial Manager at British Petroleum from 1990 to 1994,
responsible for oil supply, trading and operations of British Petroleum's
business for most of North America.
67
James M. Hake--Mr. Hake has been Vice President, Acquisitions of Ferrellgas
since October, 1994. He joined Ferrellgas in 1986.
Daniel M. Lambert--Dr. Lambert was elected a director of Ferrellgas in
September 1994. Dr. Lambert has been President of Baker University in Baldwin
City, Kansas, since July 1, 1987.
A. Andrew Levison--Mr. Levison was elected a director of Ferrellgas in
September 1994. Mr. Levison has been a Managing Director of Donaldson, Lufkin
& Jenrette Securities Corporation since 1989. Mr. Levison is also a director
of Rickel Home Centers, Inc., a leading full service home improvement retailer
that operates stores in the Northeastern United States, and Flagstar
Companies, Inc.
COMPENSATION OF THE GENERAL PARTNER
The General Partner receives no management fee or similar compensation in
connection with its management of the Partnership and receives no remuneration
other than:
(i) distributions in respect of its 2% general partner interest, on a
combined basis, in the Partnership and the Operating Partnership; and
(ii) reimbursement for all direct and indirect costs and expenses
incurred on behalf of the Partnership, all selling, general and
administrative expenses incurred by the General Partner for or on behalf of
the Partnership and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to, the Partnership. The selling,
general and administrative expenses reimbursed include specific employee
benefit and incentive plans for the benefit of the executive officers and
employees of the General Partner.
For information regarding executive compensation and affiliate transactions,
see "Item 11. Executive Compensation" and "Item 13. Certain Relationships and
Related Transactions" of the Partnerships' Annual Report on Form 10-K for the
fiscal year ended July 31, 1995, which information is incorporated by
reference in this Prospectus.
68
PRINCIPAL UNITHOLDERS
The following table sets forth certain informationsummarizes our future minimum rental payments as of April 30, 1996,
regarding2017. This summary also presents the beneficial ownershipbuyout amounts necessary to purchase the underlying assets at the end of the Common Units and subordinated
limited partner interests issued by the Partnershiplease terms, should we elect to do so.
|
| Future minimum rental and buyout amounts by fiscal year |
|
|
| ||||||||||||||
(in thousands) |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| Thereafter |
| ||||||
Operating lease obligations |
| $ | 14,581 |
| $ | 41,663 |
| $ | 31,369 |
| $ | 23,869 |
| $ | 18,083 |
| $ | 23,581 |
|
Operating lease buyouts |
| $ | 1,528 |
| $ | 3,444 |
| $ | 4,352 |
| $ | 2,892 |
| $ | 3,302 |
| $ | 10,743 |
|
DESCRIPTION OF THE EXCHANGE NOTES
Ferrellgas in
connection with the transfer of its assets to the Partnership (the
"Subordinated Units") by certain beneficial owners, all directors of the
General Partner, each of the named executive officers of the General Partner
and all directors and executive officers as a group. The General Partner knows
of no other person beneficially owning more than 5% of the Common Units.
The following description is a summary of certainthe material provisions of the Senior Notes, the Indenture, the Registration Rights
Agreement and the Pledge Agreementindenture. It does not purport to be complete and is
qualifiedrestate the indenture in its entirety by referenceentirety. We urge you to read the Senior Notes, the Indenture, the
Registration Rights Agreementindenture because it, and the Pledge Agreement, including the
definitions therein of certain terms used below. Copiesnot this description, defines your rights as noteholders. A copy of the Indenture,
Registration Rights Agreement and Pledge Agreement haveindenture has been filed as exhibitsan exhibit to the Registration Statementregistration statement of which this Prospectusprospectus is a part and are
available frompart. See “Where You Can Find More Information.” The registered holder of an exchange note will be treated as the Partnership upon request as set forthowner of it for all purposes. Only registered holders of notes will have rights under "Available
Information." The definitionsthe indenture.
Some of certainthe terms used in this description are defined in the following summary
are set forth below under "--Certainsection entitled “—Certain Definitions."” For purposes of this description:
· the “partnership” refers to Ferrellgas Partners, L.P.;
· the words “we,” “us,” “our” and “ourselves” refer to Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., the co-issuers of the notes;
· the “operating partnership” refers to Ferrellgas, L.P.;
· the “general partner” refers to Ferrellgas, Inc.; and
· The Senior“notes” refers to, collectively, the exchange notes to be issued in the exchange offer described in this prospectus, any unregistered notes that remain outstanding after the exchange offer and the original notes.
Brief Description of the Notes are senior secured
The exchange notes will be our general unsecured joint and several obligations and will:
· rank equally with all of the
Issuers and rank senior in right of payment to all future subordinated
Indebtedness of the Issuers and rank pari passu in right of payment with otherour existing and future obligationssenior unsecured indebtedness, including the original notes, any unregistered notes that are not exchange pursuant to the exchange offer and trade payables;
· rank senior to any of our future indebtedness that expressly provides it is subordinated to the notes;
· be effectively junior to all of our future secured indebtedness, to the extent of the Issuers. However, the operationsvalue of the Issuers are conducted through their Subsidiariesassets securing such debt; and therefore, the Issuers
are dependent upon the cash flow of their Subsidiaries to meet their
obligations, including their obligations under the Senior Notes. Consequently,
the Senior Notes are effectively
· be structurally subordinated to all existing Indebtedness and all future senior Indebtedness and, until the Subsidiary Guarantee
Effectiveness Date, other liabilities and commitments (including trade
payablesindebtedness and other accrued liabilities) of the Issuers' Subsidiaries. Any
right of the Issuers to receive assetsobligations of any of their Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the
Holders of the Senior Notes to participate in those assets) is effectively
subordinated to the claims of that Subsidiary's creditors, except to the
extent that the Issuers are themselves recognized as a creditor of such
Subsidiary, in which case the claims of the Issuers would still be subordinate
toour subsidiaries, including any security in the assets of such Subsidiary and any Indebtedness of such
Subsidiary senior to that held by the Issuers. See "Risk Factors--Holding
Company Structure and Ability to Repay the Senior Notes; Effective
Subordination to Indebtedness and Liabilities of Operating Partnership and
Subsidiaries."
On and after the Subsidiary Guarantee Effectiveness Date, the Issuers'
Obligationsborrowings under the Senior Notesoperating partnership’s secured credit facility and the Indenture will be guaranteed by the
Operating Partnership onoperating partnership’s outstanding senior notes.
The partnership is a senior subordinated basis. See "--Subsidiary
Guarantee."
The Senior Notes are secured by a first priority pledge of all of the
Capital Interests of the Operating Partnership held by the Partnership. The
Operating Partnership and the Finance Corps. are not permitted to be
designated as Non-Recourse Subsidiaries. See "--Security" and "--Certain
Covenants--Limitations on Subsidiary Structure."
The Senior Notes are recourse to the property and assets of the General
Partner inholding company for its capacity as general partner of the Partnership.
Finance Corp. was formed in connection with this Offeringsubsidiaries and has no material operations or assets other than its interests in its consolidated subsidiaries, including the operating partnership. Accordingly, the partnership is dependent upon the distribution of the earnings of its consolidated subsidiaries, including the operating partnership, to service its debt obligations, including the notes.
Because the notes will be structurally subordinated to the indebtedness of the operating partnership and only nominal assets.
70
SECURITY
its subsidiaries, noteholders generally will have no recourse to the operating partnership or any of its subsidiaries or their assets for amounts due under the notes. Noteholders may, however, have indirect recourse to the extent the partnership has rights as a holder of equity interests in the operating partnership and its subsidiaries. In addition, the noteholders will not have any right to require the operating partnership to make distributions to the partnership.
Furthermore, noteholders generally will have no recourse to our assets which are provided as security to other indebtedness other than such rights that any other unsecured creditor may have to such assets during a bankruptcy or other insolvency proceeding. See “Risk Factors.”
We issued $280,000,000 aggregate principal amount of our 85/8% Senior Notes due 2020 in April 2010 and subsequently redeemed $98,000,000 in principal amount of those notes, leaving $182,000,000 aggregate principal amount of the 85/8% Senior Notes due 2020 outstanding prior to the issuance of the unregistered notes (referred to herein as the “original notes”). We issued an additional $175,000,000 aggregate principal amount of our 85/8% Senior Notes due 2020 on January 30, 2017 (referred to herein as the “unregistered notes”), all of which remain outstanding, resulting in $357,000,000 aggregate principal amount of 85/8% Senior Notes due 2020 currently outstanding.
The Partnership,exchange notes have substantially the General Partnersame terms as the original notes and the Collateral Agent have entered
into the Pledge Agreement providing for the pledge by the Partnership to the
Collateral Agent, for the benefit of Holders of the Senior Notes, of all of
the Operating Partnership's Capital Interests held by the Partnership which
are outstanding on the date of the Indenture, and all Capital Interests of the
Operating Partnership thereafter issued, and all proceeds thereof (the
"Collateral"). Such pledge secures the payment and performance when due of all
of the Obligations of the Issuers under the Indenture and the Senior Notes as
provided in the Pledge Agreement. Additional Indebtedness (other than
Subordinated Indebtedness) incurred by the Partnership in the future in
accordance with the provisions of the Indenture may also be equally and
ratably secured by such Capital Interests of the Operating Partnership. See
"--Certain Covenants--Liens."
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the Partnership will be entitled to receive all cash dividends,
distributions, interest and other payments made upon orunregistered notes, except, with respect to the Collateralunregistered notes, as described in this prospectus. The exchange notes will be treated as a single series with, and to exercisewill vote as one class with, the original notes and any voting and other consensual rights pertainingunregistered notes that are not exchange pursuant to the Collateral. Uponexchange offer. However, because the occurrenceunregistered notes were issued with original issue discount (“OID”) for U.S. federal income tax purposes, the exchange notes will be deemed to have been issued with OID and during the continuance of an Event
of Default: (a) all rightstherefore will have a different CUSIP number from that of the Partnershiporiginal notes and will not be fungible with the original notes, which may cause the exchange notes to exercise such voting or other
consensual rights will cease, and all such rights will become vested intrade at prices that are different from those of the Collateral Agent, which,original notes. See “Risk Factors—Risks Relating to the extent permitted by law,Exchange Offer and the Exchange Notes—The exchange notes will havenot be fungible with the sole
right to exercise such votingoriginal notes bearing substantially the same terms.”
Principal, Maturity and other consensual rights; (b) all rights of
the Partnership to receive all cash dividends, distributions, interest and
other payments made upon or with respect to the Collateral will cease and such
cash dividends, distributions, interest and other paymentsInterest
The exchange notes:
· will be required to
beissued in registered form, without coupons, and in denominations of $2,000, or in integral multiples of $1,000 in excess thereof;
· will accrue interest at the annual rate of 85/8% from and including the last interest payment date on which interest was paid toon the Collateral Agent; provided, however, that the Partnershipunregistered notes (i.e., June 15, 2017), which interest will be entitled to receive such cash, dividends, distributions, interest and other
payments from the Operating Partnership that are sufficient to permit the
Partnership to satisfy its ordinary course operating expenses whether or not
an Event of Default shall have occurred; and (c) the Collateral Agent may sell
the Collateral or any part thereof in accordance with the terms of the Pledge
Agreement. All funds distributed under the Pledge Agreement and received by
the Trustee for the benefit of the Holders of the Senior Notes will be
distributed by the Trustee in accordance with the provisions of the Indenture.
Under the terms of the Pledge Agreement, upon an Event of Default, the
Collateral Agent will determine the circumstances and manner in which the
Collateral will be disposed of, including, but not limited to the
determination of whether to release all or any portion of the Collateral from
the Liens created by the Pledge Agreement and whether to foreclose on the
Collateral following an Event of Default. Upon the full and final payment and
performance of all Obligations of the Issuers under the Indenture and the
Senior Notes, the Pledge Agreement will terminate and the Collateral will be
released.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $160 million
and mature on June 15, 2006. Interest on the Senior Notes accrues at the rate
of 9-3/8% per annum and is payable semi-annually in arrears on June 15 and
December 15 of each year, commencing on December 15, 1996, to Holders of
record on the immediately preceding June 1 and December 1. Interest on the
Senior Notes is computed on the basis of a 360-day year comprised of twelve 30-day months. Interestmonths;
· will pay interest semi-annually in arrears on June 15 and December 15 to holders of record on the Senior Notes accrues fromimmediately preceding June 1 and December 1, commencing December 15, 2017; and
· will mature on June 15, 2020.
We do not intend to list the most recent dateexchange notes on any securities exchange or to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Holders whose Private Notes are acceptedseek approval for exchange will receive accrued interest thereon to, but not including, the date
of Issuancequotations of the Exchange Notes, but such interestnotes through any automated quotation system.
We may issue additional notes from time to time after the exchange offer as part of the same series of notes or in one or more additional series. Any offering of additional notes is subject to the covenant described below in the section entitled “—Certain Covenants—Limitation on Additional Indebtedness.” The notes and any additional notes later issued under the indenture as part of the same series will be payable withtreated as a single class for all purposes under the first interest payment on the Exchange Notes, butindenture, including waivers, amendments, redemptions and offers to purchase.
We will not receive any payment
in respect ofpay principal and interest on the Private Notes accrued after issuance of the
Exchange Notes.
The Senior Notes are payable as to principal, premium, if any, interest and
Liquidated Damages, if any,notes at theour office or agency, of the Issuers maintained
for such purpose within the City and State ofwhich we maintain in New York or, at theCity. At our option, we may make payments of the Issuers, such payment may be madeinterest by check mailed to the Holders of the
Senior Notesnoteholders at their respective addresses as set forth in the register of Holders of Senior Notes; provided, however, that allnotes. All payments
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the Global Note and definitive Senior Notes the Holders of
which have given wire transfer instructions to the Issuers at least 10
Business Days prior to the applicable payment dateglobal notes, however, will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof.holders of the global notes. Until otherwise designated by the Issuers, the Issuers'us, our office or agency in New York will be the office of the Trusteetrustee maintained for such purpose. The Senior Notes will be issued in registered form, without
coupons, and in minimum denominations of $1,000 and integral multiples
thereof.
SETTLEMENT AND PAYMENT
Payments bypayment purposes.
Optional Redemption
We have the Issuers in respect ofright to redeem the Senior Notes (including principal,
premium, if any, interest and Liquidated Damages, if any) will be made in
immediately available funds as provided above. The Senior Notes are expected
to be eligible to trade in the PORTAL Market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in the Senior Notes will, therefore, be required by the Depositary to
be settled in immediately available funds. No assurance can be given as to the
effect, if any, of such settlement arrangements on trading activity in the
Senior Notes.
OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Issuers' option prior to June 15,
2001. Thereafter, the Senior Notes will be subject to redemption at the option
of the Issuers,notes, in whole or in part, upon not less than 30 nor more than 60 days'days’ notice, at the redemption prices (expressed asin percentages of principal amount) set forthlisted in the table below, plus accrued and unpaid interest and Liquidated
Damages, if any, thereonon the notes to the applicable redemption date, if redeemed during the 12-month periodtwelve months beginning on June 15 of the years indicated below:
Year |
| Percentage |
|
2017 |
| 101.438 | % |
2018 and thereafter |
| 100.000 | % |
Mandatory Redemption; Open Market Purchases
We are not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROLnotes. We may at any time and from time to time purchase notes in the open market or otherwise.
Offers to Purchase; Repurchase at the Option of the Noteholders
We may be required to offer to purchase the notes if there is a change in control of, or specified asset sales by, the partnership.
Change of Control Offer
The indenture defines the term “change of control.” Upon the occurrence of a Changechange of Control,control, each Holder of Senior Notesnoteholder will have the right to require the Issuersus to repurchase all or any part (equal to $1,000$2,000 or an integral multiple of $1,000 in excess thereof) of such Holder's Senior Notesthat holder’s notes pursuant to a change of control offer on the terms set forth in the indenture. In a change of control offer, described below (the "Changewe will offer a change of Control Offer") at an offer pricecontrol payment in cash equal to 101% of the aggregate principal amount thereofof the notes or portion of notes validly tendered for payment, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase
(the "Changepurchase. Generally, a change of Control Payment"). Within 10 days following any Change of
Control, the Issuers will mail a notice to each Holder stating: control would occur when:
(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 there is a date no
earlier than 30 days nor later than 60 days from the date that the Issuers
mail notice of the Change of Control to the Holders (the "Change of Control
Payment Date"); (3) that any Senior Note not tendered will continue to accrue
interest; (4) that, unless the Issuers default in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest after the Change of Control
Payment Date; (5) that Holders electing to have any Senior Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Senior
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Senior Notes
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completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Senior
Notes purchased; (7) that Holders whose Senior Notes are being purchased only
in part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof;
and (8) the circumstances and relevant facts regarding such Change of Control.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Notes in connection with a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment Senior Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent
therefor an amount equal to the Change of Control Payment in respect of all
Senior Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an
officers' certificate stating the aggregate amount of the Senior Notes or
portions thereof tendered to the Issuers. The Paying Agent will promptly mail
to each Holder of Senior Notes so accepted the Change of Control Payment for
such Senior Notes, and the Trustee will promptly authenticate and mail to each
Holder a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Notes surrendered, if any; provided that each such new Senior
Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
"Change of Control" means (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnershippartnership or the Operating Partnershipoperating partnership to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act)entity other than James E. Ferrell, the Related
Parties and any Person of which James E. Ferrell and the Related Parties
beneficially own in the aggregate 51% or more of the voting Capital Interests
(or if such Person is a partnership, 51% or more of the general partner
interests), (ii) the liquidation or dissolution of the Partnership, the
Operating Partnership or the General Partner, (iii) the occurrence of any
transaction, the result of which is that James E. Ferrell and the Related
Parties beneficially own in the aggregate, directly or indirectly, less than
51% of the total voting power entitled to vote for the election of directors
of the General Partner, (iv) the occurrence of any transaction, the result of
which is that the General Partner is no longer the sole general partner of the
Partnership or the Operating Partnership and (v) the first day on which the
Partnership fails to own 100% of the issued and outstanding Equity Interests
of Finance Corp.
"Related Party" means (i) the spouse or any lineal descendant of James E.
Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or
any such lineal descendants or (iii) any corporation, partnership or other
entity in which James E. Ferrell and/or such other Persons referred to in the
foregoing clauses (i) and (ii) are the direct record and beneficial owners of
all of the voting and nonvoting Equity Interests.
Except as described above with respect to a ChangeRelated Party; in this regard, the meaning 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“all or substantially all" as used in the
Indentureall” varies according to the facts and circumstances of the subject transaction and has no clearly established meaning under New York law, (whichwhich is the law that governs the Indenture) and is subject to judicial interpretation. Accordingly,indenture; therefore, 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 thereforesome transactions it may be unclear whether a Changechange of Controlcontrol has occurredoccurred;
(2) there is a liquidation or dissolution of the partnership or our general partner or a successor to the general partner; or
(3) there is any transaction or series of transactions that results in a Person other than a Related Party beneficially owning in the aggregate, directly or indirectly, more than 35% of the voting stock of our general partner or a successor to the general partner and whethersuch percentage is more than the Senior Notes are
subjectpercentage of voting stock that is owned by the Related Party or a successor to the Related Party.
Within 30 days following any change of control, we will mail a Change of Control Offer.
73
The agreement governing the Credit Facility and the Operating Partnership
Indenture requires the Operating Partnershipnotice to repay all amounts owing
thereunder following certain events constitutingeach noteholder stating that, among other things, a change of control thereunder (which are substantially similaroffer is being made, that all notes tendered will be accepted for payment and that any note not tendered will continue to accrue interest. We will identify the amount of the change of control payment and the change of control payment date for the notes. The notice will also include directions for noteholders who elect to have their notes purchased in the change of control offer.
Noteholders will be entitled to withdraw any election to have their notes purchased if the paying agent receives timely and proper notice of such withdrawal. The notice from the partnership to noteholders will describe the requirements for the notice from the noteholders to the events constituting a
Changepaying agent.
We will comply with the requirements of ControlRule 14e-l under the Indenture). Consequently,Exchange Act and any other relevant securities laws applicable to the Partnership'srepurchase of notes in connection with a change of control.
On the change of control payment date, we will, to the extent lawful, accept for payment notes or portions of notes tendered in accordance with the change of control offer; deposit an amount equal to the change of control payment for the notes with the paying agent in respect of all notes or portions of notes properly tendered; and deliver or cause to be delivered to the trustee the notes so accepted together with an officers’ certificate stating the aggregate amount of the notes or portions of notes tendered to us.
The paying agent will promptly mail the change of control payment to each noteholder. The trustee will promptly authenticate and mail to each noteholder a new note equal in principal amount to any unpurchased portion of the notes surrendered. However, each new note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. We will publicly announce the results of the change of control offer on or as soon as practicable after the change of control payment date.
We will not be required to make a change of control offer upon a change of control if a third party makes the change of control offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a change of control offer made by us and purchases all notes properly tendered and not withdrawn under the change of control offer.
The triggering of the purchase right will not constitute an event of default under the indenture. In addition, we may be unable to pay the change of control payment because (1) the agreements governing the operating partnership’s Existing Notes and the Credit Agreement limit the operating partnership’s ability to make distributions to the partnership and (2) we may not have sufficient immediate financial resources to pay cash to the Holdersholders of Senior Notesnotes upon a repurchase will be
limited by the then existing financial resourcesrepurchase. The failure of the Partnershippartnership to repurchase the notes upon a change of control offer would constitute an immediate Event of Default under the indenture. See “Risk Factors—We may be unable to repurchase notes upon a change of control; it may be difficult to determine if a change of control has occurred.”
Asset Sales
The indenture defines the term “Asset Sale” and the
Operating Partnership and the ability of the Partnership to receive funds from
the Operating Partnership.
ASSET SALES
The Indenture provides that the Partnership willpartnership and, in specified circumstances, its subsidiaries that are Restricted Subsidiaries, meaning they are not “Unrestricted Subsidiaries,” must comply with restrictions applicable to an Asset Sale. Briefly, an Unrestricted Subsidiary has no Indebtedness or any other obligation that, directly or indirectly, is guaranteed by or obligates in any way the partnership.
The partnership and will not permit
any of its Restricted Subsidiaries to, (i) sell, lease, conveymay complete an Asset Sale if the partnership 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 theRestricted Subsidiary, as the case may be)be, receives consideration at the time of suchthe Asset Sale at least equal to the fair market value, as determined in good faith by an authorized financial officer of our general partner, of the assets sold or otherwise disposed of, and, (y)if such Asset Sale involves assets with a fair market value in excess of $10 million, then at least 80%75% of the consideration therefor received by the Partnershippartnership or suchthe Restricted Subsidiary is in the form of cash; provided, however, thatcash. For purposes of determining the amount of (A)cash received in an Asset Sale, the following will be deemed to be cash:
(1) the amount of any liabilities (as shown on the Partnership's or such
Subsidiary's most recent balance sheet or in the notes thereto) of the
Partnershippartnership’s or any Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Senior Notes)Restricted Subsidiary’s balance sheet that are assumed by the transferee of any such assetsthe assets; and (B)
(2) the amount of any notes or other obligations received by the Partnershippartnership or any suchthe Restricted Subsidiary from suchthe transferee that are
immediatelyis converted within 180 days by the Partnershippartnership or suchthe Restricted Subsidiary into cash, (toto the extent of the cash received), shall be deemed to be cash for purposes of this
provision; and provided, further, thatreceived.
Furthermore, the 80%75% limitation referred to in this
clause (y) shallwill 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 suchthe Asset Sale complied with the aforementioned 80%75% limitation.
Notwithstanding
If the foregoing, Asset Sales shall not be deemed to include (1)
any transfer of assets by the Partnershippartnership or any of its Restricted Subsidiaries to a
Wholly Owned Subsidiaryreceives Net Proceeds exceeding $20 million from one or more Asset Sales in any fiscal year, then within 410 days after the date the aggregate amount of Net Proceeds exceeds $20 million, the Partnership that is a Guarantor, (2) any
transfer of assets by the Partnershippartnership or any of its Restricted Subsidiaries must apply the amount of such Net Proceeds either (1) 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 thatreduce Indebtedness of the assets so transferred, (3) any transfer of assets pursuant to a
Permitted Investment and (4) any transfer of assets to a Non-Recourse
Subsidiary by the Partnershippartnership or any of its Restricted Subsidiaries, which assets were
acquired in a Flow-Through Acquisition; provided that no Default or Event of
Default has occurred and is continuing or would occur as a result of such
transfer.
Within 270 days after any Asset Sale, the Partnership may apply the Net
Proceeds from such Asset Sale to (a) permanently reduce Indebtedness
outstanding under the Credit Facility (withwith a permanent reduction of availability in the case of revolving Indebtedness), the Operating Partnership
IndentureIndebtedness, or any other Indebtedness permitted(2) to be incurred by the Operating
Partnership under the Indenture or (b)make an investment in assets or capital expenditures useful to the partnership’s or other long-term/tangible assets, in each case, in the same lineany of its Subsidiaries’ business as the Partnership and its Subsidiaries were engaged in effect on the dateApril 13, 2010 or businesses related or ancillary thereto. Any Net Proceeds that are not applied or invested in either of the
Indenture. these ways will be considered “Excess Proceeds.”
Pending the final application of any such Net Proceeds, the Partnershippartnership or any Restricted Subsidiary may temporarily reduce borrowings under the Credit FacilityFacilities, or otherwise invest suchthe 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." indenture.
When the aggregate amount of Excess Proceeds exceeds $15$20 million, the Issuers shallwe will make an offer to all Holdersnoteholders, and holders of Senior
Notes (an "Asset Sale Offer")other Indebtedness outstanding that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the maximum principal amountproceeds of Senior Notesasset sales, to purchase for cash that number of notes that may be purchased out of the Excess Proceeds at an offera purchase price in cash in an amount equal to 100% of the principal amount thereofof the note plus accrued and unpaid interest and Liquidated Damages, if any, to the 74
purchase, in accordance withpurchase. We will follow the procedures set forth in the Indenture. The Issuersindenture and we will comply with the requirements of Rule 14e-114e-l under the Exchange Act and any other applicable 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. laws.
To the extent that the aggregate amount of Senior Notesnotes tendered pursuantin response to an Asset Sale Offerour purchase offer is less than the Excess Proceeds, the Partnershippartnership or any Restricted Subsidiary may use such deficiency for general business
purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereofnotes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trusteetrustee shall select the Senior Notesnotes and such other pari passu Indebtedness to be purchased on a pro rata basis.basis in proportion to the aggregate principal amount of the notes and such other pari passu Indebtedness tendered in accordance with the procedures for selection and notice of redemption set forth below. Upon completion of suchthe offer to purchase,the noteholders, the amount of Excess Proceeds shallwill be reset at zero.
SELECTION AND NOTICE
Selection and Notice of Redemption
If less than all of the Senior Notesnotes are to be redeemed pursuant toat any time, the optional redemption provisions of the Indenture, the Trustee shalltrustee will select the Senior Notesnotes to be redeemed among the Holders on aholders of notes pro rata, basis.by lot or in accordance with a method which the trustee considers to be fair and appropriate (in accordance with the procedures of DTC). The trustee must choose in a manner that complies with any legal and stock exchange requirements. Notices of redemption shall be mailed by first class mail at least 3010 but not more than 60 days before the redemption date to each Holderholder of Senior Notesnotes to be redeemed at its registered address. If any Senior Notenote is to be redeemed in part only, the notice of redemption that relates to such Senior Notethat note shall state the portion of the principal amount thereof to be redeemed. A new Senior
Notenote in principal amount equal to the unredeemed portion thereofof the note will be issued in the name of the Holder thereofholder of that note upon surrender and cancellation of the original Senior Note.note. On and after the redemption date, interest ceases to accrue on Senior Notesnotes or portions of themnotes called for redemption.
SUBSIDIARY GUARANTEE
On
Certain Covenants
The indenture requires us to comply with a number of covenants, including those summarized below.
Limitation on Additional Indebtedness
The partnership and after the Subsidiary Guarantee Effectiveness Date, the Issuers'
Obligationsits Restricted Subsidiaries may incur more debt only under the Senior Notes and the Indenture will be guaranteed on a
senior subordinated basis by the Operating Partnership (the "Subsidiary
Guarantee"), which Subsidiary Guarantee will be subordinate and junior in
right of payment only to all Senior Operating Partnership Indebtedness as
provided in the Indenture.specified circumstances. The Credit Facility and the Operating Partnership Indenture currently
prohibit the Operating Partnership from guaranteeing or becoming directly or
indirectly liable with respect to any Indebtedness unless (i) the Fixed Charge
Coverage Ratio for the Operating Partnership is 2.75 to 1.0 prior to August 1,
1996 and 3.0 to 1.0 thereafter and (ii) such Indebtedness is subordinated in
right of payment to the obligations of the Operating Partnership under both
the Credit Facility and the Operating Partnership Indenture. In addition, the
Credit Facility prohibits the incurrence of such subordinated indebtedness if
the payment of principal thereon is required prior to July 1, 2000, whether
upon stated maturity, mandatory prepayment, acceleration or otherwise; and the
Operating Partnership Indenture requires that the Weighted Average Life to
Maturity of such other Indebtedness be greater than the Weighted Average Life
to Maturity of the Operating Partnership Notes. See "Description of Existing
Indebtedness." As of April 30, 1996, the Operating Partnership's fixed charge
coverage ratio as calculated according to the Credit Facility and the
Operating Partnership's Indenture was 2.94 to 1.0. Moreover, the Indenture and
the Subsidiary Guarantee do not prohibit or restrict the Operating Partnership
from modifying or revising these provisions in a manner that could extend or
defer the Subsidiary Guarantee Effectiveness Date. Accordingly, there can be
no assurance as to whether or when the Subsidiary Guarantee Effectiveness Date
will occur. Furthermore, the Indenture provides that after the Subsidiary
Guarantee Effectiveness Date and prior to July 1, 2000, the Operating
Partnership will be prohibited from making any payment in respect of the
principal of the Senior Notes pursuant to its obligations under the Subsidiary
Guarantee, and if such obligations are accelerated, any payment in respect of
such acceleration received by the Trustee or any Holders of the Senior Notes
must be turned over to the holders of the Senior Operating Partnership
Indebtedness pursuant to the subordination provisions of the Indenture. The
Indenture also provides that the Operating Partnership is prohibited from
incurring Subordinated Indebtedness until the Subordinated Guarantee
Effectiveness Date occurs. See "--Incurrence of Indebtedness and Issuance of
Disqualified Interests."
The obligations of the Operating Partnership under the Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under
applicable law. See, however, "Risk Factors--Fraudulent Conveyance
Considerations--Subsidiary Guarantee."
75
The Indenture provides that the Operating Partnership may not consolidate
with or merge with or into (whether or not the Operating Partnership is the
surviving Person), another Person whether or not affiliated with the Operating
Partnership unless (i) subject to the provisions of the following paragraph,
the Person formed by or surviving any such consolidation or merger (if other
than the Operating Partnership) assumes all the obligations of the Operating
Partnership pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Senior Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) the Operating Partnership, or
any Person formed by or surviving any such consolidation or merger, (A) would
have Consolidated Net Worth (immediately after giving effect to such
transaction), equal to or greater than the Consolidated Net Worth of the
Operating Partnership immediately preceding the transaction and (B) would be
permitted by virtue of the Operating Partnership's pro forma Fixed Charge
Coverage Ratio to incur, immediately after giving effect to such transaction,
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the Credit Facility and in the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Interests"
in the Operating Partnership Indenture.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of the Operating Partnership, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Interests of the Operating Partnership, then the Operating Partnership
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Interests of the Operating
Partnership) or the corporation acquiring the property (in the event of a sale
or other disposition of all of the assets of the Operating Partnership) will
be released and relieved of any obligations under the Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Partnershippartnership will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or make any
distribution or pay any dividend on account of the Partnership's or any
Subsidiary's Equity Interests (other than (x) distributions or dividends
payable in Equity Interests (other than Disqualified Interests) of the
Partnership, (y) distributions or dividends payable to the Partnership or the
Operating Partnership or (z) distributions or dividends payable pro rata to
all holders of Capital Interests of any such Subsidiary); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Partnership or any Subsidiary or other Affiliate of the Partnership (other
than any such Equity Interests owned by the Partnership or the Operating
Partnership); (iii) purchase, redeem or otherwise acquire or retire for value
any Indebtedness that is subordinated to the Senior Notes; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Fixed Charge Coverage Ratio of the Partnership for the
Partnership's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such Restricted Payment is made, calculated on a pro forma basis
as if such Restricted Payment had been made at the beginning of such four-
quarter period, would have been more than 2.0 to 1.0; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors of the General
Partner, whose determination shall be conclusive and evidenced by a
resolution in an Officer's Certificate delivered to the Trustee), together
with the aggregate of all other Restricted Payments (other than any
Restricted Payments permitted by the provisions of clauses (ii) or (iii) of
the penultimate paragraph of this covenant) made by the Partnership and its
Subsidiaries in the fiscal quarter during which such Restricted Payment is
made shall not exceed an amount equal to the sum of (i)
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Available Cash of the Partnership for the immediately preceding fiscal
quarter (or, with respect to the first fiscal quarter during which
Restricted Payments are made, the amount of Available Cash of the
Partnership for the period commencing on the date of the Indenture and
ending on the last day of the immediately preceding fiscal quarter) plus
(ii) the lesser of (x) the amount of Available Cash of the Partnership for
the first 45 days of the fiscal quarter during which such Restricted
Payment is made and (y) the amount of working capital Indebtedness that the
Partnership could have incurred on the last day of the immediately
preceding fiscal quarter under the terms of the agreements and instruments
governing its outstanding Indebtedness on such date.
The foregoing provisions will not prohibit (i) the payment of any
distribution within 60 days after the date on which the Partnership becomes
committed to make such distribution, if at said date of commitment such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Partnership in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Partnership)
of other Equity Interests of the Partnership (other than any Disqualified
Interests); and (iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the proceeds of Permitted Refinancing Indebtedness.
Not later than the date of making any Restricted Payment, the General
Partner shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by the covenant "Restricted Payments" were computed,
which calculations may be based upon the Partnership's latest available
financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED INTERESTS
The Indenture provides that the Issuers will not, and will not permit any of
their Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwisein any manner become directly or indirectly liable, with respectcontingently or otherwise, for the payment, in each case, to (collectively, "incur")“incur,” any Indebtedness, (including Acquired Debt) and thatunless at the Issuers will not issue any Disqualified Interests and will not permit any
of their Subsidiaries to issue any shares of preferred stock; provided,
however, that the Issuers may incur Indebtedness and any Subsidiarytime of the Issuers may incur Acquired Debt ifincurrence and after giving pro forma effect to the receipt and application of the proceeds of the Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the partnership would be greater than 2.00 to 1.00.
In addition to any Indebtedness that may be incurred as set forth above, the partnership and its Restricted Subsidiaries may incur “Permitted Indebtedness.” The term Permitted Indebtedness is defined in the indenture and includes:
(1) Indebtedness outstanding as of April 13, 2010;
(2) Indebtedness of the partnership or a Restricted Subsidiary incurred for the Partnership's most recently ended four full fiscal quartersmaking of expenditures for the improvement or repair, to the extent the improvements or repairs may be capitalized in accordance with GAAP, or additions, including by way of acquisitions of businesses and related assets, to the property and assets of the partnership and its Restricted Subsidiaries, including, without limitation, the acquisition of assets subject to operating leases, Indebtedness incurred under the Credit Facilities, or incurred by assumption in connection with additions, including additions by way of acquisitions or capital contributions of businesses and related assets, to the property and assets of the partnership and its Restricted Subsidiaries; provided, that the aggregate principal amount of this Indebtedness outstanding at any time may not exceed $75 million;
(3) Indebtedness of the partnership or a Restricted Subsidiary (a) incurred for any purpose permitted under the Credit Facilities or (b) owing in respect of any Accounts Receivable Securitization, operating lease, or other off-balance sheet obligation existing on April 13, 2010 that arises because, after April 13, 2010, such off-balance sheet obligations are refinanced with Indebtedness, provided, that the aggregate principal amount of this Indebtedness outstanding under this clause at any time may not exceed an amount equal to the sum of (x) $500 million plus (y) the amount, if any, by which internal
financial statements are available immediately precedingthe Borrowing Base as of the date on which
such additional Indebtedness is incurred would have been at least 2.25 to 1.0,
determined on a pro forma basis (including a pro forma applicationof calculation exceeds the amount of the net
proceeds therefrom),Borrowing Base as ifof December 31, 2003;
(4) Indebtedness of the additional Indebtedness had been incurred atpartnership owed to our general partner or an affiliate of our general partner that is unsecured and that is subordinated in right of payment to the beginning of such four-quarter period.
Notwithstanding the foregoing, the Indenture providesnotes; provided, that the Operating
Partnership willaggregate principal amount of this Indebtedness outstanding at any time under this clause may not exceed $50 million and will not permitthis Indebtedness has a final maturity date later than the final maturity date of the notes;
(5) Indebtedness (a) owed by the partnership or any of its SubsidiariesRestricted Subsidiary to directlythe operating partnership or indirectly incur any SubordinatedRestricted Subsidiary or (b) owed by the operating partnership or any Restricted Subsidiary to the partnership or to any other Restricted Subsidiary;
(6) Permitted Refinancing Indebtedness (including, Acquired Debt
which constitutes Subordinated Indebtedness) and thatfor the Operating
Partnership will not issue any Disqualified Interests and will not permit anyavoidance of its Subsidiaries to issue any shares of preferred stock prior todoubt, Indebtedness incurred as permitted under the Subsidiary Guarantee Effectiveness Date, irrespective of whether the
Partnership'sConsolidated Fixed Charge Coverage Ratio exceeds 2.25 to 1.0.
The foregoing limitations will not apply to: (i)set forth in the Indebtedness
represented by the Senior Notes and the Subsidiary Guarantee; (ii)second sentence of this section entitled “— Limitation on Additional Indebtedness”);
(7) the incurrence by the Operating Partnership of Indebtedness pursuant to the Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $205.0 million; (iii) the Indebtedness represented by the existing
Fixed Rate Notes and Floating Rate Notes; (iv) revolving Indebtedness incurred
solely for working capital purposes in an aggregate outstanding principal
amount not to exceed $40.0 million at any time, provided, that the outstanding
principal balance of such revolving Indebtedness (or, if such revolving
Indebtedness is incurred as an additionpartnership or extension to the Credit Facility,
the outstanding principal balance under the Credit Facility in excess of the
limits set forth in clause (ii) above) shall be reduced to zero for a period
of 30 consecutive days during each fiscal year; (v) the incurrence by the
Partnership or any of its Subsidiaries of Indebtedness in respect of
Capitalized Lease Obligations in an aggregate principal amount not to exceed
$15.0 million; (vi) the Existing Indebtedness; (vii) the incurrence by the
Partnership or any of its
77
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace, defease or
refund any then outstanding Indebtedness of the Partnership or such Subsidiary
not incurred in violation of the Indenture; (viii) Hedging Obligations that
are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding; (ix) Indebtedness of any Subsidiary of the
Partnership to the Partnership or any of its Wholly Owned Subsidiaries; (x)
the incurrence by the Partnership, the Operating Partnership or the Insurance
CompanyRestricted Subsidiary of Indebtedness owing directly to its insurance carriers, (without duplication)without duplication, in connection with the Partnership's, the Operating
Partnership's, their Subsidiaries'partnership’s, its Subsidiaries’ or their Affiliates'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, (andand guarantees of the foregoing)foregoing, secured by letters of credit,credit; provided, that any Consolidated Fixed Charges associated with the Indebtedness evidenceevidenced by suchthe reinsurance agreements, indemnification agreements, guarantees and letters of credit shallwill be counted (without duplication) for purposesincluded, without duplication, in any determination of all calculations pursuant to
the Consolidated Fixed Charge Coverage Ratio test above; (xi)set forth in the second sentence of this section entitled “— Limitation on Additional Indebtedness;”
(8) Indebtedness of the partnership and its Restricted Subsidiaries in respect of Capital Leases, meaning, generally, any lease of any property which would be required to be classified and accounted for as a capital lease on a balance sheet of the lessor; provided, that the aggregate amount of this Indebtedness outstanding at any time may not exceed $30 million;
(9) Indebtedness of the partnership and its Restricted Subsidiaries represented by letters of credit supporting (a) obligations under workmen’s compensation laws, (b) obligations to suppliers of propane or energy commodity derivative providers in the ordinary course of business consistent with past practices, not to exceed $15 million at any one time outstanding, and (c) the repayment of Indebtedness permitted to be incurred under the indenture;
(10) surety bonds and appeal bonds required in the ordinary course of business or in connection with the enforcement of rights or claims of the Partnershippartnership or any of its Subsidiaries or in connection with judgments that do not result in a “Default” or “Event of Default” (which terms are defined in the section entitled “— Events of Default and Remedies”);
(11) Indebtedness of the partnership or Event of
Default; (xii) the incurrence by the Partnership or the Operating Partnership
of Indebtednessits Restricted Subsidiaries incurred in connection with acquisitions of retail propane businesses in favor of the sellers of such businesses in aan aggregate principal amount not to exceed $15.0$20 million in any fiscal year or $60.0and not to exceed $70 million in the aggregate outstanding at any one time outstanding; provided, that the principal amount of such Indebtedness incurred in connection with any such acquisition shall not exceed the fair market value of the assets so acquired;acquired and, (xiii)to the extent issued by the partnership, such Indebtedness is expressly subordinated to the notes;
(12) unsecured Indebtedness of the Partnership owing from timepartnership or its Restricted Subsidiaries which is not otherwise a Permitted Indebtedness in an aggregate outstanding amount not to time toexceed the General Partner or an Affiliategreater of (a) $50 million and (b) 5% of Consolidated Net Tangible Assets; and
(13)the General Partner that is unsecured and that is Subordinated Indebtedness,
provided thatnotes initially issued on April 13, 2010 in the aggregate principal amount of such Indebtedness outstanding
at any time may not exceed $50.0$280 million.
The aggregate amount
For purposes of determining compliance with this covenant, in the event that an item of Indebtedness permittedmeets the criteria of more than one of the categories of Permitted Indebtedness or is entitled to be incurred by clauses
(ii), (iv), (v), (xii)in compliance with the Consolidated Fixed Charge Coverage Ratio in the first paragraph of this section, the partnership may, in its sole discretion, classify (or later reclassify) in whole or in part such items of Indebtedness in any manner that complies with this covenant, and (xiii) above, shallsuch item of Indebtedness or a portion thereof may be reduced by the aggregate
amount of any sale and leaseback transaction entered into by the Partnershipclassified (or later reclassified) in whole or its Subsidiaries pursuant to the termsin part as having been incurred under more than one of the last sentenceapplicable clauses of Permitted Indebtedness or in compliance with the covenant
"Limitation on Sale and Leaseback Transactions."
For purposes ofConsolidated Fixed Charge Coverage Ratio in the foregoing, any revolving Indebtedness shall be deemed to
have been incurred only at such time at which the agreements and instruments
(including any amendments thereto that increase the amount, reduce the
Weighted Average Life to Maturity, change any subordination provisions or
create any additional obligor of such revolving Indebtedness) are executed, in
an amount equal to the maximum amount of such revolving Indebtedness permitted
to be borrowed thereunder, and the Partnership's ability to borrow or reborrow
such revolving Indebtedness up to such maximum permitted amount shall not
thereafter be limited by the foregoing (other than the proviso set forth in
clause (iv) of the thirdfirst paragraph of the description of such covenant
contained herein).
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
this section.
Limitation on Restricted Payments
The Indenture provides that the Partnershippartnership will not, and will not permit any of its Restricted Subsidiaries to, enter intodirectly or indirectly, make a Restricted Payment, that is, to:
(1) declare or pay any arrangementdividend or any other distribution or payment on or with respect to Capital Stock of the partnership or any Person
providingof its Restricted Subsidiaries or any payment made to the direct or indirect holders, in their
capacities as such, of Capital Stock of the partnership or any of its Restricted Subsidiaries other than (a) dividends or distributions payable solely in Capital Stock of the partnership (excluding Redeemable Capital Stock), or in options, warrants or other rights to purchase Capital Stock of the partnership (excluding Redeemable Capital Stock); (b) dividends or other distributions to the extent declared or paid to the partnership or any Restricted Subsidiary of the partnership; or (c) dividends or other distributions by any Restricted Subsidiary of the partnership to all holders of Capital Stock of that Restricted Subsidiary on a pro rata basis, including, in the case of the operating partnership, to its general partner;
(2) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the partnership or any of its Restricted Subsidiaries, other than any Capital Stock owned by the partnership or a Restricted Subsidiary of the partnership;
(3) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other stated maturity, any subordinated Indebtedness, other than any such Indebtedness owned by the partnership or a Restricted Subsidiary of the partnership; or
(4) make any investment, other than a Permitted Investment, in any entity, unless, at the time of and after giving effect to the proposed Restricted Payment, no Default or Event of Default shall have occurred and be continuing, and the Restricted Payment, together with the aggregate of all other Restricted Payments made by the partnership and its Restricted Subsidiaries during the fiscal quarter during which the Restricted Payment is made, will not exceed:
(A) if the Consolidated Fixed Charge Coverage Ratio of the partnership is greater than 1.75 to 1.00, an amount equal to Available Cash for the leasing byimmediately preceding fiscal quarter; or
(B) if the PartnershipConsolidated Fixed Charge Coverage Ratio of the partnership is equal to or such Subsidiary of any
property that has been or isless than 1.75 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 in1.00, an amount equal to the Attributable Debtsum of $50 million, less the aggregate amount of all Restricted Payments made by the partnership and its Restricted Subsidiaries in accordance with respect to such sale and leaseback transaction or
(b)this clause during the lease in such sale and leaseback transaction is for a term not in
excessperiod ending on the last day of the lesser of (i) three years and (ii) 60%fiscal quarter of the useful remaining
lifepartnership immediately preceding the date of such property. Notwithstanding the foregoing,Restricted Payment and beginning on the Indenture permitsfirst day of the Partnershipsixteenth full fiscal quarter immediately preceding the date of the Restricted Payment plus the aggregate net cash proceeds of capital contributions to the partnership from any Person other than a Restricted Subsidiary of the partnership, or issuance and sale of shares of Capital Stock, other than Redeemable Capital Stock, of the partnership to any entity other than to a Restricted Subsidiary of the partnership, in any case made during the period ending on the last day of the fiscal quarter of the partnership immediately preceding the date of the Restricted Payment and beginning on the first day of the sixteenth full fiscal quarter immediately preceding the date of the Restricted Payment.
The Restricted Payment may be made in assets other than cash, in which case the amount will be the fair market value, as determined in good faith by an authorized financial officer of the general partner on the date of the Restricted Payment of the assets proposed to be transferred.
The above provisions will not prohibit:
(1) the payment of any dividend or distribution within 60 days after the date of its Subsidiariesdeclaration if, at the date of declaration, the payment would be permitted as summarized above;
(2) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the partnership or any Restricted Subsidiary of the partnership in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to enter intothe partnership from any entity other than a Restricted Subsidiary of the partnership; or issuance and sale and leaseback
transactions relatingof other Capital Stock, other than Redeemable Capital Stock, of the partnership to propane tanks upany entity other than to an aggregate principala Restricted Subsidiary of the partnership; provided, however, that the amount of $25 million at any time,net cash proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash; or
(3) any redemption, repurchase or other acquisition or retirement of subordinated Indebtedness in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to the partnership from any entity other than a Restricted Subsidiary of the partnership; or issuance and sale of Indebtedness of the partnership issued to any entity other than a Restricted Subsidiary or the partnership, so long as the Indebtedness is Permitted Refinancing Indebtedness; provided, however, that such transaction would not cause a
defaultthe amount of any net cash
proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash.
In computing the amount of Restricted Payments previously made for purposes of the Restricted Payments test above, Restricted Payments made under the covenant "Incurrence of Indebtednessfirst point above will be included and Issuance of
Disqualified Interests."
78
LIENS
Restricted Payments made under the second and third points above shall not be so included.
Limitation on Liens
The Indenture provides that the Partnershippartnership will not, and will not permit any of its Restricted Subsidiaries to, incur any liens or other encumbrance, unless the lien is a Permitted Lien or the notes are directly secured equally and ratably with the obligation or indirectly, create, incur, assume or
suffer to exist any Lienliability secured by such lien.
Limitation 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
Transactions with Affiliates
The Indenture provides that the Partnershippartnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions, including the sale, transfer, disposition, purchase, exchange or lease of assets, property or services, other than as provided for in our partnership agreement or in the operating partnership’s partnership agreement and the other agreements entered into between the partnership or the operating partnership and any of their affiliates, with, or for the benefit of any affiliates of the partnership unless:
(1) the transaction or series of related transactions are between the partnership and its Restricted Subsidiaries or between two Restricted Subsidiaries; or
(2) the transaction or series of related transactions are on terms that are no less favorable to the partnership or the Restricted Subsidiary, as the case may be, than those which would have been obtained in a comparable transaction at such time from an entity that is not an affiliate of the partnership or Restricted Subsidiary, and, with respect to transaction(s) involving aggregate payments or value equal to or greater than $20 million, the partnership shall have delivered an officers’ certificate to the trustee certifying that the transaction(s) is on terms that are no less favorable to the partnership or the Restricted Subsidiary than those which would have been obtained from an entity that is not an affiliate of the partnership or Restricted Subsidiary and has been approved by a majority of the board of directors of our general partner, including a majority of the disinterested directors.
However, the covenant limiting transactions with affiliates will not restrict the partnership, any Restricted Subsidiary or the general partner from entering into: any employment agreement, stock option agreement, restricted stock agreement, employee stock ownership plan related agreements, or similar agreement and arrangements, in the ordinary course of business; transactions permitted by the provisions described in the section entitled “— Restricted Payments;” and the definition of “Permitted Investments,” transactions in the ordinary course of business in connection with reinsuring the self-insurance programs or other similar forms of retained insurable risks of the retail propane business operated by the partnership, its Subsidiaries and affiliates; any Accounts Receivable Securitization; any affiliate trading transactions done in the ordinary course of business; and any transaction that is a Flow-Through Acquisition.
Limitation on Dividends and Other Payment Restrictions Affecting the Subsidiaries
The partnership will not, and will not permit any of its Restricted Subsidiaries to, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a)to:
(1) pay dividends, in cash or otherwise, or make any other distributions to the Partnershipon or any of its Subsidiaries (1) onwith respect to its Capital InterestsStock or
(2) with respect to any other interest or participation in, or measured by, its profits, (b)profits;
(2) pay any indebtednessIndebtedness owed to the Partnershippartnership or any of its
Subsidiaries, (c)other Restricted Subsidiary;
(3) make loans or advances to, the Partnership or any of its
Subsidiariesinvestment in, the partnership or (d)any other Restricted Subsidiary;
(4) transfer any of its properties or assets to the Partnershippartnership or any other Restricted Subsidiary; or
(5) guarantee any Indebtedness of its Subsidiaries, except for suchthe partnership or any other Restricted Subsidiary.
Collectively, these restrictions are called the “Payment Restrictions.” However, some encumbrances or restrictions are permissible, including those existing under or by reason of (i) Existingof:
(1) applicable law;
(2) any agreement in effect at or entered into on April 13, 2010 or any agreement relating to any Indebtedness permitted to be incurred under the indenture, or with respect to any Credit Facility (including agreements or instruments evidencing Indebtedness incurred after April 13, 2010); provided, however, that the encumbrances and restrictions contained in the agreements governing such permitted Indebtedness are not materially more restrictive with respect to the payment restrictions than those set forth in the agreements governing the operating partnership’s Credit Facilities or existing Indebtedness as in effect on the dateApril 13, 2010;
(3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Indenture, (ii) the Credit Facility, as in effect on
the date of the Indenture, the Indenture, the Senior Notes, the Subsidiary
Guarantee, the Operating Partnership Indenture as in effect on the date of the
Indenture, the Fixed Rate Notes and the Floating Rate Notes, (iii) applicable
law, (iv)partnership or any instrument governing IndebtednessRestricted Subsidiary;
(4) specific purchase money obligations or Capital InterestsLeases for property subject to such obligations;
(5) any agreement of a
Personan entity (or any it its Restricted Subsidiaries) acquired by the Partnershippartnership or any of its Subsidiaries asRestricted Subsidiary, in effectexistence at the time of suchthe acquisition (except to the extent such Indebtedness was
incurred in connection with orbut not created in contemplation of such acquisition),the acquisition, which encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person,third party other than the Person,entity; or
(6) provisions contained in instruments relating to Indebtedness which prohibit the propertytransfer of all or substantially all of the 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 termsobligor of the Indenture, (v) customary non-assignment
provisions in leases entered into inIndebtedness unless the ordinary course of business and
consistent with past practices, (vi) purchase moneytransferee shall assume the obligations for property
acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above onobligor under the property so acquired, (vii)
Permitted Refinancing Indebtednessagreement or instrument.
Merger, Consolidation or Sale of any Existing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (viii) agreements
governing any Indebtedness that is permitted to be incurred pursuant to the
Indenture and that is incurred to extend, refinance, renew, replace, defease
or refund Indebtedness outstanding pursuant to the Credit Facility, provided
that the restrictions contained in the agreements governing such refinancing
Indebtedness are no more restrictive than those contained in the Credit
Facility, as in effect on the date of the Indenture or (ix) other Indebtedness
permitted to be incurred subsequent to the date of the Indenture pursuant to
the provisions of the covenant described under "--Incurrence of Indebtedness
and Issuance of Disqualified Interests;" provided that such restrictions are
no more restrictive that those contained in the Credit Facility and the
Operating Partnership Indenture, each as in effect on the date of the
Indenture.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Assets
The Indentureindenture provides that the Partnershippartnership may not consolidate or merge with or into, (whether or not the Partnership is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another Person unless (i)entity unless:
(1) the Partnershippartnership is the surviving Person,entity or the Personentity formed by or surviving any such consolidation or merger
(ifthe transaction, if other than the Partnership)partnership, or the entity to which suchthe sale assignment, transfer,
lease, conveyance or other disposition shall have beenwas 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)
(2) the Personentity formed by or surviving any such consolidation or merger (ifthe transaction, if other than the Partnership)partnership, or the Personentity to which suchthe sale assignment, transfer, lease, conveyance or
other disposition shall have beenwas made assumes all the obligations of the Partnership, pursuant topartnership in accordance with a supplemental indenture in a form reasonably satisfactory to the Trustee,trustee, under the Senior Notesnotes and the 79
Indenture; (iii)indenture;
(3) immediately after suchthe 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,
(4) at the time of suchthe transaction and after giving pro forma effect theretoto it as if suchthe transaction had occurred at the beginning of the applicable four-quarter period, beeither (a) the partnership or such other entity or survivor is permitted to incur at least $1.00 of additional Indebtedness pursuant toin accordance with the Consolidated Fixed Charge Coverage Ratio test set forthas described in the covenantsection entitled "Incurrence“— Limitation on Additional Indebtedness,” or (b) the Consolidated Fixed Charge Coverage Ratio of Indebtedness and
Issuancethe partnership or such other entity or survivor is equal to or greater than the Consolidated Fixed Charge Coverage Ratio of Disqualified Interests."
the partnership immediately before such transaction.
The Indentureindenture also provides that Ferrellgas Partners Finance Corp. may not consolidate or merge with or into, (whetherwhether or not Finance Corp.it is the surviving Person),entity, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another 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.) orentity except under conditions similar to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia
and a Wholly Owned Subsidiary of the Partnership; (ii) the Person formed by or
surviving any such consolidation or merger (if other than Finance Corp.) or
the Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of Finance
Corp., pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, under the Senior Notes and the Indenture; and (iii)
immediately after such transaction no Default or Event of Default exists.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate, including any Non-Recourse
Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a)
such Affiliate Transaction is on terms that are no less favorable to the
Partnership or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Partnership or such Subsidiary
with an unrelated Person and (b) with respect to (i) any Affiliate Transaction
with an aggregate value in excess of $500,000, a majority of the directors of
the General Partner having no direct or indirect economic interest in such
Affiliate Transaction determines by resolution that such Affiliate Transaction
complies with clause (a) above and approves such Affiliate Transaction and
(ii) any Affiliate Transaction involving the purchase or other acquisition or
sale, lease, transfer or other disposition of properties or assets other thandescribed in the ordinary course of business, in each case, having a fair market value
or for net proceeds in excess of $15.0 million, the Partnership deliversparagraph above.
Reports to the Trustee an opinion as to the fairness to the Partnership or such
Subsidiary from a financial point of view issued by an investment banking firm
of national standing; provided, however, that (A) any employment agreement or
stock option agreement entered into by the Partnership (or the General
Partner) in the ordinary course of business and consistent with the past
practice of the Partnership or such Subsidiary, (B) transactions permitted by
the provisions of the Indenture described above under the covenant "Restricted
Payments," and (C) transactions entered into by the Partnership, the Operating
Partnership or the Insurance Company Subsidiary in the ordinary course of
business in connection with reinsuring the self-insurance programs or other
similar forms of retained insurable risks of the retail propane businesses
operated by the Partnership, its Subsidiaries and its Affiliates, in each
case, shall not be deemed Affiliate Transactions. Notwithstanding the
foregoing, in any transaction involving a Flow-Through Acquisition, the dollar
amount equal to the purchase price paid by the General Partner or its parent
to any third party that is not an Affiliate for such property, assets or
equipment will be excluded from calculating the value and/or net proceeds set
forth in clauses (b)(i) and (ii) above.
RESTRICTIONS ON NATURE OF INDEBTEDNESS AND ACTIVITIES OF FINANCE CORP.
In addition to the restrictions set forth under the "Incurrence of
Indebtedness and Issuance of Disqualified Interests" covenant above, the
Indenture provides that Finance Corp. may not incur any Indebtedness unless
(a)
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the Partnership is a co-obligor or guarantor of such Indebtedness or (b) the
net proceeds of such Indebtedness are lent to the Partnership, used to acquire
outstanding debt securities issued by the Partnership or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitations of this paragraph. The Indenture also provides that Finance Corp.
may not engage in any business not related directly or indirectly to obtaining
money or arranging financing for the Partnership.
LIMITATIONS ON SUBSIDIARY STRUCTURE
The Indenture also provides that each of the Operating Partnership and
Finance Corp. will at all times continue to be direct Wholly Owned
Subsidiaries of the Partnership. In addition, the Operating Partnership and
the Finance Corps. are not be permitted to be designated as Non-Recourse
Subsidiaries.
LINE OF BUSINESS
The Indenture provides that for so long as any Senior Notes are outstanding,
the Partnership and its Subsidiaries will not materially or substantially
engage in any business other than that in which the Partnership and its
Subsidiaries were engaged on the date of the Indenture.
REPORTS
Noteholders
Whether or not required by the rules and regulations of the Securities and Exchange Commission (“SEC”), so long as any Senior Notesnotes are outstanding, the Issuerswe will furnish to the Holders of Senior Notes (i)noteholders all quarterly and annual financial information that would be required to be contained in a filing with the CommissionSEC on Forms 10-Q and 10-K if the Issuerswe were required to file suchthose Forms, including a "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations" and, with respectOperations.” In addition, we will furnish to the annual information only, a report thereon
by the Issuers' certified independent accountants and (ii)such noteholders all reports that would be required to be filed with the CommissionSEC on Form 8-K if the Issuerswe were required to file suchthe reports. In addition,Finally, whether or not required by the rules and
regulations of the Commission, the IssuersSEC, we will file a copy of all suchthe information described in the preceding sentences with the Commission for public availability (unlessSEC unless the CommissionSEC will not accept such a filing) andthe filing. We will also make suchthe information available to investors who request it in writing. In addition, the Issuers have agreed
that, for so long as any Senior Notes remain outstanding, theyCurrently, we are required to and do file quarterly and annual reports on Forms 10-Q and 10-K. Furthermore, we will promptly furnish to the Holdersnoteholders notices of (a) any Payment Default under any instrument evidencing Indebtedness for borrowed money, and (b) any acceleration of such Indebtedness prior to securities analystsits express maturity.
Events of Default and prospective investors, upon their
written request,Remedies
The indenture describes in detail the information required to be delivered pursuant to Rule
144A(d)(4) underoccurrences that would constitute an “Event of Default.” Such occurrences include the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i)following:
(1) default for 30 days in the payment when due of interest and
Liquidated Damages, if any, on the Senior Notes; (ii) default in payment when
due of the principal of or premium, if any, on any note when 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 Indebtednesssame becomes due and Issuance of Preferred Stock"payable, upon stated maturity, acceleration, optional redemption, required purchase, scheduled principal payment or "Merger,
Consolidation, or Sale of Assets"; (iv) failure by the Issuers or the
Guarantor for 60 days after notice to comply with any of their other
agreementsotherwise;
(2) default 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 an installment of interest on any of the notes, when the same becomes due and payable, which is guaranteeddefault continues for a period of 30 days;
(3) failure to perform or observe any other term, covenant or agreement contained in the notes or the indenture, other than a default specified in either of the two clauses above, and the default continues for a period of 45 days after written notice of the default requiring us to remedy the same shall have been given to the partnership by the Partnershiptrustee or to us and the trustee by holders of 25% in aggregate principal amount of the applicable notes then outstanding;
(4) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the partnership or any of its Subsidiaries), whether such Indebtedness or
guarantee now exists or is created after the dateRestricted Subsidiary of the Indenture, which
default (a)partnership then has outstanding Indebtedness in excess of $25 million, if the default:
(A) is caused by a failure to pay principal of or premium, if any, or interest on to such Indebtedness prior towithin the expiration of theapplicable grace period, if any, provided inwith respect to such Indebtedness (a "Payment Default")Indebtedness; or (b)
(B) results in the acceleration of such Indebtedness prior to its express maturitystated maturity;
(5) a final judgment or judgments, which is or are non-appealable and in each
case,non-reviewable or which has or have not been stayed pending appeal or review or as to which all rights to appeal or review have expired or been exhausted, shall be rendered against the principal amount ofpartnership, any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment DefaultRestricted Subsidiary, or the maturitygeneral partner provided such judgment or judgments requires or require the payment of which has been so accelerated, aggregates
$10money in excess of $25 million, in the aggregate and is not covered by insurance or more; (vi) failure bydischarged or stayed pending appeal or review within 60 days after entry of such judgment; in the Partnershipevent of a stay, the judgment shall not be discharged within 30 days after the stay expires; or
(6) specified events of bankruptcy, insolvency or reorganization with respect to us or any of its
Subsidiaries to pay final judgments aggregatingour significant subsidiaries, as that term is defined in excessRule 1.02(v) of $10 million,
which judgments are not paid, discharged or stayed within 60 days; (vii)
except as permitted by the Indenture, the
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Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or the Guarantor, or any Person acting on behalf of the Guarantor,
shall deny or disaffirm its obligationsRegulation S-X under the Subsidiary Guarantee; (viii)
breach by the Partnership of any material representation or warranty set forth
in the Pledge Agreement, or default by the Partnership in the performance of
any covenant set forth in the Pledge Agreement subject to applicable grace
periods, or repudiation by the Partnership of its obligations under the Pledge
Agreement or the unenforceability of any material provision of the Pledge
Agreement for any reason; and (ix) certain events of bankruptcy or insolvency
with respect to the Partnership or any of its Subsidiaries.
Securities Act, has occurred.
If any Event of Default occurs and is continuing, the Trusteetrustee or the Holdersholders of at least 25% inof principal amount of the applicable series of notes then outstanding Senior Notes may declare all the Senior Notesnotes of that series to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from certainspecified events of bankruptcy or insolvency, with respect to either Issuer, any
Significant Subsidiarythe partnership or Ferrellgas Partners Finance Corp. or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary,significant subsidiary, all outstanding Senior Notesnotes will become due and payable immediately without further action or notice. Holders
of the Senior NotesNoteholders may not enforce the Indentureindenture or the Senior Notesnotes except as provided in the Indenture.indenture. Subject to certain limitations, Holdersholders of a majority in principal amount of the then outstanding Senior Notesa series of then-outstanding notes may direct the Trusteetrustee of that series of notes in its exercise of any trust or power. The Trusteetrustee may withhold from Holders of the Senior Notesnoteholders notice of any continuing Default or Event of Default, (exceptexcept a Default or Event of Default relating to the payment of principal or interest, or Liquidated Damages, if any) if itthe trustee determines in good faith that withholding notice is in their interest. In the case ofIf any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) byoccurs because we or those acting on our behalf of the Issuers with
the intention of avoidingwillfully intended to avoid payment of the premium that the Issuerswe would have
had to pay if the Issuerswe then had elected to redeem the Senior Notes pursuant
tonotes under the optional redemption provisions of the Indenture,indenture governing the notes, then an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. If an Event of Default
occurs prior to June 15, 2001, by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Issuers with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to such date,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Senior
Notes.notes. The Holdersholders of a majority in aggregate principal amount of a series of notes issued under the Senior Notes
indenture and
then outstanding, by notice to the Trusteetrustee for those notes, may on behalf of the Holders of all
of the Senior Notes waive any existing Default or Event of Default for all noteholders of that series and its consequences under the Indentureindenture, except a continuing Default or Event of Default in the payment of any principal of, premium, if any, interest or Liquidated Damages, if any,interest on the Senior Notes.
The Issuersnotes.
We are required to deliver to the Trusteetrustee annually a statement regarding compliance with the Indenture, and the Issuers are requiredindenture. In addition, upon becoming aware of any Default or Event of Default, we are required to deliver to the Trusteetrustee a statement specifying suchthe Default or Event of Default.
NO PERSONAL LIABILITY OF LIMITED PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No Personal Liability of Limited Partners, Directors, Officers, Employees and Unitholders
No limited partner of the Partnership or the Operating Partnershippartnership or director, officer, employee, incorporator or stockholder of the General
Partnerour general partner or Ferrellgas Partners Finance Corp., as such, shall have any liability for any of our obligations ofunder the Issuersnotes or the Guarantor under the Senior Notes, the
Subsidiary Guarantee, the Pledge Agreement, the Indentureindenture or for any claim based on, in respect of, or by reason of, such obligations or their creation.these obligations. Each Holder of Senior Notesnoteholder, by accepting a Senior Notenote, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. Suchnotes. The waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the CommissionSEC that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Non-Recourse
Our obligations under the indenture are recourse to our general partner and non-recourse to the operating partnership and their respective affiliates, other than ourselves, and are payable only out of our cash flow and assets. The Issuerstrustee has, and each holder of a note, by accepting a note, is deemed to have, agreed in the indenture that the operating partnership and its affiliates (other than ourselves) will not be liable for any of our obligations under the indenture or the notes.
Legal Defeasance and Covenant Defeasance
We may, at theirthe option of the board of directors of our general partner, on our behalf, and the board of directors of Ferrellgas Partners Finance Corp. and at any time, elect to have all of theirour obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i)notes. This is known as “legal defeasance.” However, under legal defeasance we cannot discharge:
(1) the rights of Holdersholders of outstanding Senior Notesnotes to receive payments inwith respect of theto any principal, of, premium, if any, and interest including Liquidated Damages, if any, on such Senior Notesthe notes when suchthe payments are due, (ii) the Issuers'due;
(2) our obligations with respect to the Senior
Notesnotes concerning issuing temporary Senior Notes,notes, registration of Senior Notes,notes or mutilated, destroyed, lost or stolen Senior Notes and the maintenance ofnotes;
(3) our obligation to maintain an office or agency for payment and money for security payments held in trust,
(iii)trust;
(4) the rights, powers, trusts, duties and immunities of the Trustee,trustee, and the Issuers'our obligations in connection therewiththerewith; and (iv)
(5) the Legal Defeasancelegal defeasance and covenant defeasance provisions of the Indenture. indenture.
In addition, the Issuerswe may, at theirour option and at any time, elect to have theour obligations of the Issuers released with respect to certainspecified covenants that are described in the Indenture ("Covenant
Defeasance") and thereafterindenture. This is called “covenant defeasance.” After our obligations have been released in this manner, any omissionfailure to comply with suchthese obligations shallwill not constitute a Default or Event of Default with respect to the Senior Notes.notes. In the event Covenant Defeasancecovenant defeasance occurs, certainspecific events, (notnot including non-
payment,non-payment, bankruptcy, receivership, rehabilitationreorganization and insolvency, events)
described under "Eventsin the section entitled “— Events of Default"Default and Remedies,” will no longer constitute an Event of Default with respect to the Senior Notes.
notes.
In order to exercise either Legal Defeasancelegal defeasance or Covenant Defeasance, (i) the
Issuerscovenant defeasance, we must irrevocably deposit with the Trustee,trustee, in trust, for the benefit of the Holders of the Senior Notes,noteholders, cash in U.S. dollars, non-callable Government Securities,U.S. 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,any premium if any, and interest
including Liquidated Damages, if any, on the outstanding Senior Notesnotes on the stated maturity date or on the applicable redemption date, asdate.
In addition, we will be required to deliver to the case maytrustee an opinion of counsel stating that after the 91st day following the deposit the trust funds will not be subject to the effect of such principalany applicable bankruptcy, insolvency, reorganization or installment of principal of, premium, if any, interestsimilar laws affecting creditors’ rights generally, and that all conditions precedent provided for or Liquidated Damages, if any, on the outstanding Senior Notes; (ii)relating to legal defeasance or covenant defeasance have been complied with, and confirming other matters. Furthermore, in the case of Legal Defeasance,a legal defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirmingmust confirm that (A) the Issuers shallwe have received from, or there shall
have been published by, the Internal Revenue ServiceIRS a ruling, or (B) since the date
of the Indenture,April 13, 2010, 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 Holdersholders of the outstanding Senior
Notesnotes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasancethe 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 Defeasancethe legal defeasance had not occurred; (iii) inoccurred. In the case of Covenant Defeasance,covenant defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirmingmust confirm that the Holdersholders of the outstanding Senior Notesnotes will not recognize income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasancethe 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 Defeasancethe covenant defeasance had not occurred; (iv) nooccurred.
Finally, to exercise either legal defeasance or covenant defeasance, we must have delivered to the trustee an officers’ certificate stating that we did not make the deposit with the intent of preferring the holders of notes over our other creditors or with the intent of defeating, hindering, delaying or defrauding our other creditors.
We may not exercise either legal defeasance or covenant defeasance if an Event of Default shall
havehas occurred and beis continuing on the date of suchthe 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)deposit. In addition, we may not exercise either legal defeasance or covenant defeasance if such Legal Defeasancelegal defeasance or Covenant Defeasance shall notcovenant defeasance will result in a breach, or
violation of, or constitute a default under any material agreement or instrument, (otherother than the Indenture)indenture, to which the Issuerswe or any of theirour Restricted Subsidiaries is a party or by which the Issuerswe or any of theirour Restricted Subsidiaries is bound; (vi)bound.
Amendment, Supplement and Waiver
In general, the Issuers shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the
intent of preferring the Holders of Senior Notes over the other creditors of
the Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrarindenture and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Senior Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Senior Note for a period of 15 days
before a selection of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as its owner for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described below, the Issues expect that the
Exchange Notes initially will be represented by one Global Note (the "Global
Note"). The Global Note will be deposited with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note
Holder").
Senior Notes that are issued as described below under "--Certificated
Securities," will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Senior Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical transfer and delivery
of certificates. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuers expect that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Note, the Depositary will credit the accounts
of Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Note and (ii) ownership of the Senior Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants (with
respect to the interests of persons other than the Participants). Prospective
purchasers are advised that the laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Senior Notes evidenced by the Global
Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Senior Notes evidenced by the Global Note. Beneficial owners
of Senior Notes evidenced by the Global Note will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. No beneficial owner of an interest in the Global Note will be able
to transfer that interest except in accordance with the Depositary's
procedures in addition to those provided under the Indenture with respect to
the Senior Notes. Neither the Issuers nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary
relating to the Senior Notes.
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Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Note Holder in its capacity as
the registered Holder under the Indenture. Under the terms of the Indenture,
the Issuers and the Trustee may treat the persons in whose names Senior Notes,
including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Issuers nor the
Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Senior Notes (including principal,
premium, if any, interest and Liquidated Damages, if any). The Issuers
believe, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Senior Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). In addition, if (i) the Issuers
notify the Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and the Issuers are unable to locate a qualified
successor within 90 days or (ii) the Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of Senior Notes in
the form of Certificated Securities under the Indenture, then, upon surrender
by the Global Note Holder of its Global Note, Certificated Securities in such
form will be issued to each person that the Global Note Holder and the
Depositary identify as being the beneficial owner of the related Senior Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes and the Issuers and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Issuers and the Operating
Partnership agreed to file with the Commission the Registration Statement of
which this Prospectus is a part with respect to the Exchange Notes. If (i) the
Issuers and the Operating Partnership are not permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities
notifies the Issuers within the specified time period that (A) it is
prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and this
Prospectus is not appropriate or available for such resales or (C) that it is
a broker-dealer and owns Senior Notes acquired directly from the Issuers or an
affiliate of the Issuers, the Issuers and the Operating Partnership will file
with the Commission a Shelf Registration Statement to cover resales of the
Senior Notes by the Holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Issuers and the Operating Partnership will use their best
efforts to cause the Registration Statement to be declared effective as
promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Senior Note until (i) the date on
which such Senior Note has been exchanged by a person other than a broker-
dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of a Private Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of this
Prospectus, (iii) the date on which such Private Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Private Note is
distributed to the public pursuant to Rule 144 under the Act.
85
The Registration Rights Agreement will provide that if obligated to file the
Shelf Registration Statement, the Issuers and the Operating Partnership will
use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (a) the Issuers and the
Operating Partnership fail to file the Shelf Registration Statement required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) the Shelf Registration Statement is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (c) above a "Registration Default"), then the Issuers
(and, after the Subsidiary Guarantee Effectiveness Date, the Operating
Partnership) will pay Liquidated Damages to each Holder of Senior Notes, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Senior Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Senior Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Senior
Notes. All accrued Liquidated Damages will be paid by the Issuers (and, after
the Subsidiary Guarantee Effectiveness Date, the Operating Partnership) on
each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Senior Notes will be required to deliver information to be used
in connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Senior Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture, the
Senior Notes or the Pledge Agreementnotes may be amended or supplemented, and any existing default or compliance with any provision of the indenture or the notes may be waived, with the consent of the Holdersholders of at least a majority in principal amount of the Senior Notesnotes then outstanding (includingoutstanding. This includes 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).
Withoutnotes. However, without the consent of each Holdernoteholder affected, an amendment or waiver may not, (withwith respect to any Senior Notesnotes held by a non-consenting Holder): (i)noteholder:
(1) reduce the principal amount of Senior Notesnotes whose Holdersholders must consent to an amendment, supplement or waiver, (ii)waiver;
(2) reduce the principal of or change the fixed maturity of any Senior Notenote or alter the provisions with respect to the redemption of the Senior Notes (othernotes, other than provisions relating to our obligation to repurchase the covenants described above under the caption "Repurchase at the Optionnotes upon specific asset sales or a change of Holders"), (iii)control;
(3) reduce the rate of or change the time for payment of interest including Liquidated Damages, if any, on any Senior Note, (iv)note;
(4) waive a Default or Event of Default in the payment of principal of or premium, if
any, interest or Liquidated Damages, if any, on the Senior Notes (except a
rescission of acceleration of the Senior Notes by the Holders of at least a
majority in aggregate principal amount of the Senior Notes and a waiver of the
payment default that resulted from such acceleration), (v)notes;
(5) make any Senior
Notenote payable in money other than that stated in the Senior Notes, (vi)notes;
(6) make any change in the provisions of the Indentureindenture relating to waivers of past Defaults or the rights of Holdersholders of Senior Notesnotes to receive payments of principal, of, premium, if any, interest or Liquidated Damages, if any,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"),
86
(viii) except as otherwise permitted in the Indenture, release the Guarantor
from its obligations under the Subsidiary Guaranteenotes; or change the Subsidiary
Guarantee in any manner that would adversely affect the rights of Holders of
Senior Notes, (ix) release all or substantially all of the Collateral from the
Lien of the Indenture and the Pledge Agreement or (x)
(7) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Issuersnoteholder, we and the Trusteetrustee may amend or supplement the Indenture, the
Pledge Agreementindenture or the Senior Notes tonotes to:
(1) cure any ambiguity, defect or inconsistency, toinconsistency;
(2) provide for uncertificated Senior Notesnotes in addition to or in place of certificated Senior Notes, tonotes;
(3) provide for the assumption of the
Issuers' and the Guarantor'sour obligations to Holders of the Senior Notesnoteholders in the case of a merger or consolidation, toconsolidation;
(4) make any change that wouldcould provide any additional rights or benefits to the Holders of the Senior Notes (including
the creation of any Subsidiary Guarantees) ornoteholders that does not adversely affect the legal rights under the Indentureindenture of any such Holder, or toholder;
(5) comply with requirements of the CommissionSEC in order to effect or maintain the qualification of the Indentureindenture under the Trust Indenture Act.
THE TRUSTEE
Act; or
(6) to provide security for or add guarantees with respect to the notes.
The IndentureTrustee
Should the trustee, U.S. Bank National Association, become our creditor, the indenture contains certainspecific limitations on the trustee’s rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certainspecific property received in respect of any such claim as security or otherwise. The Trusteetrustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate suchthe conflict within 90 days, apply to the CommissionSEC for permission to continue or resign.
The Holdersholders of a majority in principal amount of the then outstanding Senior
Notesnotes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee,trustee, subject to certainspecific exceptions. The Indentureindenture provides that in case an uncured Event of Default shall occur (which shall not be cured),occurs, the Trusteetrustee 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 suchthese provisions, the Trusteetrustee will be under no obligation to exercise any of its rights or powers under the Indentureindenture at the request of any Holder of Senior Notes,noteholder, unless such Holder
shall have offeredthe noteholder offers to the Trusteetrustee security and indemnity satisfactory to itthe trustee against any loss, liability or expense.
CERTAIN DEFINITIONS
Governing Law
The indenture provides that it, the notes will be governed by, and construed in accordance with, the laws of the State of New York.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is madeindenture and in the description of notes set forth above. These defined terms frequently refer to other defined terms and include details that explain the terms of the indenture with greater precision than the summary section above does. We have not, however, included in this glossary all of the defined terms that are included in the indenture. We urge you to read the indenture and the form of note because they, not this description, define the rights of the noteholders and include all the details about the notes.
“Accounts Receivable Securitization” means a financing arrangement involving the transfer or sale of accounts receivable of the partnership and its Restricted Subsidiaries in the ordinary course of business through one or more SPEs, the terms of which arrangement do not impose (a) any recourse or repurchase obligations upon the partnership and its Restricted Subsidiaries or any Affiliate of the partnership and its Restricted Subsidiaries (other than any such SPE) except to the Indenture forextent of the breach of a full disclosure of all such terms, as well asrepresentation or warranty by the partnership and its Restricted Subsidiaries in connection therewith or (b) any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respectnegative pledge or lien on any accounts receivable not actually transferred to any specified Person, (i)
Indebtednesssuch SPE in connection with such arrangement.
“Asset Acquisition” means the following (in all cases, including assets acquired through a Flow-Through Acquisition):
(1) an Investment by the partnership or any Restricted Subsidiary of the partnership in any other Person existing atpursuant to which the time such other Person shall become a Restricted Subsidiary of the partnership, or shall be merged with or into the partnership or became aany Restricted Subsidiary of such specifiedthe partnership;
(2) the acquisition by the partnership or any Restricted Subsidiary of the partnership of the assets of any Person, including
Indebtedness incurred in connection with,other than a Restricted Subsidiary of the partnership, which constitute all or in contemplationsubstantially all of the assets of such other
Person merging withPerson; or into
(3) the acquisition by the partnership or becoming aany Restricted Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.
"Affiliate"the partnership of any specifieddivision or line of business of any Person, other than a Restricted Subsidiary of the partnership.
“Asset Sale” means either of the following, whether in a single transaction or a series of related transactions:
(1) the sale, lease, conveyance or other disposition of any assets other Person directlythan (a) sales, leases or indirectly controllingtransfers of assets in the ordinary course of business (including but not limited to the sales of inventory in the ordinary course of business), and (b) sales of accounts receivable under any Accounts Receivable Securitization; or controlled
(2) the issuance or sale of Capital Stock of any direct Subsidiary.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any sale, lease or transfer of assets or Capital Stock by the partnership or any of its Restricted Subsidiaries to us, the operating partnership or a Restricted Subsidiary;
(2) any sale or transfer of assets or Capital Stock by the partnership or any of its Restricted Subsidiaries to any entity in exchange for other assets used in a related business and/or cash (provided, that such cash portion is at least 75% of the difference between the value of the assets being transferred and the value of the assets being received) and having a fair market value, as determined in good faith by an authorized financial officer of our general partner, reasonably equivalent to the fair market value of the assets so transferred;
(3) any sale, lease or transfer of assets in accordance with Permitted Investments;
(4) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the partnership; provided, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the partnership will be governed by the provisions described under direct the section entitled “— Offers to Purchase; Repurchase at the Option of the Noteholders — Change of Control Offer” and/or indirect common
control withthe provisions described under the section entitled “— Merger, Consolidation or Sale of Assets” and not the Asset Sale covenant;
(5) the transfer or disposition of assets that are permitted Restricted Payments;
(6) any sale, lease or transfer of assets pursuant to a sale and leaseback transaction, provided that the fair market value of all assets so sold, leased or transferred shall not exceed $25 million from and after April 13, 2010;
(7) sales or transfers of assets not otherwise covered which does not generate proceeds in excess of $2.5 million; and
(8) sales or transfers of accounts receivable under an Accounts Receivable Securitization.
“Available Cash” as to any quarter means:
(1) the sum of:
(a) all cash receipts of the partnership during such specified Person. For purposesquarter from all sources (including, without limitation, distributions of this definition, "control"
(including, with correlative meanings,cash received from the terms "controlling," "controlled
by"operating partnership, cash proceeds from Interim Capital Transactions, but excluding cash proceeds from Termination Capital Transactions, and "under common control with"), as usedborrowings made under the Credit Facilities); and
(b) any reduction with respect to any Person,
shall meansuch quarter in a cash reserve previously established pursuant to clause (2)(b) below (either by reversal or utilization) from the possession, directly or indirectly,level of such reserve at the end of the power to direct or
causeprior quarter;
(2) less the directionsum of:
(a) all cash disbursements of the management or policiespartnership during such quarter, including, without limitation, disbursements for operating expenses, taxes, if any, debt service (including, without limitation, the payment of principal, premium and interest), redemption of Capital Stock of the partnership, capital expenditures, contributions, if any, to the operating partnership and cash distributions to partners of the partnership (but only to the extent that such cash distributions to partners exceed Available Cash for the immediately preceding quarter); and
(b) any cash reserves established with respect to such quarter, and any increase with respect to such quarter in a cash reserve previously established pursuant to this clause (2)(b) from the level of such Person, whether
throughreserve at the ownershipend of voting securities, by agreementthe prior quarter, in such amounts as the general partner determines in its reasonable discretion to be necessary or otherwise;
provided, however, that beneficial ownershipappropriate (i) to provide for the proper conduct of 10%the business of the partnership or the operating partnership (including, without limitation, reserves for future capital expenditures), (ii) to provide funds for distributions with respect to Capital Stock of the partnership in respect of any one or more of the voting
securitiesnext four quarters or (iii) because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the partnership or the operating partnership is a Personparty or by which any of them is bound or its assets are subject;
(3) plus the lesser of (a) an amount as calculated in accordance with clauses (1) and (2) above for the partnership or its Restricted Subsidiaries for the first 45 days of the quarter during which such Restricted Payment is
made (rather than the quarter for which clauses (1) and (2) were calculated) and (b) an amount of working capital Indebtedness that the partnership or its Restricted Subsidiaries could have incurred on or before the 45th day after the last day of the quarter used to calculate clauses (1) and (2) above;
provided, however, that Available Cash attributable to any Restricted Subsidiary of the partnership will be excluded to the extent dividends or distributions of Available Cash by the Restricted Subsidiary are not at the date of determination permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or other regulation.
Notwithstanding the foregoing, (x) disbursements (including, without limitation, contributions to the operating partnership or disbursements on behalf of the operating partnership) made or reserves established, increased or reduced after the end of any quarter but on or before the date on which any Restricted Payment requiring a determination of Available Cash for such quarter is made shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, with respect to such quarter if the general partner so determines, and (y) “Available Cash” shall not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established in each case after the date of liquidation of the partnership. Taxes paid by the partnership on behalf of, or amounts withheld with respect to, all or less than all of the partners shall not be considered cash disbursements of the partnership that reduce Available Cash, but the payment or withholding thereof shall be deemed to be control.
"Attributable Debt"a distribution of Available Cash to the partners. Alternatively, in the discretion of the general partner, such taxes (if pertaining to all partners) may be considered to be cash disbursements of the partnership which reduce Available Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such partners.
“Borrowing Base” means, in respect of a sale and leaseback arrangementas of any property, as at the time of determination, the present value (calculated
using a discount ratedate, an amount equal to the interest rateto:
(1) 80% of the Senior Notes
87
annual compounding)its Subsidiaries as of the total obligationsend of the lessee for rental
payments during the remaining term of the lease included inmost recent month preceding 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 ofwere not more than eighteen months from90 days past due; plus
(2) 70% of the datevalue of acquisition, (iii) certificatesall inventory owned by the partnership and its Subsidiaries as of deposit
and eurodollar time deposits with maturitiesthe end of six months or less from the most recent month preceding such date, of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits,
in each case, with any lender party to the
Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within nine months after the date of
acquisition and (vi) investments in money market funds all of whose assets
consist of securities of the types described in the foregoing clauses (i)
through (v).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an asset sale (to the extent such losses were deducted in computing
Consolidated Net Income), plus (b) provision for taxes based on income or
profits of such Person for such period, to the extent such provision for taxes
was deducted in computing Consolidated Net Income, plus (c) consolidated
interest expense of such Person for such period, whether paid or accrued
(including amortization of original issue discount, non-cash interest payments
and the interest component of any payments associated with Capital Lease
Obligations and net payments (if any) pursuant to Hedging Obligations), to the
extent such expense was deducted in computing Consolidated Net Income, plus
(d) depreciation and amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) of such Person for such period to the extent such
depreciation and amortization were deducted in computing Consolidated Net
Income, in each case, for such period without duplicationas calculated on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income"
“Capital Stock” means of any Person any capital stock, partnership interest, membership interest, or equity interest of any kind.
“Consolidated Cash Flow Available for Fixed Charges” means, with respect to any Personthe partnership and its Restricted Subsidiaries, for any period, the aggregatesum of, without duplication, the amounts for the period, taken as single accounting, of:
(1) Consolidated Net Income;
(2) Consolidated Non-cash Charges;
(3) Consolidated Interest Expense; and
(4) Consolidated Income 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.
88
"Consolidated Net Worth"Tax Expense.
“Consolidated Fixed Charge Coverage Ratio” means, with respect to any Person asthe partnership and its Restricted Subsidiaries, the ratio of any date,(y) the sumaggregate amount of (i) the consolidated equityConsolidated Cash Flow Available for Fixed Charges of the partners or common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii)for 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 tofour full fiscal quarters immediately preceding the date of the Indenture intransaction (the “Transaction Date”) giving rise to the book valueneed to calculate the Consolidated Fixed Charge Coverage Ratio (the “Four Quarter Period”), to (z) the aggregate amount of any asset owned by suchConsolidated Fixed Charges of the Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiariesfor the Four Quarter Period. In addition to 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, allwithout limitation of the foregoing, determined in accordance with GAAP.
"Credit Facility" means the credit facility under that certain Credit
Agreement, dated asfor purposes of July 5, 1994, as amended, bythis definition, “Consolidated Cash Flow Available for Fixed Charges” and among the Operating
Partnership, the Insurance Company Subsidiary, the General Partner and Bank of
America National Trust and Savings Association, as Agent“Consolidated Fixed Charges” shall be calculated after giving effect on a pro forma basis for the financial
institutions listed therein, providing for upperiod of the calculation to, $205.0 millionwithout duplication:
(1) the incurrence or repayment of any Indebtedness, excluding the incurrence of revolving credit borrowings and lettersrepayments of revolving credit including any related notes, instrumentsborrowings (other than the incurrence and agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Capital Interests which, by their terms
(or by the termsrepayment of any security intorevolving credit borrowings the proceeds of which they are convertibleused for Asset Acquisitions 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 optionGrowth Related Capital Expenditures of the Holder thereof, in whole or in part, on or
prior to the maturity date of the Senior Notes.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security
that is convertible into, or exchangeable for, Capital Interests).
"Existing Indebtedness" means the Fixed Rate Notes, the Floating Rate Notes
and up to $5.0 million in aggregate principal amount of all other Indebtedness
of the Partnership and its Subsidiaries (other than under the Credit Facility)
in existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
reference Personpartnership or any of its Restricted Subsidiaries incurs, assumes, guarantees,
redeemsand, in the case of any incurrence or repays any Indebtedness (other than
revolving credit borrowings)
subsequentborrowings, the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the “Reference Period”), including, without limitation, the incurrence of the Indebtedness giving rise to the commencementneed to make the calculation (and the application 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")net proceeds thereof), 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 hadincurrence (and application) occurred on the first day of the reference period;Reference Period; and
(2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make the calculation as a result of the partnership or one of its Restricted Subsidiaries, including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition, incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if the Asset Sale or Asset Acquisition occurred on the first day of the Reference Period; provided, however, that that:
(a) Consolidated Fixed Charges shallwill be reduced by amounts attributable to businesses or assets that are so disposed of or discontinued only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to the Partnership'sConsolidated Fixed Charges subsequent to the Calculation Date and date of determination of the Consolidated Fixed Charge Coverage Ratio;
(b) Consolidated Cash Flow Available for Fixed Charges generated by an acquired business or asset shall be determined by the actual gross profit, (revenueswhich is equal to revenues minus cost of goods sold)sold, of suchthe acquired business or asset during the immediately available preceding number offour full fiscal 89
asoccurring in the reference periodReference Period, minus the pro forma expenses that would have been incurred by the Partnershippartnership and its Restricted Subsidiaries in the operation of suchthe acquired business or asset during suchthe period computed on the basis of (i) personnel expenses for employees retained or to be retained by the Partnershippartnership and its Restricted Subsidiaries in the operation of the acquired business or asset and (ii) non-personnel costs and expenses incurred by or to be incurred by the Partnership on a per gallon basis inpartnership and its Restricted Subsidiaries based upon the operation of the Partnership'spartnership’s business, at similarly situated Partnership facilities. Ifall as determined in good faith by an authorized financial officer of our general partner; and
(c) Consolidated Cash Flow Available for Fixed Charges shall not include the applicable
reference periodimpact of any non-recurring cash charges incurred in connection with a restructuring, reorganization or other similar transaction, as determined in good faith by an authorized financial officer of our general partner.
Furthermore, subject to the following paragraph, in calculating “Consolidated Fixed Charges” for any calculationpurposes of determining the “Consolidated Fixed Charge Coverage Ratio”:
(1) interest on outstanding Indebtedness, other than Indebtedness referred to in the point below, determined on a fluctuating basis as of the last day of the Four Quarter Period and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on that date;
(2) only actual interest payments associated with Indebtedness incurred in accordance with clause (4) of the definition of Permitted Indebtedness and all Permitted Refinancing Indebtedness in respect thereof, during the Four Quarter Period shall be included in the calculation; and
(3) if interest on any Indebtedness actually incurred on the date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the last day of the Four Quarter Period will be deemed to have been in effect during the period.
“Consolidated Fixed Charges” means, with respect to the Partnership 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 Flowpartnership 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 Personits Restricted Subsidiaries for any period, the sum of, without duplication, of (a) consolidated interest expense of such Personduplication:
(1) the amounts for such period whetherof Consolidated Interest Expense; and
(2) the product of:
(a) the aggregate amount of dividends and other distributions paid or accrued toduring the extent such expense was deductedperiod in computing Consolidated Net Income (including amortizationrespect of original issue
discount, non-cash interest payments,Preferred Stock and Redeemable Capital Stock of the interest component of all payments
associated with Capital Lease Obligationspartnership 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 expenseits Restricted Subsidiaries on Indebtedness of another Person that is Guaranteed
by such Person or secured by a Lien on assets of such Personconsolidated basis; 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)
(b) a fraction, the numerator of which is one and the denominator of which is one minusless the then applicable current combined federal, state and local statutory tax rate, of such Person, expressed as a decimal, in each case,percentage.
“Consolidated Income Tax Expense” means, with respect to the partnership and its Restricted Subsidiaries for any period, the provision for federal, state, local and foreign income taxes of the partnership and its Restricted Subsidiaries for the period as determined on a consolidated basis and in accordance with GAAP.
"Fixed
“Consolidated Interest Expense” means, with respect to the partnership and its Restricted Subsidiaries, for any period, without duplication, the sum of:
(1) the interest expense of the partnership and its Restricted Subsidiaries for the period as determined on a consolidated basis in accordance with GAAP, including, without limitation:
(2) any amortization of debt discount;
(3) the net cost under Interest Rate Notes"Agreements;
(4) the interest portion of any deferred payment obligation;
(5) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;
(6) all accrued interest for all instruments evidencing Indebtedness; and
(7) the interest component of Capital Leases paid or accrued or scheduled to be paid or accrued by the partnership and its Restricted Subsidiaries during the period as determined on a consolidated basis in accordance with GAAP.
“Consolidated Net Income” means the $200net income of the partnership and its Restricted Subsidiaries, as determined on a consolidated basis in accordance with GAAP and as adjusted to exclude:
(1) net after-tax extraordinary gains or losses;
(2) net after-tax gains or losses attributable to Asset Sales or sales of receivables under any Accounts Receivable Securitization;
(3) the net income or loss of any Person which is not a Restricted Subsidiary and which is accounted for by the equity method of accounting; provided, that Consolidated Net Income shall include the amount of dividends or distributions actually paid to the partnership or any Restricted Subsidiary;
(4) the net income or loss prior to the date of acquisition of any Person combined with the partnership or any Restricted Subsidiary in a pooling of interest;
(5) the net income of any Restricted Subsidiary to the extent that dividends or distributions of that net income are not at the date of determination permitted by the terms of its charter or any judgment, decree, order, statute, rule or other regulation; and
(6) the cumulative effect of any changes in accounting principles.
“Consolidated Net Tangible Assets” means as of any date of determination, the Total Assets of the partnership and the Restricted Subsidiaries as would be shown on a consolidated balance sheet of the partnership and the Restricted Subsidiaries prepared in accordance with GAAP as of that date less applicable reserves reflected in such balance sheet, after deducting the following amounts: (a) all current liabilities reflected in such balance sheet, and (b) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet.
“Consolidated Non-Cash Charges” means, with respect to the partnership and its Restricted Subsidiaries for any period, the aggregate (1) depreciation, (2) amortization, (3) non-cash employee compensation expenses of the partnership or its Restricted Subsidiaries for such period, and (4) any non-cash charges resulting from writedowns of non-current assets, in each case which reduces the Consolidated Net Income of the partnership and its Restricted Subsidiaries for the period, as determined on a consolidated basis in accordance with GAAP.
“Credit Agreement” means the Fifth Amended and Restated Credit Agreement, dated as of April 22, 2005, among the operating partnership, the general partner, Bank of America, N.A., as agent, and the other financial institutions party thereto as heretofore amended (as amended, the “Existing Credit Agreement”), as the Existing Credit Agreement may be amended, restated, modified, renewed, refunded, replaced or refinanced from time to time.
“Credit Facilities” means, one or more debt facilities (including, without limitation, the facilities evidenced by the Credit Agreement) or commercial paper facilities, or indentures, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.
“Default” means any event that is, or after notice or passage of time or both would be, an Event of Default.
“Designation Amount” means, with respect to the designation of a Restricted Subsidiary or a newly acquired or formed Subsidiary as an Unrestricted Subsidiary, an amount equal to the sum of:
(1) the net book value of all assets of the Subsidiary at the time of the designation in the case of a Restricted Subsidiary; and
(2) the cost of acquisition or formation in the case of a newly acquired or formed Subsidiary.
“Equity Offering” means a public offering or private placement of partnership interests (other than interests that are mandatorily redeemable) of:
(1) any entity that directly or indirectly owns equity interests in the partnership, to the extent the net proceeds are contributed to the partnership;
(2) any Subsidiary of the partnership to the extent the net proceeds are distributed, paid, lent or otherwise transferred to the partnership that results in the net proceeds to the partnership of at least $20 million; or
(3) the partnership.
A private placement of partnership interests will not be deemed an Equity Offering unless net proceeds of at least $20 million 10% Fixed Rateare received.
“Existing Notes” means the operating partnership’s (1) $450,000,000 principal amount of 6.75% Senior Notes due 20012014 and (2) $300,000,000 principal amount of the Operating Partnership.
"Floating Rate Notes" means the $50 million Floating Rate9.125% Senior Notes due 2001 of the Operating Partnership.
"Flow-Through Acquisition"2017.
“Flow-Through Acquisition” means an acquisition by the General Partnergeneral partner or its parent from a Person that is not an Affiliate of the General Partner,general partner, its parent or the Partnership,partnership, of property (real or personal), assets or equipment (whether through the direct purchase of assets or the Capital InterestsStock of the Person owning such assets) in the samea permitted line of business, as the Partnership and
its Subsidiaries are engaged in on the date of the Indenture, which is promptly sold, transferred or contributed by the General Partnergeneral partner or its parent to the Partnershippartnership or one of its Subsidiaries.
"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, in each case, which are in effect in the United States of America on the date of
the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means the Operating Partnership and its successors and assigns,
or any other Subsidiary of the Partnership that Guarantees the Issuers'
Obligations under the Senior Notes and the Indenture pursuant to a form of
Guarantee and a supplemental indenture, in form and substance satisfactory to
the Trustee.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representingApril 13, 2010.
“Growth Related Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of other Persons
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.
"Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont
corporation, a Wholly Owned Subsidiary of the Operating Partnership.
"Investments"Expenditures” means, with respect to any Person, all investmentscapital expenditures by such Person made to improve or enhance the existing capital assets or to increase the customer base of such Person or to acquire or construct new capital assets (but excluding capital expenditures made to maintain, up to the level thereof that existed at the time of such expenditure, the operating capacity of the capital assets of such Person as such assets existed at the time of such expenditure).
“Indebtedness” means, as applied to any Person, without duplication:
(1) (a) any indebtedness for borrowed money and (b) all obligations evidenced by any (i) bond, note, debenture or other similar instrument or (ii) letter of credit, or reimbursement agreements in respect thereof, but only
for any drawings that are not reimbursed within five Business Days after the date of such drawings, which in each case the Person has, directly or indirectly, created, incurred or assumed;
(2) any indebtedness for borrowed money and all obligations evidenced by any bond, note, debenture or other Persons (including Affiliates)similar instrument secured by any lien in respect of property owned by the formsPerson, whether or not the Person has assumed or become liable for the payment of loans
(including Guarantees), advancesthe indebtedness; provided, that the amount of the indebtedness, if the Person has not assumed the same or capital contributionsbecome liable therefor, shall in no event be deemed to be greater than the fair market value from time to time, as determined in good faith by the Person of the property subject to the lien;
(3) any indebtedness, whether or not for borrowed money (excluding commission, traveltrade payables and similar advances to officers and employees madeaccrued expenses arising in the ordinary course of business), purchases with respect to which the Person has become directly or indirectly liable and which represents the deferred purchase price, or a portion thereof, or has been incurred to finance the purchase price, or a portion thereof, of any property or business acquired by, or service performed on behalf of, the Person, whether by purchase, consolidation, merger or otherwise;
(4) the principal component of any obligations under Capital Leases to the extent the obligations would, in accordance with GAAP, appear on the balance sheet of the Person;
(5) any indebtedness of any other Person of the character referred to in the foregoing clauses (1)-(4) of this definition with respect to which the Person whose indebtedness is being determined has become liable by way of a guarantee; and
(6) all Redeemable Capital Stock of the Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends.
For purposes hereof, the “maximum fixed repurchase price” of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of the Redeemable Capital Stock as if it were purchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture and if the price is based upon, or measured by, the fair market value of the Redeemable Capital Stock, the fair market value shall be determined in good faith by the board of directors of the issuer of the Redeemable Capital Stock. For purposes hereof, the term “Indebtedness” shall not include (x) accrual of interest, the accretion of accreted value and the payment of interest or any other similar incurrence by the partnership or its Restricted Subsidiaries related to Indebtedness otherwise permitted in the indenture, (y) indebtedness under any hedging arrangement which provides for the right or obligation to purchase, sell or deliver any currency, commodity or security at a future date for a specified price entered into to protect such Person from fluctuations in prices or rates, including currencies, interest rates, commodity prices, and securities prices, including without limitation indebtedness under any interest rate or commodity price swap agreement, interest rate cap agreement, interest rate collar agreement or any forward sales arrangements, calls, options, swaps, or other acquisitions for
considerationsimilar transactions or any combination thereof, including, or (z) any Accounts Receivable Securitization.
“Interim Capital Transactions” means (1) borrowings, refinancings or refundings of Indebtedness Equity Interestsand sales of debt securities (other than for working capital purposes and other than for items purchased on open account in the ordinary course of business) by the partnership or the operating partnership, (2) sales of Capital Stock of the partnership by the partnership or the operating partnership and (3) sales or other voluntary or involuntary dispositions of any assets of the partnership or the operating partnership (other than (x) sales or other dispositions of inventory in the ordinary course of business, (y) sales or other dispositions of other current assets including, without limitation, receivables and accounts and (z) sales or other dispositions of assets as a part of normal retirements or replacements), in each case prior to the commencement of the dissolution and liquidation of the partnership.
“Investment” means as applied to any Person:
(1) any direct or indirect purchase or other acquisition by the Person of stock or other securities of any other Person; or
(2) any direct or indirect loan, advance or capital contribution by the Person to any other Person and allany other items that are oritem which would be classified as investmentsan “investment” on a balance sheet of the Person prepared in accordance with GAAP.
"Lien"GAAP, including without limitation any direct or indirect contribution by the Person of property or assets to a joint venture, partnership or other business entity in which the Person retains an interest, it being understood that a direct or indirect purchase or other acquisition by the Person of assets of any other Person, other than stock or other securities, shall not constitute an “Investment” for purposes of the indenture.
The amount classified as Investments made during any period shall be the aggregate cost to the partnership and its Restricted Subsidiaries of all the Investments made during the period, determined in accordance with GAAP, but without regard to unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of the Investments and without regard to the existence of any undistributed earnings or accrued interest with respect thereto accrued after the respective dates on which the Investments were made, less any net return of capital realized during the period upon the sale, repayment or other liquidation of the Investments, determined in accordance with GAAP, but without regard to any amounts received during the period as earnings (in the form of dividends not constituting a return of capital, interest or otherwise) on the Investments or as loans from any Person in whom the Investments have been made.
“Net Amount of Unrestricted Investment” means, without duplication, the sum of:
(1) the aggregate amount of all Investments made after April 13, 2010 pursuant to clause (3) of the definition of Permitted Investment, computed as provided in the last sentence of the definition of Investment; and
(2) the aggregate of all Designation Amounts in connection with the designation of unrestricted subsidiaries, less all Designation Amounts in respect of unrestricted subsidiaries which have been designated as Restricted Subsidiaries and otherwise reduced in a manner consistent with the provisions of the last sentence of the definition of Investment.
“Net Proceeds” means, with respect to any asset any mortgage, lien, pledge, charge,
security interestsale or encumbrancesale of any kindCapital Stock, the proceeds therefrom in the form of cash or cash equivalents including payments 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 leasedeferred payment obligations when received in the nature thereof,form of cash or cash equivalents, except to the extent that the deferred payment obligations are financed or sold with recourse to the partnership or any optionof its Restricted Subsidiaries, net of:
(1) brokerage commissions and other fees and expenses related to the Asset Sale, including, without limitation, fees and expenses of legal counsel and accountants and fees, expenses, discounts or other agreementcommissions of underwriters, placement agents and investment bankers;
(2) provisions for all taxes payable as a result of the Asset Sale;
(3) amounts required 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 respectbe paid to any Person, other than the net income (loss)partnership or any Restricted Subsidiary of such Person, determinedthe partnership, owning a beneficial interest in the assets subject to the Asset Sale;
(4) appropriate amounts to be provided by the partnership or any Restricted Subsidiary of the partnership, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with the Asset Sale and beforeretained by the partnership or any reduction in
respectRestricted Subsidiary 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,the partnership, as the case may be, after the Asset Sale, including, without limitation, dispositions pursuantpension and other post-employment benefit liabilities, liabilities related to saleenvironmental matters and leaseback transactions), or (b)liabilities under any indemnification obligations associated with the disposition of any securities or the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries,Asset Sale; and (ii) any extraordinary gain (but
not loss), together with any related provision for taxes on such extraordinary
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Partnership
or any of its Subsidiaries in respect of any Asset Sale, net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements),
(5) amounts required to be applied to the repayment of Indebtedness secured by a Lien onin connection with the asset or assets acquired in the
subject of such Asset Sale, including any transaction costs and expenses associated therewith and any reserve for adjustmentmake-whole or other premium owed in respectconnection with such repayment.
“Permitted Investments” means any of the sale price of such assetfollowing:
(1) Investments made or assets.
"Non-Recourse Subsidiary" means (1)owned by the Insurance Companypartnership or any Restricted Subsidiary in:
(a) marketable obligations issued or unconditionally guaranteed by the United States, or issued by any agency thereof and (2)
any other Person (other thanbacked by the Operating Partnershipfull faith and Finance Corps.)
that would otherwise be a Subsidiarycredit of the Partnership butUnited States, in each case maturing one year or less from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at such date the highest rating obtainable from either Standard & Poor’s Ratings Group (“S&P”) and its successors or Moody’s Investors Service, Inc. (“Moody’s”) and its successors;
(c) commercial paper maturing no more than 270 days from the date of creation thereof and having as at the date of acquisition thereof one of the two highest ratings obtainable from either S&P or Moody’s;
(d) certificates of deposit maturing one year or less from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States or any state thereof or the District of Columbia or Canada;
(e) the commercial paper or other short term unsecured debt obligations of which are as at such date rated either “A-2” or better (or comparably if the rating system is designatedchanged) by S&P or “Prime-2” or better (or comparably if the rating system is changed) by Moody’s;
(f) the long-term debt obligations of which are, as at such date, rated either “A” or better (or comparably if the rating system is changed) by either S&P or Moody’s (“Permitted Banks”);
(g) Eurodollar time deposits having a Non-Recourse Subsidiary in a resolutionmaturity of less than 270 days from the date of acquisition thereof purchased directly from any Permitted Bank;
(h) bankers’ acceptances eligible for rediscount under requirements of the Board of DirectorsGovernors of the General Partner, so long as (a) no portionFederal Reserve System and accepted by Permitted Banks; and
(i) obligations of the Indebtednesstype described in clauses (a) through (e) above purchased from a securities dealer designated as a “primary dealer” by the Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the partnership or a Restricted Subsidiary by a custodian which is a Permitted Bank and which is not a counterparty to the repurchase agreement in question;
(2) the acquisition by the partnership or any Restricted Subsidiary of Capital Stock or other obligation (contingentownership interests, whether in a single transaction or otherwise)in a series of related transactions, of a Person located in the United States, Mexico or Canada and engaged in substantially the same business as the partnership such that, upon the completion of such transaction or series of transactions, the Person (i) is guaranteedbecomes a Restricted Subsidiary;
(3) any Investment by the Partnershippartnership or any of its Subsidiaries, (ii) is recourse or obligates the
Partnership or any of its Subsidiaries in any way or (iii) subjects any
property or asset of the Partnership or any of its Subsidiaries, directly or
indirectly, contingently or otherwise, to satisfaction thereof, (b) neither
the Partnership nor any of its Subsidiaries has any contract, agreement,
arrangement or understanding or is subject to an obligation of any kind,
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written or oral, with such Person other than on terms no less favorable to the
Partnership and its Subsidiaries than those that might be obtained at the time
from persons who are not Affiliates of the Partnership, (c) neither the
Partnership nor any of its Subsidiaries has any obligation with respect to
such Person (i) to subscribe for additional shares of capital stock, Capital
Interests or other Equity Interests therein or (ii) maintain or preserve such
Person's financial condition or to cause such Person to achieve certain levels
of operating or other financial results, and (d) such Person has no more than
$1,000 of assets at the time of such designation.
"Obligations" means any principal, premiums, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Partnership Indenture" means the indenture between the Operating
Partnership, Ferrellgas Finance Corp. and Norwest Bank, Minnesota, National
Association, as trustee, governing the Fixed Rate Notes and the Floating Rate
Notes as in existence from time to time.
"Permitted Investments" means (a) any Investments in Cash Equivalents; (b)
any Investments in the Partnership or in the Operating Partnership; (c)
Investments by the Partnership or anyRestricted Subsidiary of the Partnership in a Person, if as a result of such InvestmentInvestment:
(a) such Person becomes a Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its properties or assets to, or is liquidated into, the Partnershippartnership or a Restricted Subsidiary;
(4)the Operating
Partnership; and (d)making or ownership by the partnership or any Restricted Subsidiary of Investments (in addition to any other Investments in Non-Recourse Subsidiaries of the
Partnership that do not exceed $30 million at any time outstanding; provided
thatPermitted Investments) in any transfer of assets to a Non-Recourse Subsidiary by the PartnershipPerson incorporated or one of its Subsidiariesotherwise formed pursuant to the termslaws of the Indenture,United States, Mexico or Canada or any state thereof which assets were acquiredis engaged in a Flow-Through Acquisition, the dollarUnited States, Mexico or Canada; provided, that the aggregate amount equal to
the purchase price paid or Indebtedness assumed byof all such Non-Recourse
Subsidiary for such assets will not be deemed an InvestmentInvestments made by the Partnership
orpartnership and its Restricted Subsidiaries in such Non-Recourse Subsidiary for purposes offollowing April 13, 2010 and outstanding pursuant to this definition.
"Permitted Liens" means (a) Liens existing on thethird clause shall not at any date of determination exceed 7.5% of Total Assets;
(5)the Indenture; (b)
Liens in favor ofmaking or ownership by the Issuerspartnership or Liens to secure Indebtedness of aany Restricted Subsidiary of the PartnershipInvestments:
(a) arising out of loans and advances to the Partnership or a Wholly Owned Subsidiary of the
Partnership; (c) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Partnership or any Subsidiary
of the Partnership; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the
Partnership; (d) Liens on property existing at the time of acquisition thereof
by the Partnership or any Subsidiary of the Partnership; provided that such
Liens were in existence prior to the contemplation of such acquisition; (e)
Liens on any property or asset acquired by the Partnership or any of its
Subsidiaries in favor of the seller of such property or asset and construction
mortgages on property, in each case, created within six months after the date
of acquisition, construction or improvement of such property or asset by the
Partnership or such Subsidiary to secure the purchase price or other
obligation of the Partnership or such Subsidiary to the seller of such
property or asset or the construction or improvement cost of such property in
an amount up to 80% of the total cost of the acquisition, construction or
improvement of such property or asset; provided that in each case, such Lien
does not extend to any other property or asset of the Partnership and its
Subsidiaries; (f) Liens incurred or pledges and deposits made in connection
with worker's compensation, unemployment insurance and other social security
benefits and Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature, in
each case,employees incurred in the ordinary course of business; (g)
(b) arising out of extensions of trade credit or advances to third parties in the ordinary course of business; or
(c) acquired by reason of the exercise of customary creditors’ rights upon default or pursuant to the bankruptcy, insolvency or reorganization of a debtor;
(6) the creation or incurrence of liability by the partnership or any Restricted Subsidiary, with respect to any guarantee constituting an obligation, warranty or indemnity, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business;
(7) the creation or incurrence of liability by the partnership or any Restricted Subsidiary with respect to any hedging agreements or arrangements;
(8) the making by any Restricted Subsidiary of Investments in the partnership or another Restricted Subsidiary and the making by the partnership of Investments in any Restricted Subsidiary;
(9) the making or ownership by the partnership or any Restricted Subsidiary of Investments in the operating partnership;
(10) the present value, determined on the basis of the implicit interest rate, of all basic rental obligations under all synthetic leases of the partnership or any Restricted Subsidiary; and
(11) the creation or incurrence of liability by the partnership or any Restricted Subsidiary or the making or ownership by the partnership or any Restricted Subsidiary of Investments in any Person with respect to any Accounts Receivable Securitization.
“Permitted Liens” means any of the following:
(1) liens for taxes, assessments or other governmental charges, or claims that arethe payment of which is not yet delinquentdue or that arethe payment of which is being contested in good faith by appropriate proceedings promptly institutedinitiated and diligently concluded; provided that any reserveconducted and as to which reserves or other appropriate provision, if any, as shall be required in conformity withby GAAP, shall have been made therefor; (h) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's,therefor and vendors' Liens, incurredbe adequate in the good faith judgment of the obligor;
(2) liens of carriers, vendors, warehousemen, mechanics, materialmen, repairmen and other like liens incurred in the ordinary course of business; (i) zoning restrictions, easements, licenses,
covenants, reservations, restrictions onbusiness for sums not overdue for a period of more than 30 days or the usepayment of realwhich is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been made therefor and be adequate in the good faith judgment of the obligor, in each case:
(a) not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; or
(b) incurred in the ordinary course of business securing the unpaid purchase price of property or minor
irregularitiesservices constituting current accounts payable;
(3) liens, other than any lien imposed by the Employee Retirement Income Security Act of title incident thereto that do not,1974, as may be amended from time to time, incurred or deposits made in the aggregate,
materially detract fromordinary course of business:
(a) in connection with workers’ compensation, unemployment insurance and other types of social security; or
(b) to secure or to obtain letters of credit that secure the valueperformance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the propertyborrowing of money;
(4) other deposits made to secure liability to insurance carriers under insurance or self-insurance arrangements;
(5) liens securing reimbursement obligations under letters of credit, provided in each case that such liens cover only the assetstitle documents and related goods and any proceeds thereof covered by the related letter of credit;
(6) any attachment or judgment lien, unless the Partnershipjudgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal or review, or shall not have been discharged within 60 days after expiration of any of its Subsidiariessuch stay;
(7) leases or impair the use of such propertysubleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, which, in each case either are granted, entered into or created in the operationordinary course of the business of the Partnershippartnership or any Restricted Subsidiary or do not materially impair the value or intended use of the property covered thereby;
(8) liens on property or assets of any Restricted Subsidiary securing Indebtedness of the Restricted Subsidiary owing to the partnership or a Restricted Subsidiary;
(9) liens on assets of the partnership or any Restricted Subsidiary existing on April 13, 2010;
(10) liens on personal property leased under leases entered into by the partnership or its Restricted Subsidiaries which are accounted for as operating leases in accordance with GAAP;
(11) liens securing Indebtedness arising under an Accounts Receivable Securitization (including the filing of any related financing statements naming the partnership or any Restricted Subsidiary as the debtor thereunder in connection with the sale of accounts receivable by the partnership, the operating partnership or any Restricted Subsidiary to an SPE in connection with any such permitted Accounts Receivable Securitization);
(12) liens securing Indebtedness incurred in accordance with:
(a) clauses (3) and (6) of the definition of Permitted Indebtedness; and
(b) Indebtedness otherwise permitted to be incurred under the “Limitation on Additional Indebtedness” covenant to the extent incurred:
(i) to finance the making of expenditures for the improvement or repair (to the extent the improvements and repairs may be capitalized on the books of the partnership and the Restricted Subsidiaries in accordance with GAAP) of, or additions including additions by way of acquisitions of businesses and related assets to, the assets and property of the partnership and its Restricted Subsidiaries; (j)or
(ii) by assumption in connection with additions including additions by way of acquisition or capital contributions of businesses and related assets to the property and assets of the partnership and its Restricted Subsidiaries; provided, that, in the case of Indebtedness incurred in accordance with clauses (i) and (ii) above, the principal amount of the Indebtedness does not exceed the lesser of the cost to the partnership and its Restricted Subsidiaries of the additional property or assets and the fair market value of the additional property or assets at the time of the acquisition thereof, as determined in good faith by an authorized financial officer of the general partner;
(13) liens existing on any property of any Person at the time it becomes a Subsidiary of the partnership, or existing at the time of acquisition upon any property acquired by the partnership or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the partnership or the Subsidiary, or created to secure Indebtedness incurred to pay all or any part of the purchase price (a “Purchase Money Lien”) of property including, without limitation, Capital Stock and other securities acquired by the partnership or a Restricted Subsidiary; provided, that:
(a) the lien shall be confined solely to the item or items of property and, if required by the terms of the instrument originally creating the lien, other property which is an improvement to or is acquired for use specifically in connection with the acquired property;
(b) in the case of a Purchase Money Lien, the principal amount of the Indebtedness secured by the Purchase Money Lien shall at no time exceed an amount equal to the lesser of:
(i) the cost to the partnership and the Restricted Subsidiaries of the property; and
(ii) the fair market value of the property at the time of the acquisition thereof as determined in good faith by an authorized financial officer of the general partner;
(c) the Purchase Money Lien shall be created not later than 360 days after the acquisition of the property; and
(d) the lien, other than a Purchase Money Lien, shall not have been created or assumed in contemplation of the Person’s becoming a Subsidiary of the partnership or the acquisition of property by the partnership or any Subsidiary;
(14) easements, exceptions or reservations in any property of the partnership or any Restricted Subsidiary granted or reserved for the purpose of pipelines, roads, the removal of oil, gas, coal or other minerals, and other like purposes, or for the joint or common use of real property, facilities and equipment, which are incidental to, and do not materially interfere with, the ordinary conduct of the business of the partnership or any Restricted Subsidiary;
(15) liens arising from or constituting permitted encumbrances under the agreements and instruments securing the obligations under the operating partnership’s Existing Notes and the Credit Agreement;
(16) liens securing any Indebtedness of the operating partnership;
(17) Liens of landlords or mortgageesmortgages of landlords arising solely by operation
of law, on fixtures and movable property located on premises leased by the Partnershippartnership or any of its Subsidiaries in the ordinary course of business; (k)
financing statements granted
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(18) Liens such as banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with respect to personal property leased by the Partnership and its
Subsidiaries pursuant to leases considered operating leases in accordance with
GAAP, provided that such financing statements are granted solely in connection
with such leases; (l) judgment Liens to the extent that such judgments do not
cause or constitute a Default or an Event of Default; (m) Liens incurreddepository institution in the ordinary course of business of the Partnershipbusiness; and
(19) any lien renewing or extending any Subsidiary of the
Partnership with respect to obligations that do not exceed $5 million in the
aggregate at any one time outstandinglien permitted by clauses (9) through (13) 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)(15) 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,(16) above; provided, that, (i) any such Lien shall not extend to or cover any
assets or property not securing the Indebtedness so refinanced and (ii) the
refinancing Indebtedness secured by such Lien shall have been permitted to be
incurred under the "Incurrence of Indebtedness and Issuance of Disqualified
Interests" covenant and shall not have a principal amount in excess of the
Indebtedness so refinanced; (o) Liens in favor of the Senior Notes created
pursuant to the terms of the Pledge Agreement; (p) Liens on Capital Interests
of the Operating Partnership securing Indebtedness other than Subordinated
Indebtedness that is permitted to be incurred by the Partnership pursuant to
the terms of the Indenture; and (q) any extension or renewal, or successive
extensions or renewals, in whole or in part, of Liens permitted pursuant to
the foregoing clauses (a) through (p); provided that no such extension or
renewal Lien shall (i) secure more than the amount of Indebtedness or other
obligations secured by the Lien being so extended or renewed or (ii) extend to
any property or assets not subject to the Lien being so extended or renewed.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or any Subsidiary of the Partnership issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Partnership or any of its
Subsidiaries permitted to be incurred under the Indenture (other than
Indebtedness under the Credit Facility); provided that (a) the principal amount of the Indebtedness secured by any such Indebtedness doeslien shall not exceed the principal amount of the Indebtedness outstanding immediately prior to the renewal or extension of the lien, and no assets encumbered by the lien other than the assets encumbered immediately prior to the renewal or extension shall be encumbered thereby.
“Permitted Refinancing Indebtedness” means Indebtedness incurred by the partnership or any Restricted Subsidiary to substantially and concurrently (excluding any notice period on redemptions) repay, refund, renew, replace, extend or refinance, in whole or in part, any Permitted Indebtedness of the partnership or any Restricted Subsidiary or any other Indebtedness incurred by the partnership or any Restricted Subsidiary pursuant to the “Limitation on Additional Indebtedness” covenant, to the extent:
(1) the principal amount of the Permitted Refinancing Indebtedness does not exceed the principal or accreted amount plus the amount of accrued and unpaid interest of the Indebtedness so extended, refinanced,repaid, refunded, renewed, replaced, defeasedextended or refundedrefinanced (plus the amount of reasonableall expenses and premiums incurred in connection therewith); (b)
such
(2) with respect to the repayment, refunding, renewal, replacement, extension or refinancing of our Indebtedness, the Permitted Refinancing Indebtedness ranks no more favorably in right of payment with respect to the notes than the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced; and
(3) with respect to the repayment, refunding, renewal, replacement, extension or refinancing of our Indebtedness, the Permitted Refinancing Indebtedness has a Weighted Average Life to Stated Maturity and stated maturity equal to, or greater than, and has no fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the Weighted Average Lifeamounts set forth in, the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced;
provided, however, that Permitted Refinancing Indebtedness shall not include Indebtedness incurred by a Restricted Subsidiary to Maturityrepay, refund, renew, replace, extend or refinance Indebtedness of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (c) such Indebtedness is
subordinated in right of payment to the Senior Notes on terms at least as
favorable to the Holders of Senior Notes as those, if any, contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (d) such Indebtedness is incurred by the
Partnership or the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person"partnership.
“Person” means any individual, corporation, partnership, joint venture, association, joint stockjoint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
“Preferred Stock” as applied to the Capital Stock of any agencyPerson, means Capital Stock of any class or political subdivision thereof.
"Restricted Investment" means an Investmentclasses (however designated), which is preferred as to the payment of distributions, dividends, or upon any voluntary or involuntary liquidation or dissolution of such Person, over shares or units of Capital Stock of any other than a Permitted
Investment.
"Senior Operating Partnership Indebtedness" means all Indebtedness (other
than Subordinated Indebtedness)class of such Person; provided, that any limited partnership interest of the Operating Partnership permittedpartnership will not be considered Preferred Stock.
“Principal” means James E. Ferrell.
“Redeemable Capital Stock” means any shares of any class or series of Capital Stock, that, either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be incurred underredeemed prior to the Credit Facility andstated maturity of the Operating Partnership Indenture, as
eachprincipal of the notes or is redeemable at the option of the holder thereof at any time prior to the stated maturity of the principal of the notes, or is convertible into or exchangeable for debt securities at any time prior to the stated maturity of the principal of the notes.
“Related Party” means any of the following:
(1) any immediate family member or lineal descendant of the Principal;
(2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in effect from time to time and as the same may be extended,
refinanced, renewed, replaced, defeasedimmediately preceding clause (1);
(3) the Ferrell Companies, Inc. Employee Stock Ownership Trust (“FCI ESOT”);
(4) any participant in the FCI ESOT whose account has been allocated shares of Ferrell Companies, Inc.;
(5) Ferrell Companies, Inc.; or refunded.
"Significant Subsidiary" means
(6) any Subsidiary of Ferrell Companies, Inc.
“Restricted Subsidiary” means a Subsidiary of the Partnership that would
be a "significant subsidiary"partnership, which, as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subordinated Indebtedness"of determination, is not an Unrestricted Subsidiary of the partnership.
“SPE” means any Indebtedness of the Partnership orspecial purpose Unrestricted Subsidiary established in connection with any of its Subsidiaries which is expressly by its terms subordinated in right of
payment to any other Indebtedness.
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"Subsidiary"Accounts Receivable Securitization.
“Subsidiary” means, with respect to any Person,specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital InterestsStock 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),corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by suchthat Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
“Termination Capital Transactions” means any sale, transfer or other disposition of property of the partnership or the operating partnership occurring upon or incident to the liquidation and winding up of the partnership and the operating partnership.
“Total Assets” means, as of any date of determination, the consolidated total assets of the partnership and the Restricted Subsidiaries as would be shown on a consolidated balance sheet of the partnership and the Restricted Subsidiaries prepared in accordance with GAAP as of that date.
“Unrestricted Subsidiary” means (v) Ferrellgas Receivables, LLC, (w) Uni-Asia, Ltd., (x) Ferrellgas Real Estate, Inc., (y) Blue Rhino Canada, Inc., and (z) any other Person (other than operating partnership or Ferrellgas Partners Finance Corp.) that is designated as such by the general partner; provided, that no portion of the Indebtedness of such Person:
(1) is guaranteed by the partnership or any Restricted Subsidiary;
(2) is recourse to or obligates the partnership or any Restricted Subsidiary in any way; or
(3) subjects any property or assets of the partnership or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof.
Notwithstanding the foregoing, anythe partnership or a Restricted Subsidiary may guarantee or agree to provide funds for the payment or maintenance of, or otherwise become liable with respect to Indebtedness of an Unrestricted Subsidiary, but only to the Partnershipextent that is designatedthe partnership or a Non-RecourseRestricted Subsidiary would be permitted to:
(1) make an Investment in the Unrestricted Subsidiary pursuant to the definition thereof shall not thereafter be deemed a Subsidiarythird clause of the Partnership.
"Subsidiary Guarantee" means, fromdefinition of Permitted Investments; and after
(2) incur the Subsidiary Guarantee
Effectiveness Date, the GuaranteeIndebtedness represented by the Operating Partnership of the
Obligations under the Indenture and the Senior Notes.
"Subsidiary Guarantee Effectiveness Date" means the first date upon which
the Operating Partnership is permittedguarantee or agreement pursuant to the Fixed Charge Coverage
Ratio tests contained infirst paragraph of the Operating Partnership Indenture and the Credit
Facility and pursuantsection entitled “— Limitation on Additional Indebtedness.” The board of directors may designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to the termsdesignation there exists no Event of any other Senior Operating Partnership
Indebtedness to Guarantee, on a senior subordinated basis,Default or event which after notice or lapse or time or both would become an Event of Default, and if the Issuers' total
payment Obligations under allUnrestricted Subsidiary has, as of the then-outstanding Senior Notes.
"Weighteddate of the designation, outstanding Indebtedness other than Permitted Indebtedness, the partnership could incur at least $1.00 of Indebtedness other than Permitted Indebtedness.
Notwithstanding the foregoing, no Subsidiary may be designated an Unrestricted Subsidiary if the Subsidiary, directly or indirectly, holds Capital Stock of a Restricted Subsidiary.
“Weighted Average Life to Maturity"Stated Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) thedividing:
(1) The sum of the products obtained by multiplying (x)multiplying:
(a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y)
(b) the number of years, (calculatedcalculated to the nearest one-twelfth)one-twelfth, that will elapse between suchthe date and the making of suchthe payment, by (b) the
(2) The then outstanding principal amount of suchthe Indebtedness;
provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Stated Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Interests or other ownership interests or, in
the case of a limited partnership, all of the partners' Capital Interests
(other than up to approximately 1% general partner interest), of which (other
than directors' qualifying shares) shall at the time
The exchange notes will be owned by such Person
orrepresented by one or more Wholly Owned Subsidiariesnotes in registered, global form without interest coupons (the “Global Notes”). The Global Notes will be deposited upon issuance with the trustee as custodian for The Depository Trust Company (“DTC”), in New York, New York, and registered in the name of DTC or its nominee, in each case, for credit to an account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive notes in registered certificated form (“Certificated Notes”) except in the limited circumstances described below. See “—Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of notes in certificated form.
Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the “Participants”) and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the “Indirect Participants”). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of the Participants with portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such Personsystems. The laws of some jurisdictions require that particular persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons that do not participate in the DTC system, or by such Person
and one or more Wholly Owned Subsidiariesotherwise take actions in respect of such Person.
DESCRIPTION OF EXISTING INDEBTEDNESS
THE OPERATING PARTNERSHIP NOTES
The following isinterests, may be affected by the lack of a summaryphysical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not have exchange notes registered in their names, will not receive physical delivery of exchange notes in certificated form and will not be considered the registered owners or “holders” thereof under the indenture for any purpose.
Payments in respect of the termsprincipal of, and interest and premium, if any, and additional interest, if any, on, a Global Note registered in the Operating Partnership Notes.
The Operating Partnership Notes are unsecured general obligationsname of the
Operating Partnership and are recourseDTC or its nominee will be payable to the General PartnerDTC in its capacity as the general partnerregistered holder under the indenture. Under the terms of the Operating Partnership. The $200 million
aggregateindenture, we and the trustee will treat the persons in whose names the exchange notes, including the Global Notes, are registered as the owners of the exchange notes for the purpose of receiving payments and for all other purposes. Consequently, neither us, the trustee nor any agent of ours or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the exchange notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of Fixed Rate Notes bear interest at the raterelevant security as shown on the records of 10.0% per annum, payable semi-annually in arrears. The Operating Partnership
Notes mature on August 1, 2001. The Fixed Rate Notes do not require any
mandatory redemption or sinking fund payment priorDTC. Payments by the Participants and the Indirect Participants to maturity. The Fixed Rate
Notes are redeemable at the optionbeneficial owners of exchange notes will be governed by standing instructions and customary practices and will be the responsibility of the Operating Partnership, in wholeParticipants or in part, atthe Indirect Participants and will not be our responsibility or the responsibility of DTC or the trustee. Neither we nor the trustee will be liable for any time ondelay by DTC or after August 1, 1998 at redemption prices specified
in the Operating Partnership Indenture, plus accrued and unpaid interest to
the date of redemption. Upon the occurrence of certain events constituting a
"Change of Control" (as defined in the Operating Partnership Indenture),
including if James E. Ferrell or his affiliates do not control the General
Partner, other than in certain limited circumstances, holdersany of the Operating
Partnership Notes haveParticipants or the right to requireIndirect Participants in identifying the Operating Partnership to
purchase each such holder's Operating Partnership Notes, in whole or in part,
at a purchase price equal to 101%beneficial owners of the principal amount thereof, plus
accruedexchange notes, and unpaid interest towe and the date of purchase.
94
The Operating Partnership Indenture contains customary covenants applicable
totrustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers between the Operating Partnership and its subsidiaries, including limitations on
the ability of the Operating Partnership and its subsidiaries to, among other
things, incur additional indebtedness (other than certain permitted
indebtedness) and issue preferred interests, create liens, incur dividends and
other payment restrictions affecting subsidiaries, enter into mergers,
consolidations or sales of all or substantially all assets, make asset sales
and enter into transactions with affiliates. Under the Operating Partnership
Indenture, the Operating Partnership is permitted to make cash distributions
in an amount in such fiscal quarter not to exceed Available Cash (as defined
in the Operating Partnership Indenture) of the Operating Partnership for the
immediately preceding fiscal quarter plus the lesser of (y) the amount of any
Available Cash of the Operating Partnership for the first 45 days of such
fiscal quarter during which such distributions are made and (z) the amount of
unused available working capital indebtedness that the Operating Partnership
could have incurred on the last day of the immediately preceding fiscal
quarter; provided, however, that the Operating Partnership is prohibited from
making any distribution to the Partnership (i) if a default or event of
default exists or would exist upon making such distribution, (ii) if the
Operating Partnership's Fixed Charge Coverage Ratio for the preceding four
fiscal quarters does not exceed 2.25 to 1 after giving effect to such
distribution or (iii) unless the Operating Partnership and its subsidiaries
shall have in the aggregate (a) acquired, improved or repaired property, plant
or equipment which is accounted for as a capital expenditureParticipants will be effected in accordance with GAAPDTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants, on the one hand, and Euroclear or (b) acquired,Clearstream participants, on the other hand, will be effected through mergerDTC in accordance with DTC’s rules on behalf of Euroclear or otherwise, allClearstream, as the case may be, by their respective depositaries; however, such cross-market transactions will require delivery of instructions to Euroclear or substantially
allClearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the outstanding stockcase may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or other capitalreceiving interests or all or
substantially all of the assets, of any entity engaged in the businessrelevant Global Note in whichDTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the Operating Partnership is engaged ondepositories for Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be taken by a holder of exchange notes only at the datedirection of one or more Participants to whose account DTC has credited the Operating
Partnership Indenture (each of the transactions referred to in clauses (a) and
(b) above, a "Capital Investment") for Aggregate Consideration since the date
of the Operating Partnership Indenture which, when added to all cash reserves
then funded and maintained by the Operating Partnership (the proceeds of which
shall be used solely for Capital Investments) is no less than the amounts set
forthinterests in the table below, if such distribution is madeGlobal Notes and only in the 12-month period
beginning August 1 of the years indicated.
Although DTC, Euroclear and Clearstream have agreed to the Operating Partnership and
its Subsidiaries from incurring or guaranteeing Indebtedness unless (i) the
Fixed Charge Coverage Ratio (as definedforegoing procedures to facilitate transfers of interests in the Operating Partnership
Indenture)Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. None of us, the trustee and any of our or their respective agents will have any responsibility for the Operating Partnership's most recently ended four fixed
quarters immediately precedingperformance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the date on which such additional Indebtednessrules and procedures governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is incurred would have beenexchangeable for Certificated Notes if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, we fail to appoint a successor depositary;
(2) we, at least 2.75our option, notify the trustee in writing that we elect to 1.0 if such date is on or prior
to August 1, 1996 and 3.00 to 1.0 if such date is after August 1, 1996, in
each case, determined on a pro forma basis, and (ii) either (x) such
Indebtedness shall be subordinated in right of payment tocause the Operating
Partnership Notes and shall have a Weighted Average Life to Maturity (as
defined in the Operating Partnership Indenture) greater than the remaining
Weighted Average Life to Maturityissuance of the Operating Partnership NotesCertificated Notes; or (y)
such Indebtedness shall be Permitted Senior Debt (as defined in the Operating
Partnership Indenture)
(3) there has occurred and the Senior Debt Ratio Test (as defined in the
Operating Partnership Indenture) shall have been met at the timeis continuing a Default or an Event of 95
incurrence thereof. The "Senior Debt Ratio Test" will be met, generally,Default with respect to the incurrenceexchange notes and DTC notifies the trustee of its decision to exchange the Global Notes for Certificated Notes.
In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any IndebtednessGlobal Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).
Exchange of Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests in any Global Note.
Same Day Settlement and Payment
We will make payments in respect of the exchange notes represented by the Operating Partnership orGlobal Notes (including principal, premium, if any, Subsidiaryinterest and additional interest, if any) by wire transfer of the Operating Partnership, if the ratio of (1) the aggregate
outstanding principal amount of Senior Debt (as defined in the Operating
Partnership Indenture) on the date of and after giving effectimmediately available funds to the incurrence of such Indebtedness (the "Incurrence Date") to (2) the
Consolidated Cash Flow (as defined in the Operating Partnership Indenture) for
the Operating Partnership's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
Incurrence Date would have been 2.50 to 1.0accounts specified by DTC or less.
At the time of issuance, the Operating Partnership Notes consisted of the
$200 million aggregate principal amount of Fixed Rate Notes and $50 million
aggregate principal amount of Floating Rate Notes. The Floating Rate Notes
bear interest at the three-month LIBOR rate plus 3 1/8%, adjusted quarterly,
payable quarterly in arrears. The Floating Rate Notes require sinking fundits nominee. We will make all payments of $5.0 million in each of 1999principal, interest and 2000, calculated to retire an
aggregate of 20% of the Floating Rate Notes prior to maturity. On July 31,
1996, the Operating Partnership will redeem prior to maturity all of the
Floating Rate Notes at 100% of the principal amount thereof, plus accruedpremium, if any, and unpaidadditional interest, to such date, from borrowings under the Credit Facility.
CREDIT FACILITY
The Operating Partnership has entered into a $205 million Credit Facility
with Bank of America National Trust & Savings Association ("BofA"), a portion
of which is syndicated to a group of financial institutions (together with
BofA, the "Banks"). On July 31, 1996, the Partnership expects to enter into an
amendment to the Credit Facility which will increase the maximum borrowing
amount to $255,000,000. The amended Credit Facility will permit borrowings of
up to $20 million on a senior unsecured revolving line of credit basis (the
"Working Capital Facility") to fund working capital and borrowings of up to
$185 million on a senior unsecured revolving line of credit basis (the
"Revolving Credit Facility") for general partnership requirements (of which
$50 million is available to support letters of credit). In addition, the
amended credit facility will provide for a senior unsecured term loan (the
"Term Loan") in the amount of $50 million with the proceeds to be used to
redeem the Operating Partnership's Floating Rate Notes.
The Working Capital Facility and Revolving Credit Facility will be committed
through July 31, 1999, at which time the Working Capital Facility and the
Revolving Credit Facility will expire. The Term Loan matures on June 1, 2001.
At the Operating Partnership's option, borrowings under the Credit Facility
may bear interest either at the Base Rate (i.e., the higher of the Federal
funds rate plus 1/2% per annum or BofA's reference rate) or the London
Interbank Offered Rate, in each case plus the applicable margin. The
applicable margin will vary from 42.5 basis points to 137.5 basis points for
LIBOR and between zero basis points and 12.5 basis points for the Base Rate,
depending upon the Operating Partnership's "Leverage Ratio," which is defined
generally as the ratio of all debt for borrowed money to EBITDA. As of the
date hereof, the Operating Partnership's applicable LIBOR margin is 105 basis
points and its applicable Base Rate margin is 0 basis points. There can be no
assurance that the Operating Partnership will continue to maintain the
Leverage Ratio which currently exists.
The loan agreement for the Credit Facility contains restrictive covenants
substantially similar to those for the Operating Partnership Senior Notes
including restrictions on the Operating Partnership's ability to make cash
distributions, the requirement that the Operating Partnership make "Capital
Reinvestments" as described under "--The Operating Partnership Notes" and the
requirement that the Operating Partnership repay all outstanding amounts under
the Credit Facility within 30 days after the occurrence of a change of
control. See "--The Operating Partnership Notes." In the case of the Credit
Facility, however, there is an additional limitation in that the occurrence ofif any, transaction which results in James E. Ferrell and his affiliates
beneficially owning less than 20% of the equity interests of the Partnership
will constitute a "change of control," requiring repayment of the Credit
Facility. In addition, the Credit Facility currently prohibits the Operating
Partnership from guaranteeing and becoming directly or indirectly liable with respect to any Indebtedness unless (i) the Fixed Charge Coverage Ratio (as
defined in the Credit Facility) for the Operating Partnership is 2.75 to 1.0
prior to August 1, 1996 and 3.0 to 1.0 thereafter and (ii) either (x) such
Indebtedness is subordinate in rightCertificated Notes by wire transfer of payment
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obligationsaccounts specified by the holders of the Operating Partnership under the Credit Facility andCertificated Notes or, if no principal paymentsuch account is required thereon priorspecified, by mailing a check to July 1, 2000, whether upon
stated maturity, mandatory prepayment, acceleration or otherwise or (y)each such Indebtedness shall be Permitted Senior Debt and the Senior Debt Ratio Test
shall have been met at the time of incurrence thereof.holder’s registered address. The "Senior Debt Ratio
Test" will be met, generally, with respect to the incurrence of any
Indebtednessexchange notes represented by the Operating Partnership or any Subsidiary of the Operating
Partnership if the ratio of (1) the aggregate outstanding principal amount of
Senior Debt on the Incurrence Date to (2) the Consolidated Cash Flow for the
Operating Partnership's most recently ended four full fiscal quarters for
which internal financial statementsGlobal Notes are available immediately preceding the
Incurrence Date would have been 2.50 to 1 or less. The Credit Facility also
includes certain additional covenants and restrictions relating to the
activities of the Operating Partnership which are customary for similar credit
facilities and are not expected to affect materially and adversely the conduct
of the Partnership's business as describedtrade in this Offering Memorandum.
CASH DISTRIBUTIONS
A principal objective of the Partnership and the Operating Partnership is to
generate cash from Partnership operations and to distribute to its partners,
on a quarterly basis, all its Available Cash in the manner described herein.
"Available Cash" generally means, with respect to any fiscal quarter of the
Partnership or the Operating Partnership, as applicable, all cash on hand at
the end of such quarter less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i) provide
for the proper conduct of the Partnership's business, (ii) provide funds for
distributions during the next four quarters, or (iii) comply with applicable
law or any Partnership debt instrument or other agreement. The Partnership
Agreement provides that distribution of Available Cash to Subordinated Units
is reduced at any time that Available Cash distributable to all Units is less
than $2.00 per Unit. Under such circumstances, $2.00 per Unit will first be
distributed to the Common UnitsDTC’s Same-Day Funds Settlement System, and any remaining Available Cashpermitted secondary market trading activity in such notes will, therefore, be distributedrequired by DTC to the Subordinated Units. Distributionsbe settled in immediately available funds. We expect that secondary trading in any Certificated Notes will also be made upon
liquidationsettled in immediately available funds.
Because of time zone differences, the Operating Partnershipsecurities account of a Euroclear or the Partnership as follows: (i)
firstClearstream participant purchasing an interest in a Global Note from a Participant will be credited, and any such crediting will be reported to the creditorsrelevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of the applicable entity (including,DTC. DTC has advised us that cash received in the case of the
Partnership, the Holders of the Senior Notes) and to the creation of a reserve
for contingent liabilities and (ii) then to the partners in the priorities
established by their respective equity interests. Upon liquidation of the
Operating Partnership, all of its creditors, including holders of Operating
Partnership Notes and the lenders with respect to the Credit Facility, will be
paid in full before any funds are available for distribution to the
Partnership. See "Risk Factors--Holding Company Structure and Ability to Repay
the Senior Notes; Effective Subordination to Indebtedness and Liabilities of
the Operating Partnership and Subsidiaries."
THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The following discussion is qualified in its entirety
by reference to the Partnership Agreements for the Partnership and for the
Operating Partnership. The Partnership is the sole limited partner of the
Operating Partnership, which owns, manages and operates the Partnership's
business. The General Partner is the general partner of the Partnership and of
the Operating Partnership, collectively owning a 2% general partner interest
in the business and properties owned by the Partnership and the Operating
Partnership, and the Unitholders (including the General Partner and/Euroclear or Ferrell
as an owner of Common Units, Subordinated Units and Incentive Distribution
Rights (collectively the "Units")) hold a 98% interest as limited partners in
the Partnership and the Operating Partnership on a combined basis. Unless
specifically described otherwise, references herein to the term "Partnership
Agreement" constitute references to the Partnership Agreements of the
Partnership and the Operating Partnership, collectively.
ORGANIZATION AND DURATION
The Partnership and the Operating Partnership are Delaware limited
partnerships. The Partnership will dissolve on July 31, 2084, unless sooner
dissolved pursuant to the terms of the Partnership Agreement.
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WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The General Partner has agreed not to voluntarily withdraw as general
partner of the Partnership and the Operating Partnership prior to July 31,
2004 (with limited exceptions described below), without obtaining the approval
of at least 66-2/3% of the outstanding Units (excluding for purposes of such
determination Units held by the General Partner and its affiliates) and
furnishing an opinion of counsel that such withdrawal (following the selection
of a successor general partner) will not result in the loss of the limited
liability of the limited partners of the Partnership or cause the Partnership
to be treated as an association taxable as a corporation or otherwise taxed as
an entity for federal income tax purposes (an "Opinion of Counsel"). On or
after July 31, 2004, the General Partner may withdraw as general partner by
giving 90 days' written notice (without first obtaining approval from the
Unitholders), and such withdrawal will not constitute a violation of the
Partnership Agreement. Notwithstanding the foregoing, the General Partner may
withdraw without Unitholder approval upon 90 days' notice to the limited
partners if more than 50% of the outstanding Units are held or controlled by
one person and its affiliates (other than the General Partner and its
affiliates). In addition, the Partnership Agreement permits the General
Partner (in certain limited instances) to sell all of its general partner
interest in the Partnership and permits the parent corporation of the General
Partner to sell all or any portion of the capital stock of the General Partner
to a third party without the approval of the Unitholders. Upon the withdrawal
of the General Partner under any circumstances (other thanClearstream as a result of sales of interests in a transferGlobal Note by or through a Euroclear or Clearstream participant to a Participant will be received with value on the General Partnersettlement date of all or a part of its general partner
interestDTC but will be available in the Partnership), the holders of a majorityrelevant Euroclear or Clearstream cash account only as of the outstanding
Units (excludingbusiness day for purposes of such determination Units held by the General
Partner and its affiliates) may select a successor to such withdrawing General
Partner. If such a successor is not elected,Euroclear or is elected but an Opinion of
Counsel cannot be obtained, the Partnership will be dissolved, wound up and
liquidated, unless within 180 days after such withdrawal a majority of the
Unitholders agree in writing to continue the business of the Partnership and
to the appointment of a successor General Partner. See "--Termination and
Dissolution."
Clearstream following DTC’s settlement date.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The General Partner may not be removed unless such removal is approved by
the vote of the holders of not less than 66-2/3% of the outstanding Units and
the Partnership receives an Opinion of Counsel. Any such removal is also
subject to the approval of a successor general partner by the vote of the
holders of not less than a majority of the outstanding Units.
Removal or withdrawal of the General Partner of the Partnership also
constitutes removal or withdrawal, as the case may be, of the General Partner
as general partner of the Operating Partnership.
In the event of withdrawal of the General Partner where such withdrawal
violates the Partnership Agreement or removal of the General Partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to purchase the general partner interest of the
departing General Partner (the "Departing Partner") in the Partnership and the
Operating Partnership for a cash payment equal to the fair market value of
such interest. Under all other circumstances where the General Partner
withdraws or is removed by the limited partners, the Departing Partner will
have the option to require the successor general partner to purchase such
general partner interest of the Departing Partner for such amount. In each
case such fair market value will be determined by agreement between the
Departing Partner and the successor general partner, or if no agreement is
reached, by an independent investment banking firm or other independent
experts selected by the Departing Partner and the successor general partner
(or if no expert can be agreed upon, by the expert chosen by agreement of the
experts selected by each of them). In addition, the Partnership would also be
required to reimburse the Departing Partner for all amounts due the Departing
Partner, including without limitation, all employee related liabilities,
including severance liabilities, incurred in connection with the termination
of the employees employed by the Departing Partner for the benefit of the
Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing
Partner's general partner interest in the partnership will be converted into
Common Units equal to the fair market value of such interest as determined by
an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph.
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AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by or with the
consent of the General Partner. In order to adopt a proposed amendment, the
General Partner is required to seek written approval of the holders of the
number of Units required to approve such amendment or call a meeting of the
limited partners to consider and vote upon the proposed amendment, except as
described below. Proposed amendments (other than those described below) must
be approved by holders of at least 66-2/3% of the outstanding Units during the
Subordination Period and a majority of the outstanding Units thereafter,
except that no amendment may be made which would (i) enlarge the obligations
of any limited partner, without its consent, (ii) enlarge the obligations of
the General Partner, without its consent, which may be given or withheld in
its sole discretion, (iii) restrict in any way any action by or rights of the
General Partner as set forth in the Partnership Agreement, (iv) modify the
amounts distributable, reimbursable or otherwise payable by the Partnership to
the General Partner, (v) change the term of the Partnership, or (vi) give any
person the right to dissolve the Partnership other than the General Partner's
right to dissolve the Partnership.
The General Partner may make amendments to the Partnership Agreement without
the approval of any limited partner or assignee of the Partnership to reflect
(i) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent or the registered
office of the Partnership, (ii) admission, substitution, withdrawal or removal
of partners in accordance with the Partnership Agreement, (iii) a change that,
in the sole discretion of the General Partner, is necessary or appropriate to
qualify or continue the qualification of the Partnership as a partnership in
which the limited partners have limited liability or that is necessary or
advisable in the opinion of the General Partner to ensure that the Partnership
will not be treated as an association taxable as a corporation or otherwise
subject to taxation as an entity forfollowing discussion summarizes certain U.S. federal income tax purposes, (iv) an
amendment that is necessary, in the opinion of counselconsiderations relevant to the Partnership, to
prevent the Partnership or the General Partner or its respective directors or
officers from in any manner being subjected to the provisionsexchange of the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, whether or not
substantially similar to plan asset regulations currently applied or proposed,
(v) subject to the limitations on the issuance of additional Common Units or
other limited or general partner interests described above, an amendment that
in the sole discretion of the General Partner is necessary or desirable in
connection with the authorization of additional limited or general partner
interests, (vi) any amendment expressly permitted in the Partnership Agreement
to be made by the General Partner acting alone, (vii) an amendment effected,
necessitated or contemplated by a merger agreement that has been approvedunregistered notes for exchange notes pursuant to the terms of the Partnership Agreement, (viii) any amendment that,
in the sole discretion of the General Partner, is necessary or desirable in
connection with the formation by the Partnership of, or its investment in, any
corporation, partnership or other entity (other than the Operating
Partnership) as otherwise permitted by the Partnership Agreement, (ix) a
change in the fiscal year and taxable year of the Partnership and changes
related thereto, and (x) any other amendments substantially similar to the
foregoing.
In addition, the General Partner may make amendments to the Partnership
Agreement without such consent if such amendments (i) do not adversely affect
the limited partners in any material respect, (ii) are necessary or desirable
to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute, (iii) are
necessary or desirable to implement certain tax-related provisions of the
Partnership Agreement, (iv) are necessary or desirable to facilitate the
trading of the Units or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the Units are or will be
listed for trading compliance with any of which the General Partner deems to
be in the best interests of the Partnership and the Unitholders or (v) are
required or contemplated by the Partnership Agreement.
The General Partner will not be required to obtain an Opinion of Counsel as
to the tax consequences or the possible effect on limited liability of
amendments described in the two immediately preceding paragraphs. No other
amendments to the Partnership Agreement will become effective without the
approval of at least 95% of the Units unless the Partnership obtains an
Opinion of Counsel to the effect that such amendment will not cause
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the Partnership to be treated as an association taxable as a corporation or
otherwise cause the Partnership to be subject to entity level taxation for
federal income tax purposes and will not affect the limited liability of any
limited partner in the Partnership or the limited partner of the Operating
Partnership.
Any amendment that materially and adversely affects the rights or
preferences of any type or class of limited partner interests in relation to
other types of classes of limited partner interests or the general partner
interests will require the approval of at least a majority of the type or
class of limited partner interests so affected (excluding any such limited
partner interests held by the General Partner and its affiliates).
TERMINATION AND DISSOLUTION
The Partnership will continue until July 31, 2084, unless sooner terminated
pursuant to the Partnership Agreement. The Partnership will be dissolved upon
(i) the election of the General Partner to dissolve the Partnership, if
approved by at least a majority of the Units (other than Units owned by the
General Partner and its affiliates) during the Subordination Period (as
defined in the Partnership Agreement), or a majority of all of the outstanding
Units thereafter, (ii) the sale of all or substantially all of the assets and
properties of the Partnership and the Operating Partnership, (iii) the entry
of a decree of judicial dissolution of the Partnership or (iv) withdrawal or
removal of the General Partner or any other event that results in its ceasing
to be the General Partner (other than by reason of a transfer in accordance
with the Partnership Agreement or withdrawal or removal following approval of
a successor), provided that the Partnership shall not be dissolved upon an
event described in clause (iv) if within 90 days after such event the partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of a successor General
Partner. Upon a dissolution pursuant to clause (iv), the holders of at least a
majority of the Units may also elect, within certain time limitations, to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in the Partnership Agreement by forming a new limited
partnership on terms identical to those set forth in the Partnership Agreement
and having as a general partner an entity approved by at least the holders of
a majority of the Units, subject to receipt by the Partnership of an opinion
of counsel that the exercise of such right will not result in the loss of the
limited liability of Unitholders or cause the Partnership or the reconstituted
limited partnership to be treated as an association taxable as a corporation
or otherwise subject to taxation as an entity for federal income tax purposes.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is reconstituted
and continued as a new limited partnership, the person authorized to wind up
the affairs of the Partnership (the "Liquidator") will, acting with all of the
powers of the general partner that such Liquidator deems necessary or
desirable in its good faith judgment in connection therewith, liquidate the
Partnership's assets and apply the proceeds of the liquidation as follows: (i)
first towards the payment of all creditors of the Partnership and the creation
of a reserve for contingent liabilities and (ii) then to all partners in
accordance with the positive balance in their respective capital accounts.
Under certain circumstances and subject to certain limitations, the Liquidator
may defer liquidation or distribution of the Partnership's assets for a
reasonable period of time or distribute assets to partners in kind if it
determines that a sale would be impractical or would cause undue loss to the
partners.
INCENTIVE DISTRIBUTION RIGHTS
All cash distributions from the Operating Partnership will be made 1% to the
General Partner and 99% to the Partnership as limited partner.
As an incentive, if quarterly distributions of Available Cash by the
Partnership exceed certain specified target levels an affiliate of the General
Partner will receive distributions of Available Cash of the Partnership as
described below. The target levels are based on the amounts of Available Cash
distributed by the Partnership and incentive distributions will not be made
unless the Unitholders have received distributions at specified levels above
the minimum quarterly distribution of $.50 per Unit with respect to each
quarter, subject to adjustment under certain circumstances (the "Minimum
Quarterly Distribution"). The rights to receive incentive distributions are
referred to as "Incentive Distribution Rights."
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For any quarter for which Available Cash is distributed by the Partnership
in respect of both the Common Units and the Subordinated Units in an amount
equal to the Minimum Quarterly Distribution, then any additional Available
Cash of the Partnership will be distributed among the Unitholders, the General
Partner and the holders of the Incentive Distribution Rights in the following
manner:
first, 99% to all Unitholders, pro rata, and 1% to the General Partner,
until the Unitholders have received a total of $.55 for such quarter in
respect of each Unit;
second, 86% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 1% to the General Partner, until
the Unitholders have received a total $0.63 for such quarter in respect of
each Unit;
third, 76% to all Unitholders, pro rata, 23% to the holders of the Incentive
Distribution Rights, pro rata, and 1% to the General Partner, until the
Unitholders have received a total of $0.82 for such quarter in respect of each
Unit; and
fourth, 51% to all Unitholders, pro rata, 48% to the holders of the
Incentive Distribution Rights, pro rata, and 1% to the General Partner.
Because the General Partner also receives 1% from the Operating Partnership,
the effective distribution to the General Partner will be 2% under all
circumstances and the effective distribution to all Unitholders will be
reduced by 1% in each instance.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer should not constitute a material modification of the terms of the
Private Notes and, accordingly, should not constitute an "exchange" for
federal income tax purposes. Accordingly, the Exchange Offer should have no
federal income tax consequences to holders of Private Notes, either those who
exchange or those who do not. Likewise, holders of Exchange Notes should have
a tax basis therein equal to that in their Private Notes and a holding period
which includes the period during which they held the Private Notes.
If, contrary to the above conclusion, the exchange of Private Notes for
Exchange Notes constitutes an "exchange" for federal income tax purposes, (i)
a holder would realize and recognize gain or loss for federal income tax
purposes in an amount equal to the difference between (a) the "issue price" of
the Exchange Notes determined on the date of the exchange and (b) the holder's
adjusted tax basis in the Private Notes exchanged therefor, and (ii)(a) gain
or loss, if any, recognized by a holder on the exchange generally would be
short-term capital gain or loss (if the Private Notes were held by such holder
as capital assets), (b) a holder's initial tax basis in the Exchange Notes
would be their "issue price", and (c) a holder's holding period for the
Exchange Notes would begin on the day after the date of the exchange. A holder
also could be required to include in income each year an amount of original
issue discount based upon the "issue price" of the Exchange Notes.
The foregoingoffer. This discussion reflects the opinion of Bryan Cave LLP, counsel to
the Issuers, as to the material federal income tax consequences of the
consummation of the Exchange Offer to the holders of the Private Notes, and
does not consider the possible effect of any applicable state, local and
foreign income and other tax laws. It is included herein for general
information only and is based upon the provisions of the Internal revenueRevenue Code of 1986, as amended (the “Code”), applicable Treasury Regulations promulgated thereunder, judicial authority and current administrative rulingsinterpretations, all as of the date of this prospectus and practice, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. We cannot assure you that the Internal Revenue Service (“IRS”) will not challenge one or more of the tax consequences described in this discussion, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal tax considerations described herein.
In this discussion, we do not purport to address all tax considerations that may be important to a particular holder in light of the holder’s circumstances, or to certain categories of investors that may be subject to special rules. This summary of U.S. federal tax consequences is limited to U.S. holders and non-U.S. holders (each as defined below) who exchange unregistered notes for exchange notes pursuant to the exchange offer and certain such consequences of the ownership and disposition of exchange notes, and who hold the unregistered notes and will hold the exchange notes as ‘‘capital assets,’’ as defined in the Code (generally, property held for investment). This discussion does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, controlled foreign corporations, passive foreign investment companies, real estate investment trusts, traders in securities that have elected the mark-to-market method of accounting for the securities, brokers, dealers in securities or currencies, persons holding securities as a “hedge,” or as a position in a “straddle,” or “conversion” transaction, persons that hedge the interest rate on the notes or persons whose functional currency is not the U.S. dollar. This summary does not address the effect of any applicable state, local or foreign tax laws or any U.S. federal tax laws (such as gift tax laws or the unearned income Medicare contribution tax) other than U.S. federal income tax laws.
If an entity treated as a partnership for U.S. federal income tax purposes is a beneficial owner of exchange notes, the tax treatment of a partner of the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. If a holder is a partner of a partnership that acquires exchange notes, such holder is urged to consult his, hers or its own tax advisor about the U.S. federal income tax consequences of acquiring, holding and disposing of the exchange notes.
This discussion is for general information only and does not consider all aspects of U.S. federal taxation that may be relevant to the acquisition, ownership and disposition of the exchange notes by a holder in light of the holder’s particular circumstances. We urge each investor to consult its own tax advisor regarding the particular U.S. federal, state, local and foreign tax consequences of the exchange offer and of acquiring, holding, and disposing of the exchange notes, including the consequences of the acquisition, ownership and disposition of notes issued with OID and the consequences of any proposed change in applicable laws.
U.S. Holder
A “U.S. holder” is a beneficial owner of the notes that is for U.S. federal income tax purposes:
· an individual who is a citizen or resident of the United States;
· a corporation organized under the laws of the United States, any state thereof or the District of Columbia;
· an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
· a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons (within the meaning of the Code) have the authority to control all substantial decisions of the trust, or the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Exchange Offer
The exchange of unregistered notes for exchange notes pursuant to the exchange offer will not be a taxable event to a U.S. holder for U.S. federal income tax purposes. Accordingly, a U.S. holder will not recognize gain or loss upon receipt of an exchange note in exchange for an unregistered note pursuant to the exchange offer, and the U.S. holder’s basis and holding period in the exchange note will be the same as its basis and holding period in the surrendered unregistered note immediately before the exchange.
Stated Interest on the Notes
Absent an election to the contrary (see “—Original Issue Discount” below), a U.S. holder generally will be required to include in gross income as ordinary income the stated interest on an exchange note at the time that the interest accrues or is received, in accordance with such holder’s regular method of accounting for U.S. federal income tax purposes.
Pre-Issuance Accrued Stated Interest
A portion of the price certain U.S. holders paid for an unregistered note will be allocable to unpaid stated interest that accrued prior to the date the unregistered note is purchased, or “pre-issuance stated interest,” and an exchange note received in exchange for an unregistered note should have the same amount of pre-issuance accrued interest as the unregistered note. Holders of the unregistered notes separately paid an amount allocable to interest that accrued prior to the date the unregistered notes were purchased (the “pre-issuance accrued stated interest”). Pursuant to certain Treasury regulations, we intend to treat a portion of the first interest payment equal to the pre-issuance accrued stated interest as a return of the pre-issuance accrued stated interest rather than an amount payable on the exchange notes received pursuant to the exchange offer. Holders should consult their own tax advisors concerning the tax treatment of any pre-issuance accrued stated interest on the exchange notes.
Original Issue Discount
Because the unregistered notes were issued with original issue discount (“OID”), the exchange notes will be treated as having been issued with OID for U.S. federal income tax purposes. The following is a summary of the OID rules and their application to the exchange notes.
A U.S. holder of a note that is treated as issued with OID must include in taxable income for any particular taxable year the OID that accrues on the note for each day during the taxable year on which the U.S. holder holds the note, in addition to stated interest, regardless of whether the U.S. holder reports on the cash or accrual basis of accounting for U.S. federal income tax purposes. Thus, a U.S. holder of an exchange note may be required to include OID in income in advance of the receipt of the cash to which such OID is attributable. The U.S. holder’s tax basis in the exchange notes will be increased by the amount of OID includible in the U.S. holder’s gross income as it accrues.
In general, because the exchange notes will be treated as issued with OID for U.S. federal income tax purposes, a U.S. holder must include in gross income as ordinary income OID calculated on a retroactive basis.
EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
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· the product of the adjusted issue price of the exchange notes at the beginning of such accrual period and the yield to maturity of the exchange notes (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less
· the qualified stated interest allocable to such accrual period.
“Qualified stated interest” means, generally, stated interest that is unconditionally payable at least annually at a single fixed rate.
OID allocable to the final accrual period is the difference between the amount payable at maturity of the exchange notes and the “adjusted issue price” of the notes at the beginning of the final accrual period. Special rules will apply for calculating OID for an initial short accrual period. The ‘‘adjusted issue price’’ of a note at the beginning of any accrual period is equal to its issue price, increased by the Accrued OID for each prior accrual period and reduced by any payments made on such exchange note on or before the first day of the accrual period.
A U.S. holder generally may irrevocably elect to treat all interest on an exchange note (including the amounts that have accrued on an unregistered note that will be exchanged for an exchange note pursuant to the exchange offer) as OID and calculate the amount includible in income using a constant yield method. U.S. holders should consult their own tax advisors regarding this election.
We will furnish annually to the IRS and to holders (other than with respect to certain exempt holders, including, in particular, corporations) information with respect to the OID accruing while exchange notes were held by the holders.
Acquisition Premium and OID
If a U.S. holder purchased an unregistered note (which will be exchanged for an exchange note pursuant to the exchange offer) for an amount that is less than or equal to the sum of all amounts (other than qualified stated interest) payable on the unregistered note after the purchase date but is greater than the adjusted issue price of such unregistered note, the excess is acquisition premium. Any such acquisition premium should carry over to the exchange note received for such unregistered note. If such U.S. holder does not elect to include all interest income on the exchange notes in gross income under the constant yield method (see “—Original Issue Discount”), the U.S. holder’s accruals of OID will be reduced by a fraction equal to (i) the excess of the U.S. holder’s adjusted basis in the note immediately after the purchase (generally, the holder’s cost of acquiring the unregistered note) over the adjusted issue price of the note, divided by (ii) the excess of the sum of all amounts payable (other than qualified stated interest) on the note after the purchase date over the adjusted issue price of the note.
The rules regarding OID (including the acquisition premium offset rules) are complex and the rules described above may not apply in all cases. Accordingly, U.S. holders should consult their own tax advisors regarding the application of such rules to the notes and their specific circumstances.
Market Discount
If a U.S. holder purchased an unregistered note (which will be exchanged for an exchange note pursuant to the exchange offer) for an amount that is less than its “revised issue price,” the amount of the difference should be treated as market discount for U.S. federal income tax purposes with respect to the exchange note that such holder receives pursuant to the exchange offer. For this purpose, the “revised issue price” of an unregistered note generally equals the issue price of the unregistered note, increased by the amount of any OID previously accrued on the unregistered note (without regard to the amortization of any acquisition premium) and decreased by the amount of any payments previously made on the unregistered note (other than payments of qualified stated interest). The rules described below do not apply to U.S. holders that purchased an unregistered note with de minimis market discount. The amount of any market discount will generally be treated as de minimis and therefore disregarded if it is less than 1/4 of 1% of the revised issue price of the initial note, multiplied by the number of complete years to maturity.
Under the market discount rules, a U.S. holder is required to treat any principal payment on, or any gain on the sale, exchange, redemption or other disposition of a note as ordinary income to the extent of any accrued market discount that has not previously been included in income. If a U.S. holder disposes of a note in an otherwise nontaxable transaction (other than certain specified nonrecognition transactions), the U.S. holder will be required to include any accrued market discount as ordinary income as if such holder had sold the exchange note at its then fair market value. In addition, such U.S. holder may be required to defer, until the maturity of the exchange note or its earlier disposition in a taxable transaction, the deduction of a portion
of the interest expense on any indebtedness incurred or continued to purchase or carry the unregistered note and the exchange note received in exchange therefor.
Market discount accrues ratably during the period from the date on which a U.S. holder acquired the unregistered note through the maturity date of the exchange note (for which the unregistered note was exchanged), unless a U.S. holder makes an irrevocable election to accrue market discount under a constant yield method. A U.S. holder may elect to include market discount in income currently as it accrues (either ratably or under the constant yield method), in which case the rule described above regarding deferral of interest deductions will not apply. If a U.S. holder makes an election to include market discount in income currently, such holder’s adjusted basis in an exchange note will be increased by any market discount included in income. An election to include market discount currently will apply to all market discount obligations acquired during or after the first taxable year in which the election is made, and the election may not be revoked without the consent of the IRS. If a U.S. holder makes the election described above in “—Original Issue Discount” for a market discount note, such holder would be treated as having made an election to include market discount in income currently under a constant yield method, as discussed in this paragraph.
Bond Premium
If a U.S. holder purchased an unregistered note (which will be exchanged for an exchange note pursuant to the exchange offer) for an amount in excess of its principal amount, the excess will be treated as bond premium. Any bond premium applicable to an unregistered note should carry over to the exchange note received in exchange therefor. In general, a U.S. holder may elect to amortize bond premium over the remaining term of the exchange note on a constant yield method. In such case, such U.S. holder will reduce the amount required to be included in income each year with respect to interest on such holder’s note by the amount of amortizable bond premium allocable to that year. The election, once made, is irrevocable without the consent of the IRS and applies to all taxable bonds held during the taxable year for which the election is made or subsequently acquired. If U.S. holders do not make this election, they will be required to include in gross income the full amount of interest on the exchange note in accordance with their regular method of tax accounting, and may receive a tax benefit (in the form of capital loss or reduced capital gain) from the premium only in computing gain or loss upon the sale or disposition or payment of the principal amount of the note.
U.S. holders should consult their own tax advisors concerning the computation and amortization of any bond premium on the notes.
Disposition of the Notes
U.S. holders generally will recognize taxable gain or loss on the sale, redemption, exchange, retirement or other taxable disposition of an exchange note equal to the difference, if any, between such U.S. holder’s adjusted tax basis in the exchange note and the proceeds received, excluding any proceeds attributable to accrued and unpaid interest, which will be treated in the manner described above (under “Stated Interest on the Notes”) and any proceeds attributable to any pre-issuance accrued stated interest. A U.S. holder’s adjusted tax basis in an exchange note generally is the price paid for the corresponding unregistered note surrendered pursuant to the exchange offer (other than any cost attributable to pre-issuance accrued stated interest as of the date the unregistered note was acquired), increased by the amount of OID and market discount previously included in income and decreased by payments received by the U.S. holder, other than payments of stated interest and any amortized bond premium. The proceeds a U.S. holder receives will include the amount of any cash and the fair market value of any other property received for the exchange note. Any such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if at the time of such disposition the U.S. holder’s holding period for the exchange note was more than one year. Long-term capital gains of individuals, estates and trusts are generally taxed at preferential rates. The deductibility of capital losses is subject to limitation.
Information Reporting and Backup Withholding
Information reporting will generally apply to payments of interest on, or the proceeds of the sale or other disposition (including a retirement or redemption) of, exchange notes held by a U.S. holder, unless such U.S. holder is an exempt recipient such as a corporation. Backup withholding generally will apply to the foregoing
payments unless the U.S. holder provides the applicable withholding agent with its taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules is allowable as a credit against a U.S. holder’s U.S. federal income tax liability (if any) and a refund may be obtained if the amounts withheld exceed such holder’s actual U.S. federal income tax liability if, in each case, the U.S. holder timely provides the required information or appropriate claim form to the IRS.
Non-U.S. Holder
A “non-U.S. holder” is a beneficial owner of exchange notes that is, for U.S. federal income tax purposes, an individual, corporation, estate or trust that is not a “U.S. holder.”
Exchange Offer
The exchange of unregistered notes for exchange notes pursuant to the exchange offer will not be a taxable event to a non-U.S. holder for U.S. federal income tax purposes.
Interest on the Notes
Subject to the discussion of backup withholding and FATCA withholding below, payments to non-U.S. holders of stated interest and OID on the exchange notes generally will not be subject to U.S. federal income and withholding tax if the stated interest and OID is not effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business and such non-U.S. holder:
· does not, actually or constructively, own 10% or more of the capital or profits interests in us;
· is not a ‘‘controlled foreign corporation’’ that is related to us (as provided in the Code);
· is not a bank whose receipt of interest on the notes is pursuant to a loan agreement entered into in the ordinary course of business; and
· properly certifies as to its foreign status, as described in the following paragraph.
A non-U.S. holder generally can meet this certification requirement by providing a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or successor form) or appropriate substitute form to the applicable withholding agent certifying under penalties of perjury that it is not a U.S. person within the meaning of the Code. If a non-U.S. holder holds the exchange notes through a financial institution or other agent acting on its behalf, such holder may be required to provide appropriate certifications to the agent. Such agent then generally will be required to provide appropriate certifications to the applicable withholding agent, either directly or through other intermediaries. Special rules apply to foreign estates and trusts, and in certain circumstances certifications as to foreign status of trust owners or beneficiaries may have to be provided to the applicable withholding agent. In addition, special rules apply to qualified intermediaries that enter into withholding agreements with the IRS.
If a non-U.S. holder cannot satisfy the requirements described above, payments of interest made to such holder will be subject to a U.S. federal withholding tax at a 30% rate, unless (i) the non-U.S. holder provides the applicable withholding agent with a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or successor or substitute form) claiming an exemption from (or a reduction of) withholding under an applicable tax treaty or (ii) the payments of stated interest and OID are effectively connected with its conduct of a trade or business in the United States and such non-U.S. holder meets the certification requirements described below.
Disposition of Exchange Notes
Subject to the discussion of backup withholding and FATCA withholding below, a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on any gain (excluding any amount attributable to accrued and unpaid interest and OID, which generally will be treated as interest and may be subject to the rules discussed above in —“Interest on the Notes”) realized on the sale, redemption, exchange, retirement or other taxable disposition of an exchange note unless:
· the gain is effectively connected with the conduct by a non-U.S. holder of a U.S. trade or business (and if a tax treaty applies, is attributable to its permanent establishment in the United States); or
· the non-U.S. holder is an individual who has been present in the United States for 183 days or more in the taxable year of disposition and certain other requirements are met.
If a non-U.S. holder’s gain is described in the first bullet point above, such holder generally will be subject to tax in the manner described under “—Interest or Gain Effectively Connected with a U.S. Trade or Business.” If a non-U.S. holder is described in the second bullet point above, such holder will be subject to a flat 30% (or lower applicable income tax treaty rate) U.S. federal income tax on the gain derived from such disposition, which may be offset by certain U.S. source capital losses.
Interest or Gain Effectively Connected With a U.S. Trade or Business
If any stated interest or OID on the exchange notes or gain from the sale, redemption, exchange, retirement or other taxable disposition of the exchange notes is effectively connected with a U.S. trade or business conducted by a non-U.S. holder (and, generally, if a tax treaty applies, is attributable to your permanent establishment in the United States), then the stated interest, OID or gain generally will be subject to U.S. federal income tax at regular, graduated income tax rates in the same manner as if the non-U.S. holder were a United States person as defined under the Code. If any stated interest or OID on the notes or gain from the sale, redemption, exchange, retirement or other taxable disposition of the notes is effectively connected with a U.S. trade or business conducted by a non-U.S. holder (whether or not a tax treaty applies), such interest, OID or gain will not be subject to U.S. federal withholding tax if certain certification requirements are satisfied. A non-U.S. holder generally can meet the certification requirements by providing a properly executed IRS Form W-8ECI (or successor or substitute form) to the applicable withholding agent. In addition, a non-U.S. holder that is a foreign corporation may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year (including interest on the notes, if so effectively connected), as adjusted for certain items, unless a lower rate applies under an applicable United States income tax treaty.
Information Reporting and Backup Withholding
Payments to a non-U.S. holder of stated interest and OID on a note, and amounts withheld from such payments, if any, generally will be required to be reported to the IRS and to such holder. U.S. backup withholding tax generally will not apply to payments of stated interest or OID on an exchange note to a non-U.S. holder if the statement described in ‘‘—Interest on the Notes’’ is duly provided by such holder or such holder otherwise establishes an exemption.
Payment of the proceeds of a disposition of an exchange note effected by the U.S. office of a U.S. or foreign broker will be subject to information reporting requirements and backup withholding unless a non-U.S. holder properly certifies under penalties of perjury as to such holder’s foreign status and certain other conditions are met or such holder otherwise establishes an exemption. Information reporting requirements and backup withholding generally will not apply to any payment of the proceeds of the disposition of a note effected outside the United States by a foreign office of a broker. However, unless such a broker has documentary evidence in its records that a holder is not a non-U.S. holder and certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of a note effected outside the United States by such a broker if it has certain relationships with the United States.
Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules may be credited against a non-U.S. holder’s U.S. federal income tax liability and any excess may be refundable if the proper information is timely provided to the IRS.
FATCA Withholding
Sections 1471 through 1474 of the Code and the Treasury Regulations and administrative guidance issued thereunder (referred to as ‘‘FATCA’’) generally impose a 30% U.S. federal withholding tax on payments of interest on the notes and on the gross proceeds from the sale or other disposition of the notes (if such sale or other disposition occurs after December 31, 2018), if paid to a ‘‘foreign financial institution’’ or a ‘‘non-financial foreign entity’’ (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless: (i) in the case of a foreign
financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) and meets certain other specified requirements; (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any ‘‘substantial United States owners’’ (as defined in the Code) or provides the withholding agent with a certification identifying its direct and indirect substantial United States owners (generally by providing an IRS Form W-8BEN-E) and meets certain other specified requirements; or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States may be subject to different rules. Under certain circumstances, a beneficial owner of notes might be eligible for refunds or credits of such taxes.
Holders are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in the exchange notes.
Based on interpretations by the staff of the SEC in no-action letters issued to third parties, we believe that you may transfer exchange notes issued pursuant to the exchange offer in exchange for the unregistered notes if:
· you are not our “affiliate” within the meaning of Rule 405 under the Securities Act;
· you acquire the exchange notes in the ordinary course of your business;
· you are not participating in, and do not intend to participate in, a distribution of such exchange notes; and
· you have no arrangement or understanding with any person to participate in the distribution of exchange notes.
You may not participate in the exchange offer if you are:
· an “affiliate” within the meaning of Rule 405 under the Securities Act of us;
· a holder that does not acquire exchange notes in the ordinary course of business; or
· a holder that tenders unregistered notes in the exchange offer for the purpose of participating in a distribution.
Each broker-dealer that receives Exchange Notesholds unregistered notes for its own account as a result of market-making activities or other trading activities may exchange such unregistered notes pursuant to the Exchange Offerexchange offer; however, such broker-dealer may be deemed to be an “underwriter” within the meaning of the Securities Act and must, acknowledge that it willtherefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the exchange notes received by such broker-dealer in the exchange offer, which prospectus delivery requirement may be satisfied by the delivery of this prospectus. To date, the staff of the SEC has taken the position that broker-dealers may fulfill their prospectus delivery requirements with respect to transactions involving an exchange of securities such as this exchange offer, other than a resale of such Exchange Notes. This Prospectus, as it may
be amended or supplementedan unsold allotment from time to time, may be used by a broker-dealer
in connectionthe original sale of the unregistered notes, with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Issuersthis prospectus. We have agreed that, for a period ending on the earlier of up to 180 days fromafter the date thatof this prospectus and the Registration Statement
ofdate on which this Prospectusa broker-dealer is no longer required to deliver a part is declared effective by the Commission,
theyprospectus, we will make this Prospectus,prospectus, as amended or supplemented, available to any broker-dealer that requests such document in the Letter of Transmittal for use in connection with any such resale. The IssuersPlease note that this prospectus may not meet the requirements of the SEC for a resale prospectus for all purposes and may require additional information for resales not meeting these requirements.
Any broker-dealer or holder using the exchange offer to participate in a distribution of the securities to be acquired in the exchange offer (1) could not, under SEC staff policy, rely on the position of the SEC staff enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC staff’s letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters, and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K.
We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange Notes by
broker-dealers or any other persons. Exchange Notesnotes received by broker-dealers for their own account pursuant to the Exchange Offerexchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notesexchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes.exchange notes. Any broker-dealer that resells Exchange Notesexchange notes that were received by it for its own account pursuant to the Exchange Offerexchange offer and any broker or dealer that participates in a distribution of such Exchange Notesexchange notes may be deemed to be an "underwriter"“underwriter” within the meaning of the Securities Act and any profit on any such resale of Exchange Notesexchange notes and any commissionscommission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letterletter of Transmittaltransmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter"“underwriter” within the meaning of the Securities Act.
The Issuers
We have agreed to pay all expenses incident to the Issuers'
performanceexchange offer (including the expenses of one counsel for the holders of the unregistered notes) other than commissions or compliance with, the Registration Rights Agreementconcessions of any brokers or dealers and will indemnify the holders of Private Notesthe unregistered notes (including any broker-dealers), and
certain parties related to such holders, against certainparticular liabilities, including liabilities under the Securities Act.
Following completion of the exchange offer, we may, in our sole discretion, commence one or more additional exchange offers to holders of unregistered notes who did not exchange their unregistered notes for exchange notes in the exchange offer on terms which may differ from those contained in the prospectus and the enclosed letter of transmittal. This prospectus, as it may be amended or supplemented from time to time, may be used by us in connection with any additional exchange offers. These additional exchange offers may take place from time to time until all outstanding unregistered notes have been exchanged for exchange notes, subject to the terms and conditions in the prospectus and letter of transmittal distributed by us in connection with these additional exchange offers.
LEGAL MATTERS
Certain legal matters with respect to the
The validity of the issuance of the
Exchange Notesexchange notes will be passed upon for the Partnership and the Operating
Partnershipus by Bryan CaveBracewell LLP, Kansas City, Missouri. David S. Mouber, a
Partner at Bryan Cave LLP, is currently serving as Secretary of the General
Partner. Kendrick T. Wallace, a Partner at Bryan Cave LLP, is currently
serving as Assistant Secretary of the General Partner and Finance Corp.
Michael J. Beal, Counsel at Bryan Cave LLP, is currently serving as Assistant
Secretary of the General Partner and Finance Corp.
Houston, Texas.
The audited consolidated financial statements, schedules, and management’s assessment of the relatedeffectiveness of internal control over financial statement
schedulesreporting of Ferrellgas Partners, L.P. (formerly Ferrellgas, Inc.) and
subsidiary as of July 31, 1995 and 1994 (Successor) and for the year ended
July 31, 1995 and for the one month ended July 31, 1994 (Successor), the
eleven months ended June 30, 1994 and the year ended July 31, 1993
(Predecessor), included and incorporated by reference in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as statedprospectus and elsewhere in their reports, which are included and incorporated by reference herein, andthe registration statement have been so included and incorporated by reference in reliance upon the reports of suchGrant Thornton LLP, independent registered public accountants, upon the authority of said firm given upon their authority as experts in accounting and auditing.
102
The consolidated financial statements and the related financial statement
schedules of Ferrellgas, L.P. (formerly Ferrellgas, Inc.) and subsidiary as of
July 31, 1995 and 1994 (Successor) and for the year ended July 31, 1995 and
for the one month ended July 31, 1994 (Successor), the eleven months ended
June 30, 1994 and the year ended July 31, 1993 (Predecessor), included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given their authority
as experts in accounting and auditing.
The financial statements of Ferrellgas Partners Finance Corp. as of April 8,
1996 includedincorporated by reference in this Prospectusprospectus and elsewhere in the registration statement have been auditedso incorporated by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and has been
so includedreference in reliance upon the reportreports of suchGrant Thornton LLP, independent registered public accountants, upon the authority of said firm given upon their
authority as experts in accounting and auditing.
The financial statements
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with the SEC. You may read and download our filings over the Internet from several commercial document retrieval services, as well as at the SEC’s website at www.sec.gov. You may also read and copy our SEC filings at the SEC’s public reference room located at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information concerning the public reference room and any applicable copy charges.
Because Ferrellgas Partners’ common units are traded on the New York Stock Exchange, we also provide our SEC filings and particular other information to the New York Stock Exchange. You may obtain copies of these filings and this other information at the offices of the New York Stock Exchange located at 11 Wall Street, New York, New York 10005.
In addition, our SEC filings are available on our website at www.ferrellgas.com at no cost as soon as reasonably practicable after our electronic filing or furnishing thereof with the SEC. Please note that any internet addresses provided in this prospectus are for informational purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such internet addresses is intended or deemed to be incorporated by reference herein.
INCORPORATION OF DOCUMENTS BY REFERENCE
We filed with the SEC a registration statement on Form S-4 with respect to the securities offered by this prospectus. This prospectus is a part of that registration statement. As allowed by the SEC, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. Instead, the SEC allows us to incorporate by reference information into this prospectus. Incorporation by reference means that we can disclose particular important information to you without actually including such information in this prospectus by simply referring you to another document that we filed separately with the SEC.
We are “incorporating by reference” in this prospectus information we file with the SEC, which means that we are disclosing important information to you by referring you to those documents. Our combined filings with the SEC present separate filings by Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. Information contained therein relating to an individual registrant is filed by that registrant on its own behalf and each registrant makes no representation as to information relating to other registrants. The information we incorporate by reference is an important part of July 31, 1995this prospectus and 1994should be carefully read in conjunction with this prospectus and forany prospectus supplement. Information that we file with the year ended July 31, 1995SEC after the date of this prospectus will automatically update and may supersede some of the period from inceptioninformation in this prospectus as well as information we previously filed with the SEC (except those portions of the filings that relate to July 31, 1994,Ferrellgas Partners, L.P. or Ferrellgas Partners Finance Corp. as separate registrants) and that was incorporated by reference ininto this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reportprospectus.
The following documents are incorporated by reference herein and has been so incorporated in reliance uponinto this prospectus:
· the report of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Skelgas Propane, Inc. as of
December 31, 1995 and 1994 and for the year ended December 31, 1995, included
and incorporated by reference in this Prospectus have been audited by Deloitte
& Touche, chartered accountants, as stated in their report included and
incorporated by reference herein, and has been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Skelgas Propane, Inc. for the year
ended December 31, 1994, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
included herein, and has been so included and incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
103
FERRELLGAS PARTNERS, L.P.
FERRELLGAS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
SKELGAS PROPANE, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Ferrellgas Partners, L.P. and Subsidiaries Consolidated Financial
Statements (Unaudited):
Consolidated Balance Sheet--April 30, 1996.............................. F-2
Consolidated Statements of Earnings--Three Months and Nine Months Ended
April 30, 1996 and 1995................................................ F-3
Consolidated Statements of Partners' Capital--Nine Months Ended April
30, 1996............................................................... F-4
Consolidated Statements of Cash Flows--Nine Months Ended April 30, 1996
and 1995............................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
Ferrellgas, L.P. and Subsidiaries Consolidated Financial Statements
(Unaudited):
Consolidated Balance Sheets--April 30, 1996 and July 31, 1995........... F-8
Consolidated Statements of Earnings--Three Months and Nine Months Ended
April 30, 1996 and 1995................................................ F-9
Consolidated Statements of Partners' Capital--Nine Months Ended April
30, 1996............................................................... F-10
Consolidated Statements of Cash Flows--Nine Months Ended April 30, 1996
and 1995............................................................... F-11
Notes to Consolidated Financial Statements.............................. F-12
Ferrellgas Partners, L.P. and Subsidiary Consolidated Financial
Statements:
Independent Auditors' Report............................................ F-14
Consolidated Balance Sheets--July 31, 1995 and 1994..................... F-15
Consolidated Statements of Earnings--Year Ended July 31, 1995, One Month
Ended July 31, 1994, Eleven Months Ended June 30, 1994 (Predecessor)
and Year Ended July 31, 1993 (Predecessor)............................ F-16
Consolidated Statements of Stockholder's Equity/Partners' Capital--Year
Ended July 31, 1995, One Month Ended July 31, 1994, Eleven Months Ended
June 30, 1994 (Predecessor) and Year Ended July 31, 1993 (Predecessor). F-17
Consolidated Statements of Cash Flows--Year Ended July 31, 1995, One
Month Ended July 31, 1994, Eleven Months Ended June 30, 1994
(Predecessor) and Year Ended July 31, 1993 (Predecessor).............. F-18
Notes to Consolidated Financial Statements.............................. F-19
Skelgas Propane, Inc. and Subsidiaries Consolidated Financial Statements:
Independent Auditors' Report............................................ F-31
Consolidated Balance Sheets--April 30, 1996 (unaudited) December 31,
1995 and 1994.......................................................... F-33
Consolidated Statements of Income (Loss) and Accumulated Deficit--Four
Months Ended April 30, 1996 and 1995 (unaudited) and Years Ended
December 31, 1995 and 1994............................................. F-34
Consolidated Statements of Cash Flows--Four Months Ended April 30,1996
and 1995 (unaudited) and Years Ended December 31, 1995 and 1994........ F-35
Notes to Consolidated Financial Statements.............................. F-36
Ferrellgas Partners Finance Corp. Balance Sheets:
Independent Auditors' Report............................................ F-41
Balance Sheet--April 30, 1996 (unaudited) and April 8, 1996............. F-42
Notes to Balance Sheet.................................................. F-43
F-1
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT UNIT DATA)
APRIL 30,
ASSETS 1996
------ -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 87,809
Accounts and notes receivable..................................... 80,639
Inventories....................................................... 24,316
Prepaid expenses and other current assets......................... 5,619
--------
TOTAL CURRENT ASSETS............................................ 198,383
Property, plant and equipment, net................................ 342,593
Intangible assets, net............................................ 98,697
Other assets, net................................................. 11,455
--------
TOTAL ASSETS.................................................... $651,128
========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable.................................................. $ 44,912
Other current liabilities......................................... 30,446
Short-term borrowings............................................. 0
--------
TOTAL CURRENT LIABILITIES....................................... 75,358
Long-term debt..................................................... 432,307
Other liabilities.................................................. 12,288
Commitments and contingencies
Minority interest................................................... 2,902
PARTNERS' CAPITAL:
Common unitholders, (14,571,377 units outstanding)................ 91,073
Subordinated unitholders (16,593,721 units outstanding)........... 94,780
General partner................................................... (57,580)
--------
TOTAL PARTNERS' CAPITAL......................................... 128,273
--------
TOTAL LIABILITIES AND PARTNERS' CAPITAL......................... $651,128
========
See notes to consolidated financial statements.
F-2
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS
ENDED NINE MONTHS ENDED
------------------ ------------------
APRIL APRIL APRIL APRIL
30, 30, 30, 30,
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
Gas liquids and related product
sales............................... $181,241 $162,821 $522,446 $483,290
Other................................ 9,502 5,192 31,266 22,797
-------- -------- -------- --------
TOTAL REVENUES..................... 190,743 168,013 553,712 506,087
COST OF PRODUCT SOLD (EXCLUSIVE OF
DEPRECIATION, SHOWN SEPARATELY BELOW). 105,263 94,759 300,844 285,059
-------- -------- -------- --------
GROSS PROFIT........................... 85,480 73,254 252,868 221,028
Operating expense...................... 45,743 40,638 134,363 120,335
Depreciation and amortization expense.. 8,703 8,443 25,839 23,855
General and administrative expense..... 2,981 3,118 9,535 8,366
Vehicle lease expense.................. 1,418 1,080 3,621 3,227
-------- -------- -------- --------
OPERATING INCOME....................... 26,635 19,975 79,510 65,245
Interest expense....................... (8,567) (8,221) (26,775) (23,536)
Interest income........................ 443 433 1,068 947
Loss on disposal of assets............. (314) (126) (1,084) (429)
-------- -------- -------- --------
EARNINGS BEFORE MINORITY INTEREST...... 18,197 12,061 52,719 42,227
Minority interest...................... 185 122 534 427
-------- -------- -------- --------
NET EARNINGS........................... 18,012 11,939 52,185 41,800
General partner's interest in net
earnings.............................. 180 119 522 418
-------- -------- -------- --------
Limited partners' interest in net
earnings.............................. $ 17,832 $ 11,820 $ 51,663 $ 41,382
======== ======== ======== ========
NET EARNINGS PER LIMITED PARTNER UNIT.. $ 0.57 $ 0.38 $ 1.66 $ 1.34
======== ======== ======== ========
WEIGHT AVERAGE NUMBER OF UNITS
OUTSTANDING........................... 31,139 30,993 31,103 30,880
======== ======== ======== ========
See notes to consolidated financial statements.
F-3
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
NUMBER OF UNITS
------------------
TOTAL
SUB- SUB- GENERAL PARTNERS'
COMMON ORDINATED COMMON ORDINATED PARTNER CAPITAL
-------- --------- -------- --------- -------- ---------
JULY 31, 1995........... 14,398.9 16,593.7 $ 84,489 $ 91,824 $(57,676) $118,637
Assets contributed in
connection with
acquisitions......... 284 325 6 615
Common units issued in
connection with
acquisitions......... 172.5 3,900 39 3,939
Quarterly
distributions........ (21,741) (24,891) (471) (47,103)
Net earnings.......... 24,141 27,522 522 52,185
-------- -------- -------- -------- -------- --------
APRIL 30, 1996.......... 14,571.4 16,593.7 $ 91,073 $ 94,780 $(57,580) $128,273
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
F-4
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS
ENDED
-----------------
APRIL APRIL
30, 30,
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................... $ 52,185 $41,800
Reconciliation of net earnings to net cash from operating
activities:
Depreciation and amortization.............................. 25,839 23,855
Other...................................................... 3,602 2,710
Changes in operating assets and liabilities net of effects
from business acquisitions:
Accounts and notes receivable............................ (21,800) (10,344)
Inventories.............................................. 20,062 19,505
Prepaid expenses and other current assets................ 429 (1,143)
Accounts payable......................................... (12,573) (6,270)
Other current liabilities................................ (2,435) (4,567)
Other liabilities........................................ 704 (100)
-------- -------
Net cash provided by operating activities.............. 66,013 65,446
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions...................................... (3,342) (17,135)
Capital expenditures....................................... (10,391) (13,273)
Other...................................................... (2,572) 456
-------- -------
Net cash used by investing activities.................. (16,305) (29,952)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net reductions to short-term borrowings.................... (20,000) (3,000)
Additions to long-term debt (exclusive of debt assumed in
acquisitions)............................................. 167,752 60,000
Reductions of long-term debt............................... (94,319) (53,750)
Distributions.............................................. (47,103) (36,001)
Contributions from general partner......................... 2,338 66
Other...................................................... (444) (315)
-------- -------
Net cash provided (used) by financing activities....... 8,224 (33,000)
-------- -------
Increase in cash and cash equivalents...................... 57,932 2,494
Cash and cash equivalents--beginning of period............. 29,877 14,535
-------- -------
CASH AND CASH EQUIVALENTS--END OF PERIOD................... $ 87,809 $17,029
======== =======
Cash paid for interest..................................... $ 31,839 $17,153
======== =======
See notes to consolidated financial statements.
F-5
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
A. The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the interim periods presented. All adjustments to the financial statements
were of a normal recurring nature.
B. The propane industry is seasonal in nature because propane issued primarily
for heating in residential and commercial buildings. Therefore, the results
of operations for the periods ended April 30, 1996 and April 30, 1995 are
not necessarily indicative of the results to be expected for a full year.
C. Supplemental balance sheet information (in thousands)
Inventories consist of:
APRIL
30,
1996
-------
Liquefied propane gas and related products.......................... $17,483
Appliances, parts and supplies...................................... 6,833
-------
$24,316
=======
In addition to inventoriesAnnual Report on hand, Ferrellgas Partners, L.P.
("Partnership") enters into contracts to buy product for supply purposes.
All such contracts have terms of less than one year and call for payment
based on market prices at date of delivery.
Property, plant and equipment, net consist of:
APRIL
30, 1996
--------
Property, plant and equipment...................................... $528,740
Less: accumulated depreciation..................................... 186,147
--------
$342,593
========
Intangibles, net consist of:
APRIL
30, 1996
--------
Intangibles........................................................ $188,166
Less: accumulated amortization..................................... 89,469
--------
$ 98,697
========
D. On April 26, 1996, the Partnership issued $160,000,000 of 9 3/8% Senior
Notes due 2006 ("Senior Notes"). The Senior Notes will become guaranteed by
Ferrellgas, L.P. (the "Operating Partnership" or the "OLP") on a senior
subordinated basis if certain conditions are met. The Operating
Partnership's Credit Agreement and the Operating Partnership Indenture
currently prohibit the Operating Partnership from guaranteeing any
indebtedness unless, among meeting other conditions, fixed charge coverage
ratios for the Operating Partnership meets certain levels at prescribed
dates. Currently the OLP does not meet such conditions and, therefore,
there can be no assurance as to whether or when this guarantee will become
effective.
The Senior Notes are redeemable at the option of the Partnership, in whole
or in part, at any time on or after June 15, 2001. The Senior Notes bear
interest from the date of issuance, payable semi-annually in arrears on
June 15 and December 15 of each year commencing on December 15, 1996.
F-6
E. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
results of operations, financial condition or liquidity of the Partnership.
F. On April 30, 1996, Ferrellgas, Inc. ("Ferrellgas"), the General Partners of
(the Partnership), consummated the purchase of all of the stock of Skelgas
Propane, Inc. ("Skelgas"), a subsidiary of Superior Propane, Inc. of
Toronto, Canada for a cash purchase price of $89,650,000, including working
capital and the first installment on a noncompete agreement of $400,000.
Skelgas was the seventh-largest propane supplier in the nation, based on
gallons sold, with 92 retail propane outlets across the United States and
sales of approximately 96 million gallons a year to residential,
industrial/commercial and agricultural customers. Ferrellgas borrowed the
funds for such purchase from Bank of America National Trust & Savings
Association ("BofA" and the "BofA Acquisition Loan").
As of May 1, 1996, Ferrellgas (i) caused Skelgas and each of its
subsidiaries to be merged into Ferrellgas and (ii) transferred all of the
assets of Skelgas and its subsidiaries to the Operating Partnership. In
exchange, the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, association with Skelgas and its
subsidiaries and their propane business (excluding income tax liabilities).
In consideration of the retention by Ferrellgas of certain income tax
liabilities, the Partnership issued 41,203 Common Units to Ferrellgas. The
liabilities assumed by the Operating Partnership included the obligations
of Ferrellgas under the BofA Acquisition Loan. Immediately following the
transfer of assets and related transactions described above, the Operating
Partnership repaid the BofA Acquisition Loan with cash and borrowings under
the Operating Partnership's existing acquisition bank credit line. The
accompanying financial statements do not reflect this subsequent event.
F-7
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
APRIL 30, JULY 31,
ASSETS 1996 1995
------ ----------- --------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents................................ $ 87,809 $ 29,877
Accounts and notes receivable............................ 80,639 58,239
Inventories.............................................. 24,316 44,090
Prepaid expenses and other current assets................ 5,619 5,884
-------- --------
TOTAL CURRENT ASSETS................................... 198,383 138,090
Property, plant and equipment, net....................... 342,593 345,642
Intangible assets, net................................... 98,697 86,886
Other assets, net........................................ 7,456 7,978
-------- --------
TOTAL ASSETS........................................... $647,129 $578,596
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable......................................... $ 44,912 $ 57,729
Other current liabilities................................ 30,278 31,432
Short-term borrowings.................................... 0 20,000
-------- --------
TOTAL CURRENT LIABILITIES.............................. 75,190 109,161
Long-term debt........................................... 272,307 338,188
Other liabilities........................................ 12,288 11,398
Contingencies and commitments
PARTNERS' CAPITAL:
Limited partner.......................................... 284,442 118,638
General partner.......................................... 2,902 1,211
-------- --------
TOTAL PARTNERS' CAPITAL................................ 287,344 119,849
-------- --------
TOTAL LIABILITIES AND PARTNER'S CAPITAL................ $647,129 $578,596
======== ========
See notes to consolidated financial statements.
F-8
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED NINE MONTHS ENDED
------------------ ------------------
APRIL APRIL APRIL APRIL
30, 30, 30, 30,
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
Gas liquids and related product
sales............................... $181,241 $162,821 $522,446 $483,290
Other................................ 9,502 5,192 31,266 22,797
-------- -------- -------- --------
TOTAL REVENUES..................... 190,743 168,013 553,712 506,087
COST OF PRODUCT SOLD (EXCLUSIVE OF
DEPRECIATION, SHOWN SEPARATELY BELOW). 105,263 94,759 300,844 285,059
-------- -------- -------- --------
GROSS PROFIT........................... 85,480 73,254 252,868 221,028
Operating expense...................... 45,742 40,638 134,362 120,334
Depreciation and amortization expense.. 8,703 8,443 25,839 23,855
General and administrative expense..... 2,981 3,118 9,535 8,366
Vehicle lease expense.................. 1,418 1,080 3,621 3,227
-------- -------- -------- --------
OPERATING INCOME....................... 26,636 19,975 79,511 65,246
Interest expense....................... (8,400) (8,221) (26,608) (23,536)
Interest income........................ 443 433 1,068 947
Loss on disposal of assets............. (314) (126) (1,084) (429)
-------- -------- -------- --------
NET EARNINGS........................... $ 18,365 $ 12,061 $ 52,887 $ 42,228
======== ======== ======== ========
See notes to consolidated financial statements.
F-9
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
TOTAL
LIMITED GENERAL PARTNERS'
PARTNER PARTNER CAPITAL
-------- ------- ---------
JULY 31, 1995...................................... $118,638 $1,211 $119,849
Cash contributed in connection with debt offering.. 156,000 1,592 157,592
Assets contributed in connection with acquisitions. 614 6 620
Additions to capital in connection with
acquisitions...................................... 3,938 41 3,979
Quarterly distributions............................ (47,103) (480) (47,583)
Net earnings....................................... 52,355 532 52,887
-------- ------ --------
APRIL 30, 1996..................................... $284,442 $2,902 $287,344
======== ====== ========
See notes to consolidated financial statements.
F-10
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
------------------
APRIL APRIL
30, 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 52,887 $ 42,228
Reconciliation of net earnings to net cash from operating
activities:
Depreciation and amortization........................... 25,839 23,855
Other................................................... 3,068 2,283
Changes in operating assets and liabilities net of effects
from business acquisitions:
Accounts and notes receivable........................... (21,800) (10,344)
Inventories............................................. 20,062 19,505
Prepaid expenses and other current assets............... 429 (1,143)
Accounts payable........................................ (12,573) (6,270)
Other current liabilities............................... (2,602) (4,568)
Other................................................... 704 (100)
-------- --------
Net cash provided by operating activities............. 66,014 65,446
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions..................................... (3,342) (17,135)
Capital expenditures...................................... (10,391) (13,273)
Other..................................................... 1,427 456
-------- --------
Net cash provided by investing activities............. (12,306) (29,952)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from partners................................ 158,372 135
Net reductions to short-term borrowings................... (20,000) (3,000)
Additions to long-term debt (exclusive of debt assumed in
acquisitions)............................................ 7,752 60,000
Reductions of long-term debt.............................. (94,319) (53,750)
Distributions............................................. (47,583) (36,369)
Other..................................................... 2 (16)
-------- --------
Net cash provided (used) by financing activities...... 4,224 (33,000)
-------- --------
Increase in cash and cash equivalents..................... 57,932 2,494
Cash and cash equivalents--beginning of period............ 29,877 14,535
-------- --------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................. $ 87,809 $ 17,029
======== ========
Cash paid for interest.................................... $ 31,839 $ 17,153
======== ========
See notes to consolidated financial statements.
F-11
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
A. The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the interim periods presented. All adjustments to the financial statements
were of a normal recurring nature.
B. The propane industry is seasonal in nature because propane is used
primarily for heating in residential and commercial buildings. Therefore,
the results of operations for the periods ended April 30, 1996 and April
30, 1995 are not necessarily indicative of the results to be expected for a
full year.
C. Supplementary balance sheet information (in thousands)
Inventories consist of:
APRIL JULY
30, 31,
1996 1995
------- -------
Liquefied propane gas and related products.................. $17,483 $37,550
Appliances, parts and supplies.............................. 6,833 6,540
------- -------
$24,316 $44,090
======= =======
In addition to inventories on hand, Ferrellgas, L.P. (the "Operating
Partnership" or "OLP") enters into contracts to buy products for supply
purposes. All such contracts have terms of less than one year and call for
payment based on market prices at date of delivery.
Property, plant and equipment, net consist of:
APRIL
30, JULY 31,
1996 1995
-------- --------
Property, plant and equipment............................. $528,740 $521,110
Appliances, parts and supplies............................ 186,147 175,468
-------- --------
$342,593 $345,642
======== ========
Intangibles, net consist of:
APRIL
30, JULY 31,
1996 1995
-------- --------
Property, plant and equipment............................. $188,166 $168,881
Appliances, parts and supplies............................ 89,469 81,995
-------- --------
$98,697 $ 86,886
======== ========
D. On April 26, 1996, Ferrellgas Partners, L.P. (the "Partnership" or "MLP")
issued $160,000,000 of 9 3/8 Senior Notes due 2006 ("Senior Notes") see
note F. The Senior Notes will become guaranteed by the Operating
Partnership on a senior subordinated basis if certain conditions are met.
The Operating Partnership's Credit Agreement and the Operating Partnership
Indenture currently prohibit the Operating Partnership from guaranteeing
any indebtedness unless, among meeting other conditions, fixed charge
coverage ratio for the Operating Partnership meets certain levels at
prescribed dates. Currently the OLP does not meet such conditions and,
therefore, there can be no assurance as to whether or when this guarantee
will become effective.
E. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
F-12
however, management is of the opinion that there are no known claims or
contingent claims, that are likely to have a material adverse effect on the
results of operations, financial condition or liquidity or the Operating
Partnership.
F. Partners' capital is comprised of a 98.9899% limited partner interest held
by the MLP and a 1.0101% General Partner interest held by Ferrellgas, Inc.
In connection with the Senior Note offering mentioned above, the MLP
contributed $156,000,000 in cash to the OLP, thereby increasing its limited
partner interest. This cash will be used as working capital and for future
acquisitions. The General Partner then contributed $1,592,000 in cash to
the OLP to maintain its 1.0101% equity ownership.
G. On April 30, 1996, Ferrellgas, Inc. ("Ferrellgas"), the General Partner of
the Operating Partnership, consummated the purchase of all of the stock of
Skelgas Propane, Inc. ("Skelgas"), a subsidiary of Superior Propane, Inc.
of Toronto, Canada for a cash purchase price of $89,650,000, including
working capital and the first installment on a noncompete agreement of
$400,000. Skelgas was the seventh-largest propane supplier in the nation,
based on gallons sold, with 92 retail propane outlets across the United
States and sales of approximately 96 million gallons a year to residential
industrial/commercial and agricultural customers. Ferrellgas borrowed the
funds for such purchase from Bank of America National Trust & Savings
Association ("BofA" and the "BofA Acquisition Loan").
As of May 1, 1996, Ferrellgas (i) caused Skelgas and each of its
subsidiaries to be merged into Ferrellgas and (ii) transferred all of the
assets of Skelgas and its subsidiaries to the Operating Partnership. In
exchange the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, associated with Skelgas and its
subsidiaries and their propane business (excluding income tax liabilities).
In consideration of the retention by Ferrellgas of certain income tax
liabilities, the Partnership issued 41,203 Common Units to Ferrellgas. The
liabilities assumed by the Operating Partnership included the obligations
of Ferrellgas under the BofA Acquisition Loan. Immediately following the
transfer of assets and related transactions described above, the Operating
Partnership repaid the BofA Acquisition Loan will cash and borrowings under
the Operating Partnership's existing acquisition bank credit line. The
accompanying financial statements do not reflect this subsequent event.
F-13
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance sheets of Ferrellgas
Partners, L.P. (formerly Ferrellgas, Inc.) and subsidiary as of July 31, 1995
and 1994 (Successor), and the related consolidated statements of earnings,
partners' capital and cash flows for the year ended July 31, 1995 and for the
one month ended July 31, 1994 (Successor), the eleven months ended June 30,
1994 and the year ended July 31, 1993 (Predecessor). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial positionForm 10-K of Ferrellgas Partners, L.P. and subsidiary as of July 31, 1995 and 1994 (Successor), and the results of their
operations and their cash flows for the year ended July 31, 1995 and for the
one month ended July 31, 1994 (Successor), the eleven months ended June 30,
1994 and the year ended July 31, 1993 (Predecessor) in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
F-14
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
JULY 31, JULY 31,
ASSETS 1995 1994
------ -------- --------
CURRENT ASSETS:
Cash and cash equivalents................................. $ 29,877 $ 14,535
Accounts and notes receivable (net of allowance for
doubtful accounts of $874 and $798 in 1995 and 1994,
respectively)............................................ 58,239 50,780
Inventories............................................... 44,090 43,562
Prepaid expenses and other current assets................. 5,884 2,042
-------- --------
TOTAL CURRENT ASSETS.................................... 138,090 110,919
Property, plant and equipment, net.......................... 345,642 294,765
Intangible assets, net...................................... 86,886 63,291
Other assets, net........................................... 7,978 8,218
-------- --------
TOTAL ASSETS............................................ $578,596 $477,193
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 57,729 $ 46,368
Other current liabilities................................. 31,433 26,603
Short-term borrowings..................................... 20,000 3,000
-------- --------
TOTAL CURRENT LIABILITIES............................... 109,162 75,971
Long-term debt.............................................. 338,188 267,062
Other liabilities........................................... 11,398 11,528
Contingencies and commitments
Minority interest........................................... 1,211 1,239
PARTNERS' CAPITAL:
Common units (14,398,942 and 14,100,000 units outstanding
in 1995 and 1994, respectively).......................... 84,489 84,532
Subordinated units (16,593,721 units outstanding in 1995
and 1994)............................................ 91,824 99,483
General partners.......................................... (57,676) (62,622)
-------- --------
TOTAL PARTNERS' CAPITAL................................. 118,637 121,393
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL................. $578,596 $477,193
======== ========
See notes to consolidated financial statements.
F-15
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
FOR THE YEAR ENDED JULY 31, 1994
--------------------------------
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 JUNE 30, 1994 JULY 31, 1993
------------- ------------- ------------- -------------
(PREDECESSOR) (PREDECESSOR)
REVENUES:
Gas liquids and
related product sales. $565,607 $22,411 $477,285 $516,891
Other................. 30,829 2,155 24,705 25,054
-------- -------- -------- --------
TOTAL REVENUES...... 596,436 24,566 501,990 541,945
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)...... 339,641 13,211 256,095 298,033
-------- -------- -------- --------
GROSS PROFIT............ 256,795 11,355 245,895 243,912
Operating expense....... 153,226 10,078 135,058 139,617
Depreciation and
amortization expense.... 32,014 2,383 26,452 30,840
General and
administrative expense.. 11,357 935 8,923 10,079
Vehicle leases expense.. 4,271 350 3,940 4,823
-------- -------- -------- --------
OPERATING INCOME (LOSS). 55,927 (2,391) 71,522 58,553
Interest expense........ (31,993) (2,662) (53,693) (60,071)
Interest income
(including related
parties of $1,108 and
$725 in eleven months
ended June 30, 1994 and
year ended July 31,
1993, respectively).... 1,268 73 3,599 3,266
Loss on disposal of
assets.................. (1,139) (97) (1,215) (1,153)
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES, MINORITY
INTEREST AND
EXTRAORDINARY LOSS..... 24,063 (5,077) 20,213 595
Income tax provision.... -- -- 7,876 486
Minority interest....... 243 (51) -- --
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY LOSS...... 23,820 (5,026) 12,337 109
Extraordinary loss on
early extinguishment of
debt, net of minority
interest of $607 in one
month ended July 31,
1994 and tax benefit of
$531 and $543 in eleven
months ended June 30,
1994 and year ended
July 31, 1993,
respectively........... -- 59,455 867 886
-------- -------- -------- --------
NET EARNINGS (LOSS)..... 23,820 (64,481) $ 11,470 $ (777)
======== ========
General partner's
interest in net
earnings (loss)........ 238 (64,481)
-------- --------
Limited partners'
interest in net
earnings (loss)........ $ 23,582 $ 0
======== ========
NET EARNINGS (LOSS) PER
LIMITED PARTNER UNIT:
Earnings (loss) before
extraordinary loss.... $ 0.76 $ --
Extraordinary loss.... -- --
-------- --------
NET EARNINGS (LOSS) PER
LIMITED PARTNER UNIT.... $ 0.76 $ --
======== ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 30,908.1 30,693.7
======== ========
See notes to consolidated financial statements.
F-16
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY/PARTNERS' CAPITAL
(IN THOUSANDS)
NUMBER OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
AUGUST 1, 1992
(PREDECESSOR)............ 1.0 $ 1 $29,535 $(20,728) $ 8,808
Capital contribution
from Ferrell
Companies, Inc........ -- -- 3,277 -- 3,277
Capital transaction--
Ferrell Companies,
Inc. long-term
incentive plan........ -- -- 51 -- 51
Net loss............... -- -- -- (777) (777)
--- --- ------- -------- -------
JULY 31, 1993
(PREDECESSOR)............ 1.0 1 32,863 (21,505) 11,359
Net earnings........... -- -- -- 11,470 11,470
--- --- ------- -------- -------
JUNE 30, 1994
(PREDECESSOR)............ 1.0 $ 1 $32,863 $(10,035) $22,829
=== === ======= ======== =======
NUMBER OF UNITS
---------------------
GENERAL TOTAL PARTNERS'
COMMON SUBORDINATED COMMON SUBORDINATED PARTNER CAPITAL
-------- ------------ -------- ------------ --------- ---------------
APRIL 19, 1994.......... -- -- $ -- $ -- $ -- $ --
Contributions in
connection with
formation of the
Partnership.......... 14,100.0 16,593.7 84,532 99,483 1,859 185,874
Net loss.............. -- -- -- -- (64,481) (64,481)
-------- -------- -------- -------- --------- --------
JULY 31, 1994........... 14,100.0 16,593.7 84,532 99,483 (62,622) 121,393
Special allocation of
prior year operating
loss................. -- -- (2,312) (2,664) 4,976 --
Assets contributed in
connection with
acquisitions......... -- -- 3,324 3,830 72 7,226
Common units issued in
connection with
acquisitions......... 298.9 -- 6,600 -- 66 6,666
Quarterly
distributions......... -- -- (23,756) (27,380) (518) (51,654)
Adjustments to capital
related to resolution
of income tax
contingencies........ -- -- 5,145 5,929 112 11,186
Net earnings.......... -- -- 10,956 12,626 238 23,820
-------- -------- -------- -------- --------- --------
JULY 31, 1995........... 14,398.9 16,593.7 $ 84,489 $ 91,824 $(57,676) $118,637
======== ======== ======== ======== ========= ========
See notes to consolidated financial statements.
F-17
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED JULY 31, 1994
--------------------------------
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 JUNE 30, 1994 JULY 31, 1993
------------- ---------------- ---------------- -------------
(PREDECESSOR) (PREDECESSOR)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings (loss)... $ 23,820 $ (64,481) $ 11,470 $ (777)
Reconciliation of net
earnings (loss) to net
cash from operating
activities:
Depreciation and
amortization.......... 32,014 2,383 26,452 30,840
Extraordinary loss.... -- 59,455 867 886
Minority interest..... 243 658 -- --
Other................. 3,191 22 5,130 5,236
Changes in operating
assets and liabilities
net of effects from
business acquisitions:
Accounts and notes
receivable............ (906) 196 (816) (252)
Inventories........... 7,388 (5,631) (14,279) 10,229
Prepaid expenses and
other current assets.. (3,497) 618 (763) 977
Accounts payable...... 5,246 (2,809) 16,231 (11,918)
Accrued interest
expense............... 10,680 (3,448) (4,765) (233)
Other current
liabilities........... (11,703) 1,715 7,001 1,962
Other liabilities..... (446) (35) (1,072) 131
Deferred income taxes. -- -- 7,667 (120)
-------- ---------------- --------------- --------
Net cash provided (used)
by operating
activities............. 66,030 (11,357) 53,123 36,961
-------- ---------------- --------------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Business acquisitions. (19,677) (874) (2,451) (810)
Capital expenditures.. (19,722) (1,894) (7,826) (13,378)
Other................. 173 31 26 27
-------- ---------------- --------------- --------
Net cash used by
investing activities... (39,226) (2,737) (10,251) (14,161)
-------- ---------------- --------------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net reductions to
short-term borrowings. 17,000 3,000 -- --
Additions to long-term
debt.................. 85,000 265,000 -- 81
Reductions of long-
term debt............. (61,400) (477,903) (13,640) (12,796)
Distributions......... (51,654) -- -- --
Minority interest
activity.............. (459) (1,202) -- --
Additional payments to
retire debt........... -- (48,364) (1,190) (1,195)
Additions to financing
costs................. -- (6,575) (51) (627)
Reacquisition of Class
B redeemable common
stock................. -- -- -- (3,218)
Net issuance of Common
Units................. -- 255,006 -- --
Cash transfer from
predecessor company... -- 39,791 -- --
Other................. 51 (124) (6,330) (298)
-------- ---------------- --------------- --------
Net cash used by
financing activities... (11,462) 28,629 (21,211) (18,053)
-------- ---------------- --------------- --------
Increase in cash and
cash equivalents........ 15,342 14,535 21,661 4,747
Cash and cash
equivalents--beginning
of period............... 14,535 -- 32,706 27,959
-------- ---------------- --------------- --------
CASH AND CASH
EQUIVALENTS--END OF
PERIOD.................. $ 29,877 $ 14,535 $ 54,367 $ 32,706
======== ================ =============== ========
Cash paid for interest.. $ 19,918 $ 6,093 $ 55,681 $ 57,563
======== ================ =============== ========
See notes to consolidated financial statements.
F-18
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
A.PARTNERSHIP ORGANIZATION AND FORMATION
Ferrellgas Partners L.P. was formed April 19, 1994, and is a publicly
traded limited partnership, owning a 99% limited partner interest in
Ferrellgas, L.P. (the "Operating Partnership"), both Delaware limited
partnerships, and collectively known as the Partnership. Ferrellgas
Partners, L.P., was formed to acquire and hold a limited partner interest
in the Operating Partnership. The Operating Partnership was formed to
acquire, own and operate the propane business and assets of Ferrellgas,
Inc. (the "Company" or "General Partner"), a wholly-owned subsidiary of
Ferrell Companies, Inc. The Company has retained a 1% general partner
interest in Ferrellgas Partners, L.P. and also holds a 1.0101% general
partner interest in the Operating Partnership, representing a 2% general
partner interest in the Partnership on a combined basis. As General Partner
of the Partnership, the Company performs all management functions required
for the Partnership.
On July 5, 1994, the Partnership completed an initial public offering of
13,100,000 Common Units representing limited partner interests (the "Common
Units") at $21 per Common Unit. As of the date of the offering, the
13,100,000 Common Units represented a 41.8% limited partner interest in the
Partnership. Concurrent with the closing of the offering, the Company
contributed all of its propane business and assets to the Partnership
(excluding approximately $39,000,000 in cash, payables to or receivables
from its parent and affiliates and an investment in the Class B Stock of
Ferrell Companies, Inc.) in exchange for 1,000,000 Common Units, 16,593,721
Subordinated Units and Incentive Distribution Rights, representing a 56.2%
limited partner interest in the Partnership, as of the date of the
offering, in addition to the 2% general partner interest in the
Partnership.
In connection with the contribution of the propane business and assets by
the Company, the Operating Partnership assumed all of the liabilities,
whether known or unknown, associated with such assets (other than income
tax liabilities). The net book value contributed to the Partnership,
adjusted for the settlement of a tax contingency (see Note H), is reported
below:
(In thousands)
Total assets conveyed.......................................... $ 509,535
Total liabilities assumed...................................... 565,471
---------
Net liabilities................................................ $ (55,936)
=========
Supplementary Pro Forma Consolidated Statements of Earnings (Unaudited):
The following pro forma consolidated statement of earningsFinance Corp. for the fiscal year ended July 31, 1994, was derived from the historical statement of
earnings of the Company for the eleven months ended June 30, 1994, and the
statement of earnings of the Partnership from inception to July 31, 1994.
The pro forma statement of earnings for the fiscal year ended July 31,
1993, was derived from the historical statement of earnings of the Company.
The pro forma consolidated statements of earnings of the Partnership should
be read in conjunction2016, as filed with the consolidated financial statements ofSEC on September 28, 2016;
· the Partnership and the Company and the notes thereto. The objective of this
data is to show the effectsQuarterly Reports on the historical financial information as if
the Partnership formation had occurred on August 1, 1992.
F-19
The following supplementary pro forma consolidated statements of earnings
are for comparative purposes and are not indicative of the results of
future operations of the Partnership:
(In thousands, except per unit amounts)
AUDITED PRO FORMA PRO FORMA
JULY 31, 1995 JULY 31, 1994 JULY 31, 1993
-------------- -------------- -------------
REVENUES:
Gas liquids and related
product sales................. $565,607 $499,696 $516,891
Other........................ 30,829 26,860 25,054
-------- -------- --------
Total revenues.............. 596,436 526,556 541,945
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)............. 339,641 269,306 298,033
-------- -------- --------
GROSS PROFIT.................. 256,795 257,250 243,912
Operating expense............. 153,226 145,136 139,617
Depreciation and amortization
expense....................... 32,014 28,835 30,840
General and administrative
expense....................... 11,357 10,358 (1) 10,579 (1)
Vehicle leases expense........ 4,271 4,290 4,823
-------- -------- --------
OPERATING INCOME.............. 55,927 68,631 58,053
Interest expense.............. (31,993) (28,130)(2) (29,220)(2)
Interest income............... 1,268 1,123 (3) 898 (3)
Loss on disposal of assets.... (1,139) (1,312) (1,153)
-------- -------- --------
EARNINGS BEFORE MINORITY
INTEREST AND
EXTRAORDINARY LOSS........... 24,063 40,312 28,578
Minority interest............. 243 403 (4) 286 (4)
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY
LOSS.......................... $ 23,820 $ 39,909 $ 28,292
======== ======== ========
EARNINGS BEFORE EXTRAORDINARY
LOSS PER
LIMITED PARTNER UNIT......... $ 0.76 $ 1.29 $ 0.91
======== ======== ========
WEIGHTED AVERAGE LIMITED
PARTNER UNITS................. 30,908.1 30,693.7 30,693.7
======== ======== ========
--------
(1) Reflects estimated general and administrative costs associated with
the Partnership.
(2) Reflects the adjustment to interest expense resulting from the early
retirement of debt, net of additional borrowings.
(3) Reflects the reduction of interest income to the Partnership as a
result of lower cash balances available for short-term investment
opportunities.
(4) Reflects that portion of earnings from continuing operations allocated
to the General Partner for its ownership in the Operating Partnership.
F-20
B.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) NATURE OF OPERATIONS: The partnership is engaged primarily in the sale,
distribution, marketing and trading of propane and other natural gas
liquids throughout the United States. The retail market is seasonal because
propane is used primarily for heating in residential and commercial
buildings. The Partnership serves more than 700,000 residential,
industrial/commercial and agricultural customers.
(2) PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements present the consolidated financial position, results of
operations and cash flows of the Partnership. The Company's 1.0101% General
Partner interest in Ferrellgas, L.P. is accounted for as a minority
interest. All material intercompany profits, transactions and balances have
been eliminated.
(3) CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statements
of Cash Flows, the Partnership considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
(4) INVENTORIES: Inventories are stated at the lower of cost or market
using average cost and actual cost methods.
(5) PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS: Property, plant
and equipment is stated at cost less accumulated depreciation. Expenditures
for maintenance and routine repairs are expensed as incurred. Depreciation
is calculated using the straight-line method based on estimated useful
lives of the assets ranging from two to thirty years. Intangible assets,
consisting primarily of customer location values and goodwill, are stated
at cost, net of amortization calculated using the straight-line method over
periods ranging from 15 to 40 years. Accumulated amortization of intangible
assets totaled $81,995,000 and $68,489,000 as of July 31, 1995 and 1994,
respectively.
On July 31, 1995, the Partnership adopted the provisions of FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present, and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Adoption of FASB Statement No. 121 had no impact on the financial
statements.
(6) FORWARD, FUTURES AND OPTION CONTRACTS: The Partnership enters into
forward and futures purchase/sale agreements and options involving propane
and related products which are for trading and overall risk management
purposes. To the extent such contracts are entered into at fixed prices and
thereby subject the Partnership to market risk, the contracts are accounted
for on a mark-to-market basis.
(7) INCOME TAXES: The Partnership is a limited partnership. As a result,
the Partnership's earnings or loss for Federal income tax purposes is
included in the tax returns of the individual partners. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements of the Partnership. Net earnings for financial statement
purposes may differ significantly from taxable income reportable to
unitholders as a result of differences between the tax basis and financial
reporting basis of assets and liabilities and the taxable income allocation
requirements under the Partnership agreement.
The Predecessor filed a consolidated Federal income tax return with its
parent and affiliates. Income taxes were computed as though each company
filed its own income tax return in accordance with the tax sharing
agreement. Deferred income taxes were provided as a result of temporary
differences between financial and tax reporting as described in Note M,
using the asset/liability method. Deferred income taxes were recognized for
the tax consequences of temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
F-21
(8) NET EARNINGS (LOSS) PER LIMITED PARTNER UNIT: Net earnings (loss) per
limited partner unit is computed by dividing net earnings, after deducting
the General Partner's 1% interest, by the weighted average number of
outstanding Common Units, Subordinated Units and the dilutive effect of
subordinated unit options. As described in Note F, the 1994 net loss before
extraordinary loss of approximately $5,026,000, and the 1994 extraordinary
loss from early extinguishment of debt of approximately $59,455,000, net of
607,000 minority interest, were allocated 100% to the General Partner.
Accordingly, there was no net earnings per limited partner unit calculation
attributable to the limited partners from inception to July 31, 1994.
In accordance with the terms of the Partnership Agreement, the Partnership
reallocated 99% of the initial year's net loss before extraordinary loss
($4,976,000) based on ownership percentages to the limited partners in
1995. The fiscal 1995 special allocation of the prior year operating loss
to the limited partners resulted in a reduction in equity of $0.16 per
limited partner unit.
C.QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership makes quarterly cash distributions of all of its "Available
Cash", generally defined as consolidated cash receipts less consolidated
cash disbursements and net changes in reserves established by the General
Partner for future requirements. These reserves are retained to provide for
the proper conduct of the Partnership business, or to provide funds for
distributions with respect to any one or more of the next four fiscal
quarters.
Distributions by the Partnership in an amount equal to 100% of its
Available Cash will generally be made 98% to the Common and Subordinated
Unitholders (the "Unitholders") and 2% to the General Partner, subject to
the payment of incentive distributions to the holders of Incentive
Distribution Rights to the extent that certain target levels of cash
distributions are achieved. To the extent there is sufficient Available
Cash, the holders of Common Units have the right to receive the "Minimum
Quarterly Distribution" ($0.50 per Unit), plus any "arrearages", prior to
any distribution of Available Cash to the holders of Subordinated Units.
Common Units will not accrue arrearages for any quarter after the
"Subordination Period" (as defined below) and Subordinated Units will not
accrue any arrearages with respect to distributions for any quarter.
In general, the Subordination Period will continue indefinitely until the
first day of any quarter beginning on or after August 1, 1999, in which (i)
distributions of Available Cash equal or exceed the Minimum Quarterly
Distribution on the Common Units and the Subordinated Units for each of the
three consecutive four quarter periods immediately preceding such date and
(ii) the Partnership has invested at least $50 million in acquisitions and
capital additions or improvements to increase the operating capacity of the
Partnership. Prior to the end of the Subordination Period (but not prior to
August 1, 1997), 5,531,240 Subordinated Units held by the Company will
convert into Common Units if (i) distributions of Available Cash on the
Common Units and Subordinated Units equaled or exceeded the Minimum
Quarterly Distribution for each of the two consecutive four-quarter period
preceding August 1, 1997, and (ii) the operating cash generated by the
Partnership in each of such four-quarter periods equaled or exceeded 125%
of the Minimum Quarterly Distribution on all Common Units and all
Subordinated Units. Upon expiration of the Subordination Period, all
remaining Subordinated Units will convert to Common Units.
The Partnership makes distributions of all of its Available Cash within 45
days after the end of each fiscal quarter ending January, April, July and
October to holders of record on the applicable record date.
F-22
D.SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
1995 1994
(In thousands) ------- -------
Liquefied propane gas and related products................... $37,550 $38,890
Appliances, parts and supplies............................... 6,540 4,672
------- -------
$44,090 $43,562
======= =======
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. All such contracts have terms of less
than one year and call for payment based on market prices at date of
delivery.
Property, plant and equipment consist of:
1995 1994
(In thousands) -------- --------
Land and improvements..................................... $ 21,380 $ 18,589
Buildings and improvements................................ 29,117 23,005
Vehicles.................................................. 46,199 37,283
Furniture and fixtures.................................... 23,336 17,776
Bulk equipment and district facilities.................... 37,086 33,091
Tanks and customer equipment.............................. 357,167 317,631
Other..................................................... 6,825 5,097
-------- --------
521,110 452,472
Less: accumulated depreciation............................ 175,468 157,707
-------- --------
$345,642 $294,765
======== ========
Depreciation expense totaled $21,649,000, $1,602,000, $17,659,000, and
$20,449,000 for the year ended July 31, 1995, the one month ended July 31,
1994, the eleven months ended June 30, 1994 and the year ended July 31,
1993.
Other current liabilities consist of:
1995 1994
(In thousands) ------- -------
Accrued insurance............................................ $ 6,045 $ 6,624
Accrued interest............................................. 12,972 2,161
Accrued payroll.............................................. 4,036 9,394
Other........................................................ 8,380 8,424
------- -------
$31,433 $26,603
======= =======
F-23
E.LONG-TERM DEBT
Long-term debt consists of:
1995 1994
(In thousands) -------- --------
SENIOR NOTES
Fixed rate, 10%, due 2001................................ $200,000 $200,000
Floating rate, 9.3125% and 7.375%, respectively, due 2001
(1)....................................................... 50,000 50,000
CREDIT AGREEMENT
Term loan, 7.3125 and 7.375%, respectively, due 1997 (2). 15,000 15,000
Revolving credit loans, 7.125% to 9.125%, due 1997 (2)... 70,000 --
NOTES PAYABLE, 5.6% and 4.3% weighted average interest
rates,
respectively, due 1995 to 2004 (3)....................... 3,983 3,373
-------- --------
338,983 268,373
Less: current portion..................................... 795 1,311
-------- --------
$338,188 $267,062
======== ========
(1) The floating rate senior notes bear interest at the London Interbank
Offered Rate ("LIBOR") plus 3.125% and have mandatory sinking fund
payments of $5,000,000 in 1999 and 2000. To offset the variable rate
characteristic of the notes, the Partnership entered into interest rate
collar agreements with two major banks limiting interest rates to
between 8.135% and 9.625%.
(2) The Operating Partnership has a Credit Agreement with a major bank, as
Agent, consisting of a $15,000,000 term loan facility and $170,000,000
revolving credit facilities, of which $50,000,000 is available to
support letters of credit. Borrowings under the agreement generally
bear interest at Prime plus 0.25% or LIBOR plus 1.25%. On July 21,
1995, the Operating Partnership entered into an amended Credit
Agreement which, effective August 1, 1995, increased the revolving
credit facilities to $190,000,000 and decreased the applicable interest
rate ranges to Prime plus 0% to .25% or LIBOR plus .052% to 1.25%.
At the Partnership's option, amounts borrowed under the term loan and
non-working capital borrowings under the revolving credit loans may be
converted to borrowings which mature in twelve quarterly installments
beginning September 1997.
(3) The notes payable are secured by approximately $1,413,000 and
$2,056,000 of property and equipment at July 31, 1995 and 1994,
respectively.
At July 31, 1995 and 1994, $20,000,000 and $3,000,000, respectively, of
short-term borrowings were outstanding under the revolving line of credit
and letters of credit outstanding, used primarily to secure obligations
under certain insurance arrangements, totaled $24,471,000.
The Senior Note Indenture and Credit Agreement contain various restrictive
covenants applicable to the Operating Partnership and its subsidiaries, the
most restrictive relating to additional indebtedness, sale and disposition
of assets, and transactions with affiliates. In addition, the Operating
Partnership is prohibited from making cash distributions of the Minimum
Quarterly Distribution if a default or event of default exists or would
exist upon making such distribution, or if the Operating Partnership fails
to meet certain coverage and capital expenditure tests. With respect to the
capital expenditure tests, the Operating Partnership shall in the aggregate
make future "Capital Investments" (as defined in the Senior Note Indenture)
of approximately $25,000,000 by July 31, 1999, and $50,000,000 by the end
of fiscal year 2000. The Partnership is in compliance with all
requirements, tests, limitations and covenants related to the Senior Note
Indenture and Credit Agreement.
F-24
Annual principal payments on long-term debt for each of the next five
fiscal years are $795,000 in 1996, $438,000 in 1997, $5,252,000 in 1998,
$28,569,000 in 1999 and $33,600,000 in 2000.
During the one month ended July 31, 1994, the Partnership recognized an
extraordinary loss from the debt premium and write off of financing costs
of $59,455,000, net of minority interest of $607,000, resulting from the
early extinguishment of $477,600,000 of indebtedness of the Company assumed
by the Operating Partnership. During the eleven months ended June 30, 1994,
the Predecessor recognized an extraordinary loss from debt premium and
write-off of financing costs of approximately $867,000, net of income tax
benefit of $531,000, resulting from the early extinguishment of $11,900,000
of its fixed rate senior notes. During fiscal year 1993, the Predecessor
recognized an extraordinary loss from debt premium and write-off of
financing costs of approximately $886,000, net of income tax benefit of
$543,000, resulting from the early extinguishment of $10,500,000 of its
fixed rate senior notes.
F.PARTNERS' CAPITAL
Partners' capital consists of 14,398,942 Common Units representing a 46%
limited partner interest, 16,593,721 Subordinated Units representing a 53%
limited partner interest, and a 1% General Partner interest.
The Agreement of Limited PartnershipForm 10-Q of Ferrellgas Partners, L.P. (the
"Partnership Agreement") contains specific provisionsand Ferrellgas Partners Finance Corp. for the allocation of
net earningsquarterly periods ended October 31, 2016, January 31, 2017 and loss to each of the partners for purposes of maintaining
the partner capital accounts. In addition, the Partnership Agreement
contains special provisions for the allocation of the extraordinary loss
from the retirement of indebtedness, and the net loss from operations of
the Partnership from the closing date on July 5, 1994, to July 31, 1994. In
accordance with these special provisions of the Partnership Agreement, the
extraordinary loss of $59,455,000, net of $607,000 minority interest, was
allocated 100% to the General Partner and will not be reallocated to the
limited partners. The net loss from operations of approximately $5,026,000
was allocated 100% to the General Partner from inception of the Partnership
to the last day of the taxable year ending July 31, 1994. An amount equal
to 99% of this net loss was reallocated to the limited partners in the
taxable year ending July 31, 1995 based on their ownership percentages.
(See Note B.)
During the Subordination Period, the Partnership may issue up to 7,000,000
Common Units (excluding Common Units issued in connection with conversion
of Subordinated Units into Common Units) or an equivalent number of
securities ranking on a parityApril 30, 2017, as filed with the Common UnitsSEC on December 9, 2016, March 9, 2017 and an unlimited
number of partnership interests junior toJune 9, 2017, respectively; and
· the Common Units without a
Unitholder vote. The Partnership may also issue additional Common Units
during the Subordination Period in connection with acquisitions if certain
cash flow criteria are met. After the Subordination Period, the Partnership
Agreement authorizes the General Partner to cause the Partnership to issue
an unlimited number of additional general and limited partner interests and
other equity securities of the Partnership for such consideration and on
such terms and conditions as shall be established by the General Partner
without the approval of any Unitholders.
On November 14, 1994, the Partnership filed Amendment No. 1 to the
Registration StatementCurrent Reports on Form S-1 with the Securities and Exchange
Commission a shelf registration statement on Form S-1 to register 2,400,000
Common Units representing limited partner interests in the Partnership. The
registration statement was declared effective November 15, 1994. The Common
Units may be issued from time to time by the Partnership in connection with
the Partnership's acquisition of other businesses, properties or securities
in business combination transactions.
F-25
G.TRANSACTIONS WITH RELATED PARTIES
The Partnership has no employees and is managed and controlled by the
General Partner. Pursuant to the Partnership Agreement, the General Partner
is entitled to reimbursement for all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business. These costs, which totaled $100,750,000 for the
year ended July 31, 1995 and $7,561,000 from inception to July 31, 1994,
include compensation and benefits paid to officers and employees of the
General Partner, and general and administrative costs. In addition, the
conveyance of the net assets of the Company to the Partnership described in
Note A included the assumption of specific liabilities related to employee
benefit and incentive plans for the benefit of the officers and employees
of the General Partner.
A. Andrew Levison, a director of the General Partner is a Managing Director
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted
as an underwriter with regard to the public offering of Common Units and
Senior Notes, and was paid total fees of $5,100,000 during 1994. No fees
were paid in 1995.
The law firm of Bryan Cave, LLP (formerly Smith, Gill, Fisher & Butts, a
Professional Corporation), is general counsel to the Partnership, General
Partner, Ferrell Companies, Inc. ("Ferrell") and their respective
subsidiaries and affiliates. David S. Mouber, a director of Ferrell at July
31, 1994, is a member of such law firm. The Partnership, Ferrell and their
respective subsidiaries paid such firm fees of $151,000 from inception to
July 31, 1994. The Predecessor, its parent and their respective
subsidiaries paid such firm fees of $1,243,000 for the eleven months ended
June 30, 1994 and $1,381,000 for the year ended July 31, 1993.
In 1993, the Company received capital contributions from its parent
consisting of (i) the forgiveness of a $3,015,000 long-term note payable to
affiliate, including interest, and (ii) a $262,000 note receivable from
affiliate.
H.CONTINGENCIES AND COMMITMENTS
The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
known contingent claims that are likely to have a material adverse effect
on the results of operations or financial condition of the Partnership.
In connection with the formation of the Partnership, the General Partner
contributed certain assets and liabilities. The Internal Revenue Service
("IRS") has examined the General Partner's consolidated income tax returns
for the years ended July 31, 1987 and 1986, and has proposed certain
adjustments which relate to these contributed assets. The General Partner
has reached a settlement agreement which substantially resolves all issues
with the IRS with the exception of minor items which are presently being
negotiated at the appellate level. Due to the settlement of these issues,
additional deferred taxes were recorded by the General Partner. This
noncash adjustment retroactively increased the basis of the assets the
General Partner contributed to the Operating Partnership by $11,300,000
which, in turn, caused an increase to the General Partner's contributed
capital that was allocated pro rata among all partners. In addition,
Operating Partnership goodwill also increased by $11,300,000 (to be
amortized prospectively over a period of 15 years). These adjustments were
not material to the financial position or the results of operations or
liquidity, nor have they impacted the limited partners' tax basis in the
Partnership units.
F-26
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at
various dates through 2016. Rental expense under these leases totaled
$11,233,000, $725,000, $9,556,000, and $10,903,000 for the year ended July
31, 1995, the one month ended July 31, 1994, the eleven months ended June
30, 1994, and the year ended July 31, 1993, respectively. Future minimum
lease commitments for such leases are $8,414,000 in 1996, $6,195,000 in
1997, $3,874,000 in 1998, $2,227,000 in 1999, $1,005,000 in 2000 and
$3,985,000 thereafter.
I.EMPLOYEE BENEFITS
The Partnership has no employees and is managed and controlled by the
General Partner. The Partnership assumed all liabilities, which included
specific liabilities related to the following employee benefit plans for
the benefit of the officers and employees of the General Partner.
The General Partner and its parent have a defined contribution profit-
sharing plan which covers substantially all employees with more than one
year of service. Contributions are made to the plan at the discretion of
the parent's Board of Directors. This plan, which qualifies under section
401(k) of the Internal Revenue Code, also provides for matching
contributions under a cash or deferred arrangement based upon participant
salaries and employee contributions to the plan. Contributions for the year
ended July 31, 1995, under the profit sharing provision and the 401(k)
provision were $1,300,000 and $1,407,000 respectively. There were no
contributions under the profit sharing provision or 401(k) provision of the
plan from inception to July 31, 1994. Contributions during the eleven
months ended June 30, 1994 and the year ended July 31, 1993 were $1,200,000
and $1,000,000 under the profit sharing provision, and $1,445,000 and
$1,541,000 under the 401(k) provision.
J.UNIT OPTIONS
On October 14, 1994, the General Partner adopted the Ferrellgas, Inc. Unit
Option Plan (the "Unit Option Plan"), which currently authorizes the
issuance of options (the "Unit Options") covering up to 850,000
Subordinated Units to certain officers and employees of the General
Partner, of which 775,000 options were granted, while 73,500 options were
terminated and cancelled; thus 701,500 options were issued and outstanding
at July 31, 1995 having an aggregate exercise price of $11,868,000. The
Unit Options have the following characteristics: 1) exercise prices ranging
from $16.80 to $18.54 per unit, which is an estimate of the fair market
value of the Subordinated Units at the time of grant, 2) vest immediately
or over a one to five year period, 3) exercisable beginning after July 31,
1999, assuming the subordination period has elapsed, and 4) expire on the
tenth anniversary of the date of grant. Upon conversion of the Subordinated
Units held by the General Partner and its affiliates, the Unit Options
granted will convert to Common Unit Options.
F-27
K.DISCLOSURES ABOUT OFF BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of the instruments. Short-term borrowings
approximates fair value as of July 31, 1995 and 1994. The estimated fair
value of the Partnership's long-term debt was $347,485,000 and $269,547,000
as of July 31, 1995 and 1994, respectively. The fair value is estimated
based on quoted market prices adjusted for discounted cash flows.
INTEREST RATE COLLAR AGREEMENTS. On June 5, 1995, the Partnership entered
into three-year interest rate collar agreements involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At July 31, 1995, the total notional
principal amount of these agreements was $50,000,000. The counterparties to
these agreements are large financial institutions. The interest rate collar
agreements subject the company to financial risk that will vary during the
life of these agreements in relation to market interest rates.
OPTION CONTRACTS. The Partnership is a party to certain option contracts,
involving various liquefied petroleum products, for overall risk management
purposes in connection with its trading activities. Contracts are executed
with private counterparties and to a lesser extent on national mercantile
exchanges. Open contract positions are summarized below.
FORWARD AND FUTURES CONTRACTS. The Partnership is a party to certain
forward and futures contracts for trading purposes. Net gains from trading
activities were $5,818,000, $331,000, $6,458,000 and $6,739,000 for the
year ended July 31, 1995, the one month ended July 31, 1994, the eleven
months ended June 30, 1994 and the year ended July 31, 1993, respectively.
Such contracts permit settlement by delivery of the commodity. Open
contract positions are summarized below.
AS OF JULY 31
(IN THOUSANDS, EXCEPT PRICE PER GALLON DATA)
DERIVATIVE FINANCIAL INSTRUMENTS
HELD FOR PURPOSES OTHER THAN FINANCIAL INSTRUMENTS HELD FOR
TRADING TRADING PURPOSES
(OPTIONS) (FORWARD AND FUTURES)
------------------------------------- ----------------------------------
1995 1994 1995 1994
------------------ ----------------- ---------------- ----------------
ASSET LIAB. ASSET LIAB. ASSET LIAB. ASSET LIAB.
-------- -------- -------- -------- ------- -------- ------- --------
Volume
(gallons)...... 1,071 (9,765) 8,358 (6,174) 170,057 (129,198) 194,800 (146,562)
Price (c/gal).. 16-36 16-36 30-31 29-55 13-45 14-52 19-38 30-39
Maturity Dates. 8/95- 8/95- 11/94- 9/94- 8/95- 8/95- 8/94- 8/94-
1/96 1/96 1/95 10/94 1/96 1/96 12/94 1/95
Contract
Amounts ($).... 380 (3,572) 2,522 (1,935) 57,419 (43,605) 62,237 (51,031)
Fair Value ($). 340 (3,758) 2,603 (2,000) 57,463 (43,504) 63,147 (50,680)
Unrealized
gain(loss) ($). (40) (186) 81 (65) 44 101 910 351
F-28
Risks related to these contracts arise from the possible inability of
counterparties to meet the terms of their contracts and changes in
underlying product prices. The Partnership attempts to minimize market risk
through the enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize credit risk
through application of its credit policies.
L.ACQUISITIONS
On November 1, 1994, the General Partner purchased all of the capital stock
of Vision Energy Resources, Inc. ("Vision") for a cash purchase price of
$45 million. Immediately following the closing of the purchase of Vision,
the General Partner (i) caused Vision and each of its subsidiaries to be
merged into the General Partner (except for a trucking subsidiary which
dividended substantially all of its assets to the General Partner). As a
result of the contribution, the Operating Partnership assumed substantially
all of the liabilities, whether known or unknown, associated with Vision
and its subsidiaries (excluding income tax liabilities), including
obligation of the General Partner under a $45,000,000 loan agreement under
which the General Partner borrowed funds to pay the purchase price for
Vision. The Operating Partnership repaid the loan immediately after the
transfer of assets with funds borrowed under its Credit Facility. In
consideration of the retention by the General Partner of certain income tax
liabilities, the Partnership issued 138,392 Common Units to the General
Partner. The Operating Partnership received a contribution of $7,300,000
from the General Partner, representing the excess of the value of the
assets over the liabilities conveyed and the units issued to the General
Partner. This contribution is allocated to each partner based on their
relative ownership percentages following the closing of the Vision
acquisition. The total assets contributed to the Operating Partnership of
approximately $57,100,000 (the General Partner's cost basis) has been
preliminarily allocated as follows (i) working capital of $2,443,000, (ii)
property, plant and equipment of $36,919,000 and (iii) intangible assets of
$17,738,000. The total liabilities assumed by the Operating Partnership
were approximately $45,000,000. The transaction has been accounted for
similar to purchase accounting and, accordingly, the results of operations
of Vision have been included in the consolidated financial statements from
the date of contribution.
The following pro forma financial information assumes the Vision
transaction occurred at the beginning of each of the periods presented and
also includes the pro forma effects of the Partnership formation as of
August 1, 1993 (as described in Note A):
(In thousands, except per unit amounts)
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994
(Unaudited) --------------- --------------
Total revenues............................... $612,227 $594,792
Net earnings................................. 24,386 43,735
Net earnings per limited partner unit........ $ 0.78 $ 1.40
During the year ended July 31, 1995, the Partnership made acquisitions and
received contributions of businesses valued at $80,651,000 (including
working capital acquired of $3,282,000). This total consists of $19,677,000
cash payments and the following noncash transactions: $45,000,000 debt
assumed, $7,300,000 contributed capital, $6,600,000 issuance of Partnership
units, and $2,074,000 other costs and consideration.
F-29
M.INCOME TAXES (PREDECESSOR)
As stated in Note B, the Partnership's earnings or loss for Federal income
tax purposes is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes in the
accompanying financial statements of the Partnership. The information
presented below pertains to the Predecessor.
Income tax expense (benefit) consists of:
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31,1993
(In thousands) --------------- -------------
Current........................................ $ 209 $606
Deferred....................................... 7,136 (663)
------ ----
$7,345 $(57)
====== ====
Allocated to:
Operating activities.......................... $7,876 $486
Extraordinary loss............................ (531) (543)
------ ----
$7,345 $(57)
====== ====
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:
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31, 1993
(In thousands) --------------- --------------
Depreciation expense.......................... $ 104 $1,568
Net operating loss carryforwards.............. 9,258 (1,975)
Net cash, accrual and other differences....... (2,696) (752)
Amortization.................................. 470 496
------ ------
$7,136 $ (663)
====== ======
For Federal income tax purposes, the Company had net operating loss
carryforwards of approximately $201,000,000 at June 30, 1994 available to
offset future taxable income. These net operating loss carryforwards expire
at various dates through 2009.
A reconciliation between the effective tax rate and the statutory Federal
rate follows:
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31, 1993
(In thousands) ----------------- -----------------
AMOUNT % AMOUNT %
---------- ------ -----------------
Income tax expense (benefit)
at statutory rate..................... $6,585 35.0 $(284) (34.0)
Statutory surtax....................... (188) (1.0) -- --
State income taxes, net of
Federal benefit....................... 827 4.4 182 21.8
Nondeductible meal and
entertainment expense................. 54 0.3 36 4.3
Other.................................. 67 0.3 9 1.1
-------- ------ ------- -------
$7,345 39.0 $ (57) (6.8)
======== ====== ======= =======
F-30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Skelgas Propane, Inc.:
We have audited the consolidated balance sheets of Skelgas Propane, Inc. as
at December 31, 1995 and 1994 and the consolidated statements of income (loss)
and accumulated deficit and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December
31, 1995 and 1994 the results of its operations and its cash flows for the
year ended December 31, 1995 in accordance with the accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Chartered Accountants
Markham, Canada
April 15, 1996
F-31
INDEPENDENT AUDITORS' REPORT
To the General Partner8-K of Ferrellgas Partners, L.P. Liberty, Missouri
We have auditedand Ferrellgas Partners Finance Corp. filed with the accompanying consolidated statements of income (loss)SEC on September 2, 2016, October 24, 2016, December 1, 2016, January 19, 2017, January 23, 2017, January 30, 2017 and accumulated deficit and cash flows of Skelgas Propane, Inc. and
subsidiaries forMay 2, 2017.
Any future filings that we make with the year ended December 31, 1994. These financial statements
are the responsibilitySEC under Sections 13(a), 13(c), 14 or 15(d) of the Company's management. Our responsibility isExchange Act after the date of this prospectus and prior to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards requirethe consummation or termination of the exchange offer shall be deemed to be incorporated by reference into this prospectus from the date such documents are filed. In addition, all filings that we plan and performmake with the auditSEC pursuant to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Skelgas
Propane, Inc. for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
June 7, 1996
F-32
SKELGAS PROPANE, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996 (UNAUDITED)
DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
DECEMBER 31,
APRIL 30, --------------------------
ASSETS 1996 1995 1994
------ ------------ ------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.......... $ 9,335,000 $ 3,490,359 $ 3,132,411
Trade accounts receivable (net of
allowance for doubtful accounts at
December 31,1995--$285,760;
1994--$267,800)................... 7,494,000 7,516,865 5,867,971
Other receivables.................. -- 437,564 1,025,172
Current environmental costs
recoverable (note 2).............. 319,000 319,138 181,669
Receivable from related companies
(note 3).......................... 1,679,000 1,559,619 3,497,933
Inventories (note 4)............... 4,648,000 8,630,846 6,937,849
Prepaid expenses................... 208,000 1,134,563 1,604,979
------------ ------------ ------------
TOTAL CURRENT ASSETS............. 23,683,000 23,088,954 22,247,984
------------ ------------ ------------
Environmental costs recoverable (note
2).................................. 686,000 686,243 135,603
Appliances on rental, at cost less
accumulated depreciation............ 546,000 574,128 623,834
Property, plant and equipment (note
5).................................. 49,645,000 51,816,208 53,419,549
Other assets (note 6)................ 9,201,000 9,733,804 61,689,733
------------ ------------ ------------
TOTAL ASSETS..................... $ 83,761,000 $ 85,899,337 $138,116,703
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................... $ 1,330,000 $ 3,001,730 $ 3,621,461
Accrued liabilities................ 3,818,000 6,638,518 4,556,075
Accrued environmental liability
(note 2).......................... 452,000 561,022 330,015
Income and other taxes payable..... 559,000 424,913 399,097
Current portion of long-term debt
(note 7).......................... 42,000 52,938 52,350
------------ ------------ ------------
TOTAL CURRENT LIABILITIES........ 6,201,000 10,679,121 8,958,998
------------ ------------ ------------
Long-term debt (note 7).............. 9,000 18,377 70,771
------------ ------------ ------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value;
100,000 shares authorized, none
issued or outstanding............. -- -- --
Common stock, $1,000 par value;
200,000 shares
authorized, 155,000 shares issued
and outstanding................... 155,000,000 155,000,000 155,000,000
Accumulated deficit................ (77,449,000) (79,798,161) (25,913,066)
------------ ------------ ------------
TOTAL STOCKHOLDER'S EQUITY....... 77,551,000 75,201,839 129,086,934
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY............ $ 83,761,000 $ 85,899,337 $138,116,703
============ ============ ============
See notes to consolidated financial statements.
F-33
SKELGAS PROPANE, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND ACCUMULATED DEFICIT
FOUR MONTHS ENDED APRIL, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
-------------------------- --------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
(UNAUDITED)
REVENUES................ $ 44,451,000 $ 33,795,000 $ 75,230,313 $ 81,480,332
COST OF PRODUCTS SOLD
(INCLUDING DEPRECIATION
OF $162,516 AND
$151,594 FOR THE YEARS
ENDED DECEMBER 31, 1995
AND 1994,
RESPECTIVELY).......... 26,911,000 17,111,000 39,897,582 41,856,645
------------ ------------ ------------ ------------
GROSS PROFIT............ 17,540,000 16,684,000 35,332,731 39,623,687
EXPENSES:
Operating and
overhead............. 11,342,839 8,919,934 26,288,549 23,350,927
Selling............... 600,000 804,000 2,056,836 3,284,963
General and
administrative....... 1,170,000 1,090,000 3,090,539 4,328,746
Restructuring charges. -- -- -- 475,367
Interest and foreign
exchange adjustments. 51,000 17,000 18,033 245,262
Depreciation and
amortization (note
9)................... 1,937,000 3,405,000 57,472,523 8,844,137
------------ ------------ ------------ ------------
15,100,839 14,235,934 88,926,480 40,529,402
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES........... 2,439,161 2,448,066 (53,593,749) (905,715)
INCOME TAXES (NOTE 10).. 90,000 20,000 291,346 63,513
------------ ------------ ------------ ------------
NET INCOME (LOSS)....... 2,349,161 2,428,066 (53,885,095) (969,228)
ACCUMULATED DEFICIT, AT
BEGINNING OF PERIOD.... (79,798,161) (25,913,066) (25,913,066) (24,943,838)
------------ ------------ ------------ ------------
ACCUMULATED DEFICIT, AT
END OF PERIOD.......... $(77,449,000) $(23,485,000) $(79,798,161) $(25,913,066)
============ ============ ============ ============
See notes to consolidated financial statements.
F-34
SKELGAS PROPANE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOUR MONTHS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
----------------------- -------------------------
1996 1995 1995 1994
---------- ----------- ------------ -----------
CASH PROVIDED BY (USED
FOR):
OPERATIONS:
Net income (loss).......... $2,349,161 $ 2,428,066 $(53,885,095) $ ( 969,228)
Items not involving cash:
Depreciation and
amortization............ 1,964,000 3,442,000 57,635,039 8,995,641
Change in non-cash
operating working
capital................. 782,480 (3,651,477) 685,873 (6,320,069)
---------- ----------- ------------ -----------
Net cash provided by
operating activities.... 5,095,641 2,218,589 4,435,817 1,706,344
---------- ----------- ------------ -----------
FINANCING:
Repayment of long-term
debt...................... (19,000) (18,000) (51,806) (51,806)
---------- ----------- ------------ -----------
Net Cash used for financing
activities................ (19,000) (18,000) (51,806) (51,806)
---------- ----------- ------------ -----------
INVESTMENTS:
Proceeds from disposal of
property, plant and
equipment................. 768,000 -- 384,615 277,618
Purchases of property,
plant and equipment....... -- (1,639,000) (4,297,868) (2,599,507)
Purchases of appliance on
rental.................... -- -- (112,810) (247,587)
---------- ----------- ------------ -----------
Net cash provided by (used
for) investing activities. 768,000 (1,639,000) (4,026,063) (2,569,476)
---------- ----------- ------------ -----------
Increase (decrease) in cash
position.................. 5,844,641 561,589 357,948 (914,938)
Cash at beginning of
period.................... 3,490,359 3,132,411 3,132,411 4,047,349
---------- ----------- ------------ -----------
Cash at end of period ..... $9,335,000 $ 3,694,000 $ 3,490,359 $ 3,132,411
========== =========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Income taxes paid........ $ 40,000 $ 56,000 $ 277,795 $ 100,265
========== =========== ============ ===========
Interest paid............ $ 2,000 $ 6,600 $ 6,311 $ 262,407
========== =========== ============ ===========
See notes to consolidated financial statements.
F-35
SKELGAS PROPANE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOUR MONTHS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
Skelgas Propane, Inc. (the "Company"), incorporated under the laws of
Delaware, has as its principal business activity the marketing of propane. The
Company is a wholly-owned subsidiary of Superior Propane Inc., (the "Parent")
incorporated under the laws of Canada.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities atExchange Act after the date of the financial statementsinitial registration statement of which this prospectus forms a part and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The Company's significant accounting policies are as follows:
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accountsprior to effectiveness of the Company
and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES:
Inventoriesregistration statement shall be deemed to be incorporated by reference into this prospectus.
If information in any of propane are valued at the lower of cost and market
determinedthese incorporated documents conflicts with information in this prospectus or any prospectus supplement you should rely on the basis of net realizable value. Inventories of appliances,
materials and supplies are stated at the lower of cost and market value
determinedmost recent information. If information in an incorporated document conflicts with information in another incorporated document, you should rely on the basisinformation in the most recent incorporated document.
You may request from us a copy of replacementany document we incorporate by reference at no cost, excluding all exhibits to such incorporated documents unless we have specifically incorporated by reference such exhibits either in this prospectus or net realizable value. Cost
is determined onin the first-in, first-out (FIFO) method.
APPLIANCES ON RENTAL:
Appliances on rental are stated at cost less accumulated depreciation.
Depreciation is provided onincorporated document, by making such a straight-line basis, generally over a period
of six years.
PROPERTY, PLANT AND EQUIPMENT:
Properties, plant and equipment are recorded at cost and depreciated over
the estimated useful life using the straight line method except for loaned
dispensers which use the declining balance method at a rate of 10%.
Property, plant and equipment are evaluated periodically, and if conditions
warrant, an impairment is recorded. The estimated useful life of major
asset classes are:
Ferrellgas, Inc.
7500 College Boulevard, Suite 1000
Overland Park, Kansas 66210
Attention: Investor Relations
(913) 661-1500
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Ferrellgas Partners, L.P.
Ferrellgas Partners, L.P. does not have any employees, officers or directors. It is managed and operated by the carrying valueemployees, officers and directors of its general partner, Ferrellgas, Inc.
Ferrellgas Partners, L.P. is a Delaware limited partnership. Section 17-108 of the tangible and intangible assets, and if impairment
is indicated, the carrying value of the intangible assets are adjusted.
INCOME TAXES:
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109--"Accounting for Income Taxes". This Statement requires the liability
method of accounting for income taxes. The Company has established
valuation reserves on the deferred tax asset related to the net operating
loss carryforwards.
F-36
ENVIRONMENTAL REMEDIATION:
The Company accrues environmental remediation costs for work at identified
sites where an assessment has indicatedDelaware Revised Uniform Limited Partnership Act provides that, cleanup costs are probable and
reasonably estimable. Such accruals are based on currently available facts,
estimated timing of remedial actions, existing technology and presently
enacted laws and regulations. The accruals are routinely reviewed as events
and developments warrant.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments,
consisting of only normal recurring accruals, necessary for fair
representation of the balance sheet and results of operations and cash
flows as of April 30, 1996 and for the four months ended April 30, 1996 and
1995, as presented in the accompanying unaudited financial statements.
2. ACCRUED ENVIRONMENTAL LIABILITY AND COSTS RECOVERABLE:
The Company is subject to federal, statesuch standards and local laws regulating
environmental remediation. These laws resultrestrictions, if any, as are set forth in loss contingencies for
remediation at some of the Company's current locations as well as third
party or formerly owned facilities. The estimated costs for restoration and
remediation of these locations was accrued separately in the amount of
$452,000 (unaudited) as of April 30, 1996, and $561,022 as of December 31,
1995 (1994--$330,015). Realization of claims from governmental authorities
for recovery of costs incurred in respect of environmental liabilities
totalling $1,005,000 (unaudited) as of April 30, 1996 and $1,005,381 as of
December 31, 1995 (1994--$317,272) will be recovered between 1996 and 1999.
3. RELATED PARTY TRANSACTIONS:
The Company buys propane from an affiliate. During the year, such purchases
amounted to $7,696,773 (1994--$6,640,322).
The Company received administrative services which are provided by an
affiliate for which it pays a fee. The charge for these services is based
on a reasonable estimation of time and effort spent by the Parent's various
corporate office groups to provide services to the Company. For the year
ended December 31, 1995 the fees were $2,170,072 (1994--$2,356,725).
In addition, certain other transactions are entered into with affiliated
companies. The receivable from the affiliate was $1,559,619 as of December
31, 1995 (1994--$3,497,933).
4. INVENTORIES:
DECEMBER 31,
----------------------
1995 1994
----------- ----------
Propane............................................... $ 5,790,211 $4,215,443
Appliances............................................ 1,777,809 1,842,690
Materials and supplies................................ 1,062,826 879,716
----------- ----------
$ 8,630,846 $6,937,849
=========== ==========
5. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------ -----------------
ACCUMULATED
DEPRECIATION
AND NET BOOK
COST AMORTIZATION VALUE NET BOOK VALUE
----------- ------------ ----------- -----------------
Land.................... $ 3,605,798 $ -- $ 3,605,798 $ 3,611,415
Buildings............... 6,958,062 2,715,773 4,242,289 4,322,885
Propane marketing
equipment.............. 84,154,952 40,186,831 43,968,121 45,485,249
----------- ----------- ----------- -----------
$94,718,812 $42,902,604 $51,816,208 $53,419,549
=========== =========== =========== ===========
Accumulated depreciation at December 31, 1994 was $37,827,206.
F-37
6. OTHER ASSETS:
DECEMBER 31,
----------------------
1995 1994
---------- -----------
Goodwill (net of accumulated amortization of
$59,835,876; 1994--$9,289,725)...................... $2,354,026 $52,900,177
Noncompete agreements (net of accumulated
amortization of $8,834,052; 1994--$6,749,883)....... 7,379,778 8,789,556
---------- -----------
$9,733,804 $61,689,733
========== ===========
In the last quarter of the year ended December 31, 1995, the Company
evaluated the carrying value of its intangible assets, including goodwill
considering the effects of the Parent's decision to divest its interest in
the Company. This necessitated a write down of the goodwill in the amount
of $47,612,072, which is included as part of the amortization of goodwill
in 1995 as set out in note 9.
7. LONG-TERM DEBT:
DECEMBER 31,
----------------
1995 1994
------- --------
Notes payable for noncompete agreement..................... $71,315 $123,121
Less: Current portion of long-term debt.................... 52,938 52,350
------- --------
$18,377 $ 70,771
======= ========
8.RESTRUCTURING CHARGES
During the year ended December 31, 1994 the Company reorganized its field
operations which resulted in the consolidation and closure of certain field
offices and severance of employees. The costs attributable to such
reorganization aggregated $475,367 which has been reflected as
restructuring charges in the accompanying Statement of Income (Loss) for
the year ended December 31, 1994.
9.DEPRECIATION AND AMORTIZATION EXPENSE:
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- ----------
Depreciation........................................ $ 5,690,165 $4,741,112
Amortization of goodwill............................ 50,546,151 2,752,680
Amortization of noncompete agreements............... 1,409,778 1,368,456
Gain on disposal of property, plant and equipment... (173,571) (18,111)
----------- ----------
$57,472,523 $8,844,137
=========== ==========
10.INCOME TAXES:
The provision for income taxes includes the following:
YEAR ENDED
DECEMBER 31,
----------------
1995 1994
-------- -------
Current taxes:
Federal................................................... $ -- $ --
State..................................................... 291,346 63,513
-------- -------
Total current taxes..................................... 291,346 63,513
Deferred taxes.............................................. -- --
-------- -------
Total income taxes...................................... $291,346 $63,513
======== =======
F-38
The provision for income taxes differs from applying the federal statutory
income tax rate of 34 percent to the loss before income taxes as follows:
YEAR ENDED
DECEMBER
31,
-------------
1995 1994
----- -----
Statutory federal rate....................................... (34.0)% (34.0)%
Goodwill..................................................... 33.0% 34.0%
Other........................................................ 1.5% 0.7%
----- -----
Effective income tax rate.................................... 0.5% 0.7%
===== =====
The types and tax effects of the temporary differences that cause
significant portions of deferred tax assets and liabilities are as follows:
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
Deferred tax assets:
Net operating loss carryforwards.................... $23,966,000 $23,812,000
Self insurance reserve.............................. 670,000 --
Investment tax credits.............................. 250,000 250,000
Inventory costs capitalized for tax purposes........ 155,000 155,000
Non deductible allowance for doubtful accounts...... 114,000 107,000
Restructuring charge................................ -- 190,000
----------- -----------
Total deferred tax assets......................... 25,155,000 24,514,000
Deferred tax liabilities:
Fixed asset basis differences/depreciation.......... 14,033,000 14,427,000
----------- -----------
Subtotal.............................................. 11,122,000 10,087,000
Total valuation allowance............................. 11,122,000 10,087,000
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
As at December 31, 1995, the Company had net operating loss carryforwards
of approximately $60,000,000. These carryforwards expire between 1999 and
2008. Restrictions on the utilization of the net operating loss
carryforwards apply as a result of the change in the control that occurred
upon acquisition of the Company in 1990.
As of December 31, 1995, the Company has investment tax credit
carryforwards of $250,000. These carryforwards expire between 1999 and
2000.
11.EMPLOYEE RETIREMENT PLANS:
Many of the Company's employees are eligible to participate in 401(k)
Savings Plans, some of which provide for company matching under various
formulas. The Company's matching expense for the plans was $235,051 for the
year ended December 31, 1995 (1994--250,904).
12.FINANCIAL INSTRUMENTS:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer
base.
Financial instruments comprise cash, accounts receivable, accounts payable,
accrued liabilities, and long-term debt. The fair value of these financial
instruments approximates their carrying value.
F-39
13.OPERATING LEASE COMMITMENTS:
The Company leases buildings and propane marketing equipment under
operating leases which expire in various years through 2000.
Future minimum lease payments by year under operating leases with initial
terms or remaining terms of one year or more consisted of the following at
December 31, 1995:
1996................................................................ $253,869
1997................................................................ 188,438
1998................................................................ 185,836
1999................................................................ 184,686
2000................................................................ 122,059
14.CONTINGENCIES:
At December 31, 1995 and April 30, 1996 (unaudited), there are a number of
lawsuits and claims pending against the Company, the ultimate results of
which have been estimated and included in accrued liabilities. Management
is of the opinion that these claims are adequately reflected in the
consolidated balance sheet of the Company as at December 31, 1995 and April
30, 1996 (unaudited), and that any additional amounts assessed against the
Company would not have a material adverse effect upon the consolidated
financial position of the Company or the results of its operations.
15.SUBSEQUENT EVENT:
On March 23, 1996, anpartnership agreement, to sell the shares of the Company was
signed with a prospective acquiror. The transaction was completed on April
30, 1996 pending closing adjustments as required by the Sales Agreement.
F-40
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Partners Finance Corp.
Liberty, Missouri
We have audited the accompanying balance sheet of Ferrellgas Partners
Finance Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.), as of
April 8, 1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Ferrellgas Partners Finance Corp. as of
April 8, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
April 8, 1996
F-41
FERRELLGAS PARTNERS FINANCE CORP.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS PARTNERS, L.P.)
BALANCE SHEET
APRIL
APRIL 30, 8,
ASSETS 1996 1996
------ ----------- ------
(UNAUDITED)
Cash........................................................ $1,000 $1,000
------ ------
TOTAL ASSETS................................................ $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
--------------------
Common stock, $1.00 par value; 2,000 shares authorized;
1,000 shares issued and outstanding........................ $1,000 $1,000
------ ------
TOTAL STOCKHOLDER'S EQUITY.................................. $1,000 $1,000
====== ======
See notes to balance sheet.
F-42
FERRELLGAS PARTNERS FINANCE CORP.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS PARTNERS, L.P.)
NOTES TO BALANCE SHEET
APRIL 8, 1996
A. Ferrellgas Partners Finance Corp. (the "Finance Corp."), a Delaware corporation, was formed on March 28, 1996limited partnership may, and is a wholly-owned subsidiaryshall have the power to, indemnify and hold harmless any partner or other person (an “Indemnitee”) from and against all claims and demands whatsoever. The partnership agreement of Ferrellgas Partners, L.P. (the "Partnership").
The Partnership intends to offer $160,000,000 aggregate principal amount of
Senior Notes. The Finance Corp. will serve as a co-obligor for the new
Senior Notes to be offered.
The Partnership contributed $1,000 to the Finance Corp. on April 8, 1996 in
exchange for 1,000 shares of common stock. There have been no other
transactions involving the Finance Corp. as of April 8, 1996 and April 30,
1996 (unaudited).
B. The unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the interim
periods presented.
F-43
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPA-
NYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
PAGE
----
Available Information...................................................... 3
Information Incorporated by Reference...................................... 4
Prospectus Summary......................................................... 5
Risk Factors............................................................... 21
The Exchange Offer......................................................... 28
Use of Proceeds............................................................ 37
Capitalization............................................................. 37
Unaudited Pro Forma Combined Financial Statements.......................... 38
Selected Historical Consolidated Financial Data............................ 47
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 50
Business................................................................... 58
The Skelgas and Superior Acquisitions...................................... 66
Management................................................................. 67
Principal Unitholders...................................................... 69
Description of Exchange Notes.............................................. 70
Description of Existing Indebtedness....................................... 94
Cash Distributions......................................................... 97
The Partnership Agreement.................................................. 97
Certain Federal Income Tax Considerations.................................. 101
Plan of Distribution....................................................... 102
Legal Matters.............................................................. 102
Experts.................................................................... 102
Index to Financial Statements.............................................. F-1
----------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF FERRELLGAS APPEARS HERE]
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
9-3/8% SERIES A SENIOR SECURED
NOTES DUE 2006
FOR
9-3/8% SERIES B SENIOR SECURED
NOTES DUE 2006
--------------------
PROSPECTUS
--------------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Partnership Agreement provides that the Partnership willFerrellgas Partners, L.P., subject to any limitations expressly provided in its partnership agreement, shall indemnify the
General Partner, any Departing Partner and any Person who is or was an officer
or director of the General Partner or any Departing Partner, any person who is
or was an affiliate of the General Partner or any Departing Partner, any
Person who is or was an employee, partner, agent or trustee of the General
Partner or any Departing Partner or any affiliate of the General Partner or
any Departing Partner, or any Person who is or was serving at the request of
the General Partner or any affiliate of the General Partner or any Departing
Partner as an officer, director, employee, partner, agent, or trustee of
another Person ("Indemnitees"), to the fullest extent permitted by law,hold harmless particular persons from and against any and all losses, claims, damages, liabilities, (jointjoint or several)several, expenses (including, without limitation, legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of itstheir status as (i)as:
· the General Partner, Departing Partnergeneral partner, a former general partner, or affiliateany of either, (ii)their affiliates;
· an officer, director, employee, partner, agent or trustee of the General Partner, Departing Partnerpartnership, the general partner, any former general partner, or affiliateany of eithertheir affiliates; or
(iii)
· a person or entity serving at the request of the Partnershippartnership in another entity in a similar capacity, provided that in each casecapacity.
This indemnification is available only if the Indemnitee acted in good faith, and in a manner in which suchthe Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Partnershippartnership and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Any indemnification under these provisions will be only outThe termination of the
assets of the Partnership, and the General Partner shall not be personally
liable for, or have any obligation to contribute or loan funds or assets to
the Partnership to enable it to effectuate, such indemnification. The
Partnership is authorized to purchase (or to reimburse the General Partner or
its affiliates for the cost of) insurance against liabilities asserted against
and expenses incurred by such persons in connection with the Partnerships
activities, whether or not the Partnership would have the power to indemnify
such person against such liabilities under the provisions described above.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to such persons pursuant to the foregoing provisions, the
Partnership has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Article VII of the bylaws of Ferrellgas, Inc. provides, with respect to
indemnification, as follows:
"Section 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The Corporation shall indemnify any person who was or is
an "authorized representative" of the Corporation (which shall mean for
purposes of this Article a Director or officer of the Corporation, or a
person serving at the request of the Corporation as a director, officer, or
trustee, of another corporation, partnership, joint venture, trust or other
enterprise) and who was or is a "party" (which shall include for purposes
of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "third party proceeding" (which shall
mean for purposes of this Article any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative, or
investigative, other than an action by or in the right of the Corporation)
by reason of the fact that such person was or is an authorized
representative of the Corporation, against expenses (which shall include
for purposes of this Article attorneys' fees), judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such third party proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interests of the Corporation and, with respect to
any criminal third party proceeding (which could or does lead to a criminal
third party proceeding) had no reasonable cause to believe such conduct was
unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction or upon a plea of nolo contendere, or its equivalent, shall not of itself create a presumption that the authorized
representative did not act in good faith andIndemnitee acted in a manner which such person
reasonably believedcontrary 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 orspecified in the right of the Corporation to procure a
adjustment in its favor or investigative proceeding by the Corporation) by
reason of the fact that such person was or is an authorized representative
of the Corporation, against expenses actually and reasonably incurred by
such person in connection with the defense or settlement of such corporate
action if such person acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the
Corporation, except that noimmediately preceding sentence. Any indemnification shall be made only out of the assets of the partnership; our general partner shall not be personally liable for any indemnification and shall have no obligation to contribute or loan any monies or property to the partnership to enable it to effectuate such indemnification. In no event may an Indemnitee subject the limited partners of the partnership to personal liability by reason of being entitled to indemnification.
To the fullest extent permitted by law, expenses (including, without limitation, legal fees and expenses) incurred by an Indemnitee in respect ofdefending any claim, issuedemand, action, suit or matter asproceeding shall, from time to which such person shall have been adjudged totime, 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 madeadvanced by the Corporation only as authorized in
the specific case upon a determination that indemnification of the
authorized representative is proper in the circumstances because such
person has either met the applicable standards of conduct set forth in
Section 7.01 or 7.02 or has been successful on the merits or otherwise as
set forth in Section 7.03 and that the amounts requested has been actually
and reasonably incurred. Such determination shall be made:
(1) By the Board of Directors by a majority of a quorum consisting of
Directors who were not partiespartnership prior 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 partyclaim, demand, action, suit or corporate proceeding as
authorized in the manner provided in Section 7.04 of this Article upon receipt by the partnership of an undertaking by or on behalf of the authorized representativeIndemnitee to repay such amount unlessif it shall ultimately be determined that the Indemnitee is not entitled to indemnification.
The indemnification provided by the partnership agreement of Ferrellgas Partners, L.P. shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the holders of outstanding partnership units, as a matter of law or otherwise, both as to actions in the Indemnitee’s capacity as:
· the general partner, a former general partner, or any of their affiliates;
· an officer, director, employee, partner, agent or trustee of the partnership, the general partner, any former general partner, or any of their affiliates; or
· a person or entity serving at the request of the partnership in another entity in a similar capacity,
and as to actions in any other capacity, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.
We have, to the extent commercially reasonable, purchased and currently maintain (or reimburse our general partner or its affiliates for the cost of) insurance, on behalf of our general partner and such other persons or entities
as our general partner has determined, including particular other Indemnitees, against any liability that may be asserted against or expenses that may be incurred by such person is entitledor entity in connection with the partnership’s activities, regardless of whether the partnership would have the power to be indemnified byindemnify such person or entity against such liability under the Corporation as authorized in
this Article. provisions of the partnership agreement.
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
Corporationpartnership shall be deemed to have requested an authorized representativeIndemnitee to serve as fiduciary of an employee benefit plan wherewhenever the performance by such personit of its duties to the Corporationpartnership also imposes duties on, or otherwise involves services by, such personit to the plan or participants or beneficiaries of the plan; exciseplan. Excise taxes assessed on an authorized representativeIndemnitee with respect to an employee benefit plan pursuant to the applicable law shall be
deemed "fines"; and actionconstitute “fines” subject to indemnification. Action taken or omitted by such personthe Indemnitee with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is in, or not opposed to, the best interests of the Corporation.
Section 7.07. Scope of Article. The indemnification of authorized
representatives, as authorized by this Article,partnership.
An Indemnitee shall (1) not be deemed
exclusivedenied indemnification by the partnership, in whole or in part, because the Indemnitee had an interest in the transaction with respect to which the indemnification applies, if the transaction was otherwise permitted by the terms of the partnership agreement. Notwithstanding anything to the contrary set forth in the partnership agreement, no Indemnitee shall be liable for monetary damages to the partnership, the limited partners, their assignees or any other persons or entities who have acquired partnership interests in the partnership, for losses sustained or liabilities incurred as a result of any other rights to which those seekingact or omission if such Indemnitee acted in good faith. Also, our general partner shall not be responsible for any misconduct or negligence on the part of any agent appointed by our general partner in good faith.
Ferrellgas Partners, L.P. and Ferrellgas, L.P. have also entered into indemnification may be
entitled under any statute, agreement, vote of stockholders or
disinterested Directors or otherwise, both
II-2
as to action in an official capacity and as to action in another capacity,
(2) continue as to a person who has ceased such a person to be an
authorized representative and (3) inure to the benefitagreements with all of the heirs,
executorsdirectors and administratorsofficers of on.
Section 7.08. Reliance on Provisions. Each person who shall act as an
authorized representativeFerrellgas, Inc. For a description of that agreement, see Ferrellgas, Inc.’s obligations below, which are the Corporation shall be deemed to be doing so
in reliance upon rights of indemnification provided by this Article."same for Ferrellgas Partners, L.P. and Ferrellgas, L.P.
Ferrellgas, Inc.
Ferrellgas, Inc. is a Delaware corporation. Section 145 of the Delaware General Corporation Law empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the State of Delaware
authorizes the indemnification of directors and officers of a corporation
against liability incurredcorporation) by reason of beingthe fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer andor agent of another corporation or other enterprise, against expenses (including attorneys'attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with defending anysuch action, seeking to establish such liability, in the case of third party claims,suit or proceeding if the director or officerhe 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, had no reasonable cause to believe his conduct was unlawful. Similar indemnity is authorized for such persons against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the casedefense or settlement of any such threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor if the director
or officersuch person 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 ifprovided further that (unless a court of competent jurisdiction otherwise provides) such director
or officerperson shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the stockholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation unlessto purchase and maintain insurance on behalf of any person who is or was a courtdirector, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or 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 otherwise determines. Indemnificationhave the power to indemnify him under Section 145.
The certificate of incorporation, as amended, and bylaws of Ferrellgas, Inc. provide for indemnification rights and benefits for its officers and directors from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including, without limitation, legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any officer or director of Ferrellgas, Inc. may be involved, or is threatened to be involved, as a party or otherwise; provided, however, the officers or directors must have acted in good faith, in a manner in which such person or entity believed to be in, or not opposed to, the best interests of Ferrellgas, Inc. and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Ferrellgas, Inc. is also obligated to advance expenses to its officers and directors relating to indemnified
claims and Ferrellgas, Inc. has, to the extent commercially reasonable, purchased and currently maintains insurance on behalf of its officers and directors.
Furthermore, the directors of Ferrellgas, Inc. are not personally liable to Ferrellgas, Inc. or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability:
· for any breach of the director’s duty of loyalty to Ferrellgas, Inc. or its stockholders,
· for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
· for unlawful payments of dividends or unlawful stock purchases or redemptions under Section 174 of the General Corporation Law of the State of Delaware; or
· for any transaction from which the director derived an improper personal benefit.
Ferrellgas, Inc. has also entered into indemnification agreements with some of its directors and officers. Pursuant to these indemnification agreements, Ferrellgas, Inc. has contractually agreed to indemnify these officers and directors generally in accordance with the indemnification terms and provisions set forth above. Some of these indemnification agreements also provide that Ferrellgas, Inc. shall indemnify such director or officer when they were or are a party or are threatened to be made a party to any threatened, pending or completed action or suit by or in the right of Ferrellgas, Inc. to procure a judgment in its favor by reason of the fact that such director or officer is or was a director or officer of Ferrellgas, Inc., or is or was serving at the request of Ferrellgas, Inc. as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such director or officer in connection with the defense or settlement of such action or suit if such director or officer acted in good faith and in a manner that such director or officer reasonably believed to be in or not opposed to the best interests of Ferrellgas, Inc. and except that no indemnification pursuant to the indemnification agreements shall be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to Ferrellgas, Inc. unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such directors or officers are fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Generally, any indemnification under these indemnification agreements (unless ordered by a court) shall be made by Ferrellgas, Inc. only as authorized in each specific case upon a determination, in accordance with the procedures set forth in the applicable indemnification agreement, that indemnification of such director or officer is proper in the circumstances because such director or officer has met the applicable standard of conduct set forth in their particular indemnification agreement. Such determination shall be made:
· by independent legal counsel in a written opinion;
· by a majority vote of the members of the board of directors of Ferrellgas, Inc. who are not parties to such action, suit or proceeding, even if less than a quorum;
· by a committee comprised of members of the board of directors of Ferrellgas, Inc. who are not parties to such action, suit or proceeding, such committee to be designated by a majority vote of the members of the board of directors of Ferrellgas, Inc. who are not parties to such action, suit or proceeding, even if less than a quorum; or
· by the stockholders of Ferrellgas, Inc.
Also, if such director or officer institutes any legal action to enforce such director’s or officer’s rights under their indemnification agreement, or to recover damages for breach of their indemnification agreement, such director or officer, if such director or officer prevails in whole or in part, shall be entitled to recover from Ferrellgas, Inc. all fees and expenses (including attorneys’ fees) incurred by such director or officer in connection therewith.
Ferrellgas Partners Finance Corp.
Ferrellgas Partners Finance Corp. is a Delaware corporation. Section 145 of the Delaware General Corporation Law empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer or agent of another corporation 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, where the director or officer had no reasonable cause to believe his conduct was unlawful. SubjectSimilar indemnity is authorized for such persons against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of any such threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor if such person 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 provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the stockholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any terms, conditionsperson who is or restrictionswas a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or 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 otherwise have the power to indemnify him under Section 145.
The certificate of incorporation and bylaws of Ferrellgas Partners Finance Corp. provide that Ferrellgas Partners Finance Corp. shall indemnify and hold harmless its officers and directors, to the fullest extent permitted by current applicable law or as such law may hereafter be amended (but, in the case of any such amendment, only to the extent that the amendment permits Ferrellgas Finance Corp. to provide broader indemnification rights), against any and all expenses, liabilities and losses (including attorney’s fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) arising from any action, suit or proceeding, whether civil, criminal, administrative or investigative, in which any officer or director of Ferrellgas Partners Finance Corp. may be involved, or is threatened to be involved, as a party or otherwise, by reason of the fact that such officer or director is or was a director or officer of Ferrellgas Partners Finance Corp. or serving at the request of Ferrellgas Partners Finance Corp. as a director, officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans. Ferrellgas Partners Finance Corp. is also obligated to advance expenses to its officers and directors relating to indemnified claims and Ferrellgas Partners Finance Corp. has, to the extent commercially reasonable, purchased and currently maintains insurance on behalf of its officers and directors.
Furthermore, the directors of Ferrellgas Partners Finance Corp. are not personally liable to Ferrellgas Partners Finance Corp. or its stockholders for monetary damages for any breach of a fiduciary duty as a director, except for liability:
· for any breach of the director’s duty of loyalty to Ferrellgas Partners Finance Corp. or its stockholders;
· for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
· for unlawful payments of dividends or unlawful stock purchases or redemptions under Section 174 of the General Corporation Law of the State of Delaware; or
· for any transaction from which the director derived an improper personal benefit.
Item 21. Exhibits
Reference is made to the Exhibit Index following the signature pages hereof, which Exhibit Index is hereby incorporated into this Item.
Item 22. Undertakings
Each of the undersigned registrants hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Partnership Agreements, Section 17-108registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the Delaware Revised Limited
Partnership Act empowers a Delaware limited partnership to indemnify and hold
harmless any partner or other person from and against any and all claims and
demands whatsoever.
Under insurance policies maintained by the Partnership, directors and
officers of the General Partnerestimated maximum offering range may be indemnified against losses arising from
certain claims, including claimsreflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended,each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which may be made against such persons by reasonremain unsold at the termination of their being directors or
officers.
II-3
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits listed arethe offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of this report. Exhibits
required by Item 601a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of Regulation S-K which are not listed are not
applicable.
(5) That, for the purpose of determining liability of the registrants under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: each of the undersigned registrants undertake that in a primary offering of securities of the undersigned registrants pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the same numbered Exhibitpurchaser, if the securities are offered or sold to Partnership's
Registration Statementsuch purchaser by means of any of the following communications, the undersigned registrants will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrants relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on Form S-1 (File No. 33-55185 filed withbehalf of the Commissionundersigned registrants or used or referred to by the undersigned registrants;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrants or its securities provided by or on November 14, 1994).
(2) Incorporatedbehalf of the undersigned registrants; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrants to the purchaser.
(6) That, for purposes of determining any liability under the Securities Act of 1933, each filing of each registrants’ annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the same numbered Exhibitsecurities offered therein, and the offering of such securities at that time shall be deemed to be the Partnership's Current Report on Form 8-K filed August 15, 1994.
(3) Incorporated by reference to Exhibit 3 to Partnership's Quarterly Report
on Form 10-Q filed on June 12, 1996.
(4) Incorporated by reference to the same numbered Exhibit to Partnership's
Current Report on Form 8-K filed on May 6, 1996.
(5) Incorporated by reference to the same numbered Exhibit to Partnership's
Annual Report on Form 10-K filed on October 17,1995.
(6) Incorporated by reference to the same numbered Exhibit to Partnership's
Annual Report on Form 10-K filed on October 20, 1994.
initial bona fide offering thereof.
(7) Incorporated by reference to the same numbered Exhibit to Partnership's
Registration Statement on Form S-1 (File No. 33-53383 filed with the
Commission on April 29, 1994).
(8) Incorporated by reference to Exhibit 10.8 to Partnership's Annual Report
on Form 10-K filed on October 20, 1994.
(9) Incorporated by reference to Exhibit 10.1 to Partnership's Current Report
on Form 8-K filed on May 6, 1996.
(10) Incorporated by reference to Exhibit 10.2 to Partnership's Current Report
on Form 8-K filed on May 6, 1996.
* Previously Filed
** Filed Concurrently herewith
(b) Financial Statement Schedules:
II-5
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
Independent Auditors' Report on Schedules............................... S-1
Schedule I Parent Company Only Balance sheets as of July 31, 1995 and
1994, and Statements of Earnings and Cash Flows for the
Year ended July 31, 1995 and the One month ended
July 31, 1994............................................. S-2
Schedule II Valuation and Qualifying Accounts for the Year ended July,
31, 1995, the One month ended July 31, 1994 and the Eleven
months ended June 30, 1994................................ S-6
FERRELLGAS, L.P. AND SUBSIDIARIES
Independent Auditors' Report on Schedules............................... S-7
Schedule II Valuation and Qualifying Accounts for the Year ended July
31, 1995, the One month ended July 31, 1994 and the Eleven
months ended June 30, 1994................................ S-8
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofaras
amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrantsregistrants pursuant to the foregoing provisions, or otherwise, the Registrantsregistrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim offor indemnification against such liabilities (other than the payment by the registrantregistrants of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the registrantregistrants 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 Registrantregistrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(b) The
Each undersigned registrantsregistrant hereby undertakeundertakes to respond to requests for information that is incorporated by reference into this Prospectusthe prospectus pursuant to ItemsItem 4, 10(b), 11 or 13 of this Form,form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of Registration Statementthe registration statement through the date of responding to the request.
(c) The
Each undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statementregistration statement when it became effective.
(d) The
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, registrantsthereunto duly authorized in the City of Overland Park, State of Kansas, on July 10, 2017.
FERRELLGAS PARTNERS, L.P. | ||
By: | Ferrellgas, Inc., its general partner | |
By: | /s/ ALAN C. HEITMANN | |
Alan C. Heitmann | ||
Executive Vice President; Chief Financial Officer; Treasurer | ||
POWER OF ATTORNEY
Each person whose signature appears below hereby undertakeconstitutes and appoints Alan C. Heitmann and Trent Hampton, and each of them, any of whom may act without the joinder of the other, as their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to do the following:
(1) To file, duringsign any period in which offersand all amendments (including, without limitation, any supplements or sales are being made, a
post-effective amendmentamendments) to this Registration Statement; (i)Statement and to includefile the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any prospectus requiredof them of their or his or her substitute and substitutes, may lawfully do or cause to be done by Section 10(a)(3)virtue hereof.
Pursuant to the requirements of the Securities Act of 1933; (ii)
to reflect1933, this registration statement has been signed by the following persons in the prospectus any facts or events arising aftercapacities and on the effective datedates indicated.
Signature and Name | Title | Date | ||
/s/ JAMES E. FERRELL | Interim Chief Executive Officer and | July 10, 2017 | ||
James E. Ferrell | President of Ferrellgas, Inc. (principal executive officer); Chairman of the Board of Directors of Ferrellgas, Inc. | |||
/s/ PAMELA A. BREUCKMANN | Director of Ferrellgas, Inc. | July 10, 2017 | ||
Pamela A. Breuckmann | ||||
/s/ STEPHEN M. CLIFFORD | Director of Ferrellgas, Inc. | July 10, 2017 | ||
Stephen M. Clifford | ||||
/s/ A. ANDREW LEVISON | Director of Ferrellgas, Inc. | July 10, 2017 | ||
A. Andrew Levison | ||||
/s/ JOHN R. LOWDEN | Director of Ferrellgas, Inc. | July 10, 2017 | ||
John R. Lowden | ||||
/s/ MICHAEL F. MORRISSEY | Director of Ferrellgas, Inc. | July 10, 2017 | ||
Michael F. Morrissey | ||||
/s/ DAVID L. STARLING | Director of Ferrellgas, Inc. | July 10, 2017 | ||
David L. Starling | ||||
/s/ ALAN C. HEITMANN | Executive Vice President; Chief Financial | July 10, 2017 | ||
Alan C. Heitmann | Officer; Treasurer of Ferrellgas, Inc. (principal financial and accounting officer) |
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Overland Park, State of Kansas, on July 10, 2017.
FERRELLGAS PARTNERS FINANCE CORP. | ||
By: | /s/ ALAN C. HEITMANN | |
Alan C. Heitmann | ||
Chief Financial Officer | ||
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Alan C. Heitmann and Trent Hampton, and each of them, any of whom may act without the joinder of the other, as their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including, without limitation, any supplements or post-effective amendments) to this Registration Statement (orand to file the most recent post-
effective amendment thereof) which, individuallysame, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or would do in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii)person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them of their or his or her substitute and substitutes, may lawfully do or cause to include any material information with
respectbe done by virtue hereof.
Pursuant to the planrequirements of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
II-6
(2) That, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a newthis registration statement relating tohas been signed by the securities offered therein,following persons in the capacities and on the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF LIBERTY, STATE OF MISSOURI, ON JULY 30, 1996.
FERRELLGAS PARTNERS, L.P.
By: Ferrellgas, Inc., as General
Partner
/s/ Danley K. Sheldon
By __________________________________
Danley K. Sheldon
Senior Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
dates indicated.
Signature | Title | Date | ||
/s/ JAMES E. FERRELL | Interim Chief Executive Officer and | July 10, 2017 | ||
James E. Ferrell | President | |||
/s/ ALAN C. HEITMANN | Chief Financial Officer | July 10, 2017 | ||
Alan C. Heitmann | and |
EXHIBIT INDEX
Exhibit | Description | |
4.1 | Indenture dated as of April 13, 2010, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp. and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed April 13, 2010. | |
4.2 | First Supplemental Indenture dated as of April 13, 2010, with form of Note attached, by and among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp. and U.S. Bank National Association, as trustee. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed April 13, 2010. | |
4.3 | Second Supplemental Indenture dated January 30, |
4.4
Registration Rights Agreement dated January 30, 2017, by and among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers. Incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K filed January 30, 2017.
*5.1
Opinion of Bracewell LLP as to the legality of the securities registered hereby.
*12.1
Computation of Ratio of Earnings to Fixed Charges
*23.1
Consent of Grant Thornton LLP.
*23.4
Consent of Bracewell LLP (included *24.1 Powers of *25.1 Statement of *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery. *99.3 Form of Letter to *99.4 Form of * Filed herewith elsewhere in this
Registration Statement). Our audit also included the financial statement
schedules listed at Item 21(b) of this Registration Statement. These financial
statement schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion based on our audit. In our
opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
S-1
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
BALANCE SHEETS
(IN THOUSANDS)
JULY 31, JULY 31,
ASSETS 1995 1994
------ -------- --------
Investment in Ferrellgas, L.P.............................. $118,638 $121,393
-------- --------
Total Assets........................................... $118,538 $121,393
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Other current liabilities.................................. $ 1 $ --
PARTNERS' CAPITAL
Common unitholders....................................... 84,489 84,532
Subordinated unitholders................................. 91,824 99,483
General partner.......................................... (57,676) (62,622)
-------- --------
Total Partners' Capital................................ 118,637 121,393
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL................ $118,638 $121,393
======== ========
S-2
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF EARNINGS
(IN THOUSANDS)
FOR THE YEAR ENDED INCEPTION TO
JULY 31, 1995 JULY 31, 1994
------------------ -------------
Equity in earnings (loss)Exhibit 5.1).Ferrellgas, L.P............ $23,821 $(64,481)
------- --------
Operating expense........... 1 --
------- --------
Net earnings (loss)..... $23,820 $(64,481)
======= ========
S-3
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED INCEPTION TO
JULY 31, 1995 JULY 31, 1994
------------------ -------------
Cash Flows From Operating Activities:
Net earnings (loss).......................... $23,820 $(64,481)
ReconciliationAttorney (included on the signature pages hereof).net earnings (loss)Eligibility and Qualification of the Trustee, U.S. Bank National Association on Form T-1.Net
cash from operating activities:
Equity in (earnings) lossClients.Ferrellgas,
L.P....................................... (23,821) 64,481
Distributions received from Ferrellgas,
L.P....................................... 51,654 --
Increase in other current liabilities...... 1 --
------- --------
Net cash provided by operating
activities.............................. 51,654 --
------- --------
Cash Flows From Investing Activities:
Investment in Ferrellgas, L.P................ -- (255,006)
------- --------
Net cash used by investing activities.... -- (255,006)
------- --------
Cash Flows From Financing Activities:
DistributionsLetter to partners.................... (51,654) --
Net issuance of Common Units................. -- 255,006
------- --------
Net cash provided (used) by financial
activities.............................. (51,654) 255,006
------- --------
Increases in cash and cash equivalents....... -- --
Cash and cash equivalents--beginning of
period...................................... -- --
------- --------
Cash and cash equivalents--end of period..... $ -- $ --
======= ========
DTC Participants.
S-4
Supplemental disclosure of noncash financing activity:
Effective July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical cost to
Ferrellgas, L.P. in return for 1,000,000 Common Units, 16,593,721 Subordinated
Units and the Incentive Distribution Rights of Ferrellgas Partners, L.P., as
well as a 2% general partner interest in Ferrellgas Partners, L.P. and
Ferrellgas, L.P., on a combined basis. Net liabilities assumed by Ferrellgas,
L.P., adjusted for the settlement of a tax contingency, are as follows:
JULY 5, 1994
------------
Cash......................................................... $ 39,791
Accounts receivable.......................................... 50,747
Inventories.................................................. 37,931
Prepaid expenses and other current assets.................... 2,660
Property, plant and equipment, net........................... 293,729
Intangible assets, net....................................... 75,350
Other assets................................................. 9,327
--------
Total assets conveyed...................................... 509,535
--------
Accounts payable............................................. 49,177
Other current liabilities.................................... 30,296
Long-term debt, net.......................................... 476,441
Other non-current liabilities................................ 9,557
--------
Total liabilities assumed.................................. 565,471
--------
Net liabilities assumed by Ferrellgas, L.P................... $(55,936)
========
S-5
SCHEDULE II
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COST/ OTHER (AMOUNTS BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES ADDITIONS (A) CHARGED-OFF) OF PERIOD
----------- ---------- ---------- ------------ ------------ --------------
Year ended July 31, 1995
Allowance for doubtful
accounts............... $ 798 $1,191 $ 400 $1,515 $ 874
Accumulated
amortization:
Intangible assets....... $68,489 $9,997 $3,509 $ -- $81,995
Other assets............ $ 1,860 $ 368 $1,109 $ -- $ 3,337
One month ended July 31,
1994 (B)
Allowance for doubtful
accounts............... $ 906 $ 119 $ -- $ 227 $ 798
Accumulated
amortization:
Intangible assets....... $67,730 $ 759 $ -- $ -- $68,489
Other assets............ $ 9,845 $ 23 $ -- $8,008 $ 1,860
Eleven months ended June
30, 1994 (Predecessor)
Allowance for doubtful
accounts............... $ 607 $1,569 $ -- $1,270 $ 906
Accumulated
amortization:
Intangible assets....... $59,181 $8,549 $ -- $ -- $67,730
Other assets............ $ 7,592 $2,626 $ -- $ 373 $ 9,845
- --------
(A) On November 1, 1994, the General Partner purchased all of the capital
stock of Vision Energy Resources, Inc. Immediately following the close of
the purchase, the General Partner contributed the assets and substantially
all of the liabilities associated with Vision Energy Resources, Inc. to
the Operating Partnership. The amounts reflected as "Other Additions
represent valuation and qualifying accounts assumed by the Operating
Partnership in connection with the contribution by the General Partner.
(B) On July 5, 1994, substantially all of the propane assets and liabilities
of Ferrellgas, Inc. were conveyed at historical cost to Ferrellgas, L.P.
Total allowance for uncollectible receivables, accumulated amortization of
intangible assets and accumulated amortization of other assets transferred
to Ferrellgas, L.P. was $906, $67,730 and $9,845, respectively.
S-6
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Partners of
Ferrellgas, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas, L.P.,
(formerly Ferrellgas, Inc.) and subsidiaries as of July 31, 1995 and 1994,
(Successor), and for the year ended July 31, 1995, and for the one month ended
July 31, 1994 (Successor), the eleven months ended June 30, 1994 and for the
year ended July 31, 1993 (Predecessor) and have issued our report thereon
dated September 12, 1995 (incorporated by reference into this Registration
Statement). Our audit also included the financial statement schedules listed
at Item 21(b) of this Registration Statement. These financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
S-7
SCHEDULE II
FERRELLGAS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COST/ OTHER (AMOUNTS BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES ADDITIONS (A) CHARGED-OFF) OF PERIOD
----------- ---------- ---------- ------------ ------------ --------------
Year ended July 31, 1995
Allowance for doubtful
accounts............... $ 798 $1,191 $ 400 $1,515 $ 874
Accumulated
amortization:
Intangible assets....... $68,489 $9,997 $3,509 $ -- $81,995
Other assets............ $ 1,860 $ 368 $1,109 $ -- $ 3,337
One month ended July 31,
1994 (B)
Allowance for doubtful
accounts............... $ 906 $ 119 $ -- $ 227 $ 798
Accumulated
amortization:
Intangible assets....... $67,730 $ 759 $ -- $ -- $68,489
Other assets............ $ 9,845 $ 23 $ -- $8,008 $ 1,860
Eleven months ended June
30, 1994 (Predecessor)
Allowance for doubtful
accounts............... $ 607 $1,569 $ -- $1,270 $ 906
Accumulated
amortization:
Intangible assets....... $59,181 $8,549 $ -- $ -- $67,730
Other assets............ $ 7,592 $2,626 $ -- $ 373 $ 9,845
- --------
(A) On November 1, 1994, the General Partner purchased all of the capital
stock of Vision Energy Resources, Inc. Immediately following the close of
the purchase, the General Partner contributed the assets and substantially
all of the liabilities associated with Vision Energy Resources, Inc. to
the Operating Partnership. The amounts reflected as "Other Additions
represent valuation and qualifying accounts assumed by the Operating
Partnership in connection with the contribution by the General Partner.
(B) On July 5, 1994, substantially all of the propane assets and liabilities
of Ferrellgas, Inc. were conveyed at historical cost to Ferrellgas, L.P.
Total allowance for uncollectible receivables, accumulated amortization of
intangible assets and accumulated amortization of other assets transferred
to Ferrellgas, L.P. was $906, $67,730 and $9,845, respectively.
S-8