As filed with the Securities and Exchange Commission on February 18, 2003
Registration Nos. 333-____________, 333-__________-01,
333-___________-02 and 333-_______-03
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
(Exact name of registrants as specified in their charters)
Delaware 43-1698480
Delaware 43-1742520
Delaware 43-1698481
Delaware 14-1866671
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Liberty Plaza, Liberty, Missouri 64068
(816) 792-1600
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(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
Kevin T. Kelly
Senior Vice President and Chief Financial Officer
Ferrellgas, Inc.
One Liberty Plaza, Liberty, Missouri 64068
(816) 792-1600
(Name, address, including zip code, and telephone number, including area code,
of registrants' agent for service)
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Copies to:
David L. Ronn
Mayer, Brown, Rowe & Maw
700 Louisiana Street, Suite 3600
Houston, Texas 77002
(713) 546-0525
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement, as determined
in light of market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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CALCULATION OF REGISTRATION FEE
Title of Amount of securities Proposed maximum Proposed maximum
each class of to be registered offering price aggregate offering Amount of
securities to (1) (2) (4) (5) (6) per security price registration
be registered (7) (2) (3) (4) fee (3)
- ------------------------------------ ---------------------- -------------------- -------------------- ----------------
Common Units (5)(6) - -
Senior Units (5)(6) - -
Deferred Participation Units (5)(6) - -
Warrants (5)(6) - -
Debt Securities (7) - -
- ------------------------------------ -------------------- -------------------- -------------------- ----------------
Total - - $500,000,000 $46,000
==================================== ==================== ==================== ==================== ================
(1) There are being registered hereunder a presently indeterminate principal
amount of securities.
(2) The amount of securities to be registered and the proposed maximum offering
price per security to be registered is not specified pursuant to General
Instruction, II.D. of Form S-3 under the Securities Act. The proposed
maximum offering price per security will be determined from time to time by
one or more of Ferrellgas Partners, L.P., Ferrellgas Partners Finance
Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp. in connection with
their issuance of the securities registered hereunder.
(3) We have estimated the proposed maximum aggregate offering price solely to
calculate the amount of the registration fee under Rule 457(o) of the
Securities Act. In no event will the aggregate initial offering price of
all securities issued from time to time hereunder exceed $500,000,000.
(4) If any debt securities are issued at an original issue discount, then the
amount of such debt securities shall be in such greater principal amount as
shall result in an aggregate initial offering price not to exceed
$500,000,000 less the dollar amount of any registered securities previously
issued hereunder. The aggregate amount of equity securities registered
hereunder is further limited to that which is permissible under Rule
415(a)(4) under the Securities Act. The securities registered hereunder may
be sold separately or as units with other securities registered hereunder.
(5) There are being registered hereunder common units, senior units, deferred
participation units and warrants of Ferrellgas Partners, L.P.
(6) There are being registered hereunder an indeterminate number of shares of
common units that may be issued upon conversion of senior units or deferred
participation units registered hereunder or upon exercise of warrants
registered hereunder, as the case may be.
(7) There are being registered hereunder debt securities of both Ferrellgas
Partners, L.P. and Ferrellgas, L.P. Ferrellgas, L.P. may offer only
nonconvertible investment grade debt securities. Ferrellgas Partners
Finance Corp. may be the co-obligor on any debt securities issued by
Ferrellgas Partners, L.P. and Ferrellgas Finance Corp. may be the
co-obligor on any debt securities issued by Ferrellgas, L.P.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED February 18, 2003
PROSPECTUS
$500,000,000
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
Common Units Warrants
Senior Units Debt Securities
Deferred Participation Units
WE WILL PROVIDE THE SPECIFIC TERMS OF THE SECURITIES OFFERED IN SUPPLEMENTS TO
THIS PROSPECTUS. YOU SHOULD READ THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT
CAREFULLY BEFORE YOU INVEST.
This prospectus provides you with a general description of the securities
we may offer. Ferrellgas Partners, L.P. may offer common units, senior units,
deferred participation units, warrants and debt securities. Ferrellgas, L.P. may
offer only nonconvertible investment grade debt securities. Ferrellgas Partners
Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas
Partners, L.P. and Ferrellgas Finance Corp. may be the co-obligor on any debt
securities issued by Ferrellgas, L.P. Each time we sell securities we will
provide a prospectus supplement that will contain specific information about the
terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus.
Ferrellgas Partners' common units are traded on the New York Stock Exchange
under the symbol "FGP." We will provide information in the prospectus supplement
for the expected trading market, if any, for the senior units, deferred
participation units, warrants and debt securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION
OF THE MATERIAL RISKS INVOLVED IN INVESTING IN OUR SECURITIES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ,2003.
Table of Contents
About this Prospectus.........................................................i
Forward-Looking Statements....................................................ii
Prospectus Summary............................................................1
Risk Factors..................................................................5
Conflicts of Interest and Fiduciary Responsibilities..........................20
Use of Proceeds...............................................................22
Ratio of Earnings to Fixed Charges............................................23
Description of Common Units, Senior Units and Deferred Participation Units....25
Description of Warrants.......................................................28
Description of Debt Securities................................................30
Tax Consequences..............................................................41
Investment in us by Employee Benefit Plans....................................53
Plan of Distribution..........................................................54
Where You Can Find More Information...........................................57
Legal Matters.................................................................58
Experts.......................................................................58
ABOUT THIS PROSPECTUS
THIS PROSPECTUS MAY NOT BE USED TO SELL SECURITIES UNLESS IT IS ACCOMPANIED
BY A PROSPECTUS SUPPLEMENT.
This prospectus is part of a registration statement we filed with the SEC
utilizing a "shelf" registration process. Under this shelf registration process,
Ferrellgas Partners may sell the common units, senior units, deferred
participation units, warrants and debt securities described in this prospectus
and Ferrellgas, L.P. may sell the debt securities described in this prospectus:
o from time to time and in one or more offerings;
o in one or more series; and
o in any combination thereof,
up to a maximum aggregate principal amount of $500,000,000. Ferrellgas, L.P. may
offer only nonconvertible investment grade debt securities. Ferrellgas Partners
Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas
Partners and Ferrellgas Finance Corp. may be the co-obligor on any debt
securities issued by Ferrellgas, L.P.
This prospectus provides you with a general description of our business and
the securities we may offer. Each time we offer to sell securities with this
prospectus, we will provide a prospectus supplement that will contain specific
information about the terms of that particular offering. This prospectus
supplement may include additional risk factors or other special considerations
applicable to the securities offered. This prospectus supplement may also add,
update or change information contained in this prospectus. If there is any
inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in the prospectus supplement.
YOU SHOULD CAREFULLY READ BOTH THIS PROSPECTUS, THE APPLICABLE PROSPECTUS
SUPPLEMENT, AND THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE AS DESCRIBED
UNDER THE SECTION ENTITLED "WHERE YOU CAN FIND MORE INFORMATION." WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT
PERMITTED.
The information in this prospectus is accurate as of , 2003. You
should rely only on the information contained in this prospectus, the
applicable prospectus supplement 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, the applicable prospectus supplement or the documents we have
incorporated by reference is accurate as of any date other than the date of the
respective document.
i
FORWARD-LOOKING STATEMENTS
This prospectus and the documents we have incorporated by reference include
forward-looking statements within the meaning of Section 21E of the Exchange Act
and Section 27A of the Securities Act. These forward-looking statements are
identified as any statement that does not relate strictly to historical or
current facts. They often use or are preceded by words such as "anticipate,"
"believe," "intend," "plan," "projection," "forecast," "strategy," "position,"
"continue," "estimate," "expect," "may," "will," or the negative of those terms
or other variations of them or comparable terminology. These statements often
discuss plans, strategies, events or developments that we expect or anticipate
will or may occur in the future and are based upon the beliefs 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 future performance. You
should not put undue reliance on any forward-looking statements. All
forward-looking statements are subject to risks, uncertainties and assumptions
that could cause our actual results to differ materially from those expressed in
or implied by these forward-looking statements. Many of the factors that will
affect our future results are beyond our ability to control or predict.
Some of our forward-looking statements include the following:
o whether Ferrellgas, L.P. will have sufficient funds to meet its
obligations, including its obligations under its debt securities
issued under this prospectus and any applicable prospectus
supplement, and to enable it to distribute to Ferrellgas Partners
sufficient funds to permit Ferrellgas Partners to meet its
obligations with respect to its existing securities and the
securities issued under this prospectus and any applicable
prospectus supplement;
o whether Ferrellgas Partners and Ferrellgas, L.P. will continue to
meet all of the quarterly financial tests required by the
agreements governing their indebtedness; and
o the expectation that future periods may not have the same
percentage decrease in retail volumes, revenues and expenses as
was experienced for the twelve months ended July 31, 2002.
For a more detailed description of these particular forward-looking
statements and for other factors that may affect any forward-looking statements,
see the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of our most recently filed Annual
Report on Form 10-K and in Item 2 of our most recently filed Quarterly Report on
Form 10-Q, both as incorporated herein by reference. See "Where You Can Find
More Information."
When considering any forward-looking statement, you should also keep in
mind the risk factors described under the section entitled "Risk Factors"
beginning on page 5 of this prospectus and any other risk factors described in
an applicable prospectus supplement. 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 after we
distribute this prospectus and any applicable prospectus supplement.
In addition, the classification of Ferrellgas Partners and Ferrellgas, L.P.
as partnerships for federal income tax purposes means that we do not generally
pay federal income taxes. We do, however, pay taxes on the income of our
subsidiaries that are corporations. We rely on a legal opinion from our counsel,
and not a ruling from the Internal Revenue Service, as to our proper
classification for federal income tax purposes. See "Risk Factors--Tax
Risks--The IRS could treat us as a corporation for tax purposes, which would
substantially reduce the cash available for distribution to our unitholders."
ii
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. To fully understand the terms of the securities we are offering with
this prospectus, you should carefully read this entire prospectus, the
applicable prospectus supplement and the documents we have incorporated by
reference. You should pay special attention to the sections entitled "Risk
Factors" in both this prospectus and in the applicable prospectus supplement to
determine whether an investment in the securities we are offering is appropriate
for you.
In this prospectus, unless the context indicates otherwise:
o when we refer to "us," "we," "our," or "ours," we generally mean
Ferrellgas Partners, L.P. together with its consolidated
subsidiaries, including Ferrellgas Partners Finance Corp.,
Ferrellgas, L.P. and Ferrellgas Finance Corp., except when used in
connection with "common units," "senior units," and
"debt securities," in which case these terms refer to the
applicable issuer of those securities;
o references to "Ferrellgas Partners" refer to
Ferrellgas Partners, L.P. itself, without its consolidated
subsidiaries;
o references to the "operating partnership" refer to
Ferrellgas, L.P. together with its consolidated subsidiaries,
including Ferrellgas Finance Corp.;
o references to our "general partner" refer to Ferrellgas, Inc.;
o the common units, senior units, deferred participation units,
warrants and debt securities described in this prospectus are
sometimes collectively referred to as the "securities;" and
o the term "unitholder" generally refers to holders of common units
of Ferrellgas Partners.
Ferrellgas Partners owns an approximate 99% limited partner interest in the
operating partnership. In addition, the operating partnership accounts for
substantially all of the sales and operating earnings of Ferrellgas Partners,
and substantially all of the assets of Ferrellgas Partners are held by, and all
of its operations are conducted through, the operating partnership. Because of
this structure, there exist no material differences between the description of
the business and properties of Ferrellgas Partners described herein and
described in the documents we have incorporated by reference and the business
and properties of the operating partnership. The fiscal year end for both
Ferrellgas Partners and the operating partnership is July 31 and the tax
year-end for both partnerships is December 31.
Our Business
We are the second largest retail marketer of propane in the United States
based on retail gallons sold during our fiscal year 2002, representing
approximately 11% of the retail propane gallons sold in the United States. As of
October 31, 2002, we had 553 retail outlets serving more than 1 million
residential, industrial/commercial and agricultural and other customers in 45
states. Our operations primarily include the retail distribution and sale of
propane and related equipment and supplies and extend from coast to coast with
concentrations in the Midwest, Southeast, Southwest and Northwest regions of the
country.
The market for propane is seasonal because propane is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in our second and third fiscal quarters. In
addition, sales volume traditionally fluctuates from year to year in response to
variations in weather, price and other factors. We believe that our broad
geographic distribution helps us to minimize exposure to regional weather and
economic patterns. In addition, during times of colder than normal winter
weather, we have been able to take advantage of our large, efficient
distribution network to avoid supply disruptions such as those experienced by
some of our competitors, thereby broadening our long-term customer base.
Our retail propane distribution business consists principally of
transporting propane purchased from third parties to our retail distribution
outlets and then to tanks on customers' premises, as well as to portable propane
cylinders. A substantial majority of our gross profit is derived from the retail
distribution and sale of propane and related risk management activities. Gross
profit from our retail distribution of propane is derived primarily from three
sources:
o residential customers;
o industrial/commercial customers; and
o agricultural and other customers.
1
Our gross profit from the retail distribution of propane is primarily based
on margins, the cents-per-gallon difference between our costs to purchase and
distribute propane and the sales price we charge our customers. We generally
purchase propane in the contract and spot markets from major domestic energy
companies on a short-term basis. Our costs to purchase and distribute propane
fluctuate with the movement of market prices. That fluctuation subjects us to
potential price and inventory risk, which we attempt to minimize through the use
of risk management activities.
Our other activities that generally comprise the remainder of our gross
profit include:
o the lease of tanks to retail customers;
o the sale of retail propane appliances and related parts and fittings;
o wholesale propane marketing;
o wholesale marketing of propane appliances;
o other retail propane related services;
o the sale of refined fuels;
o chemical feedstocks marketing;
o natural gas liquids storage; and
o common carrier services.
Our History
Ferrellgas Partners and Ferrellgas, L.P. are Delaware limited partnerships
that were formed in 1994 in connection with the initial public offering of
Ferrellgas Partners. Our operations began in 1939 as a single location propane
retailer in Atchison, Kansas. Our initial growth largely resulted from small
acquisitions in rural areas of eastern Kansas, northern and central Missouri,
Iowa, western Illinois, southern Minnesota, South Dakota and Texas. Since 1986,
we have acquired more than 100 propane retailers, expanding our operations from
coast to coast, and as of October 31, 2002, we had 553 retail outlets
nationwide. Our four largest acquisitions have been:
ESTIMATED RETAIL
GALLONS ACQUIRED
COMPANY DATE ACQUIRED (in millions)
- ----------- ----------------- --------------------
PRO AM, INC. DECEMBER 2002 40
THERMOGAS DECEMBER 1999 270
SKELGAS PROPANE MAY 1996 93
VISION ENERGY RESOURCES NOVEMBER 1994 47
Business Strategy
Our business strategy is to:
o achieve operating efficiencies through the utilization of technology in
our operations;
o capitalize on our national presence and economies of scale;
o expand our operations through disciplined acquisitions and internal
growth; and
o align employee interest with investors through significant employee
ownership.
Using technology to improve operations.
We have identified several areas where we believe we can reduce operating
expenses and improve customer satisfaction in the near future. These areas of
opportunity include development of new technology to improve our routing and
scheduling of customer deliveries, customer administration and operational
workflow. We have allocated considerable resources toward these improvements,
including the purchase of computer hardware and software and the development of
new software.
2
Capitalizing on our national presence and economies of scale.
We believe our national presence and market share of retail propane gallons
sold in the United States give us advantages over our smaller competitors. These
advantages include economies of scale in areas such as:
o product procurement;
o transportation;
o fleet purchases;
o customer administration; and
o general administration.
Our national presence also allows us to be one of the few propane retailers
that can competitively serve commercial customers on a nationwide basis. In
addition, we believe that our national presence provides us opportunities to
make acquisitions of other retail propane companies that overlap with our
existing operations, providing economies of scale and significant cost savings
in these markets.
Employing a disciplined acquisition strategy and achieving internal growth.
We expect to continue the expansion of our customer base through the
acquisition of other retail propane distributors. We intend to concentrate on
acquisition activities in geographical areas adjacent to our existing operations
and, on a selected basis, in areas which broaden our geographic coverage. We
also intend to focus on acquisitions that can be efficiently combined with our
existing operations to provide an attractive return on investment after taking
into account the cost savings we anticipate will result from those combinations.
Our goal is to improve the operations and profitability of the businesses we
acquire by integrating them into our established national organization. We also
believe that, as a result of our industry leadership and efficient operating
standards, we are positioned to successfully compete for growth opportunities
within our existing operating regions. In addition, we have implemented
marketing programs that focus specific resources towards internal growth.
Aligning employee interests with our investors.
In 1998, we established an employee benefit plan that we believe aligns the
interests of our employees with those of our investors. Through the Ferrell
Companies, Inc. Employee Stock Ownership Trust, employees own approximately
49% of our outstanding common units, allowing them to participate directly in
our overall success. This plan is unique in the retail propane distribution
industry, and we believe that the entrepreneurial culture fostered by employee
ownership provides us with a distinct competitive advantage.
Risk Management Activities
Our risk management activities primarily attempt to mitigate risks related
to the purchasing, storing and transporting of propane. We generally purchase
propane in the contract and spot markets from major domestic energy companies on
a short-term basis. Our costs to purchase and distribute propane fluctuate with
the movement of market prices. This fluctuation subjects us to potential price
risk, which we attempt to minimize through the use of risk management
activities.
Our risk management activities include the use of energy commodity forward
contracts, swaps and options traded on the over-the-counter financial markets
and futures and options traded on the New York Mercantile Exchange. These risk
management activities are conducted primarily to offset the effect of market
price fluctuations on propane inventory and purchase commitments and to mitigate
the price and inventory risk on sale commitments to our customers.
Our risk management activities are intended to generate a profit, which we
then apply to reduce our cost of product sold. The results of our risk
management activities directly related to the delivery of propane to our retail
customers, which include our supply procurement, storage and transportation
activities, are presented in our discussion of retail margins and are accounted
for at cost. The results of our other risk management activities are presented
separately in our discussion of cost of product sold and gross profit as risk
management trading activities and are accounted for at fair value. These
presentations may be found within the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Results of
Operations," under Item 7 and Item 2, respectively, of our most recently filed
Annual Report on Form 10-K and our most recently filed Quarterly Report on Form
10-Q, both as incorporated by reference herein. See "Where You Can Find More
Information."
3
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp.
Ferrellgas Partners Finance Corp. is a wholly-owned subsidiary of
Ferrellgas Partners. Ferrellgas Finance Corp. is a wholly-owned subsidiary of
the operating partnership. Both of these entities have nominal assets and do
not, and will not in the future, conduct any operations or have any employees.
Ferrellgas Partners Finance Corp. may act as co-obligor of future issuances of
debt securities of Ferrellgas Partners and Ferrellgas Finance Corp. may act as
co-obligor of future issuances of debt securities of the operating partnership
so as to allow investment in those debt securities by institutional investors
that may not otherwise be able to make such an investment by reason of our
structure and the legal investment laws of their states of organization or their
charters. You should not expect either Ferrellgas Partners Finance Corp. or
Ferrellgas Finance Corp. to have the ability to service obligations on those
debt securities we may offer in a prospectus supplement.
Our Structure
The operating partnership accounts for substantially all of our
consolidated assets, sales and operating earnings. Both Ferrellgas Partners and
the operating partnership are Delaware limited partnerships. Ferrellgas Partners
is the sole limited partner of the operating partnership with an approximate 99%
limited partner interest. Ferrellgas Partners Finance Corp. is a Delaware
corporation and a wholly-owned subsidiary of Ferrellgas Partners. Ferrellgas
Finance Corp. is a Delaware corporation and a wholly-owned subsidiary of the
operating partnership.
Our general partner, Ferrellgas, Inc., performs all of the management
functions for us and our subsidiaries, including the operating partnership,
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp. Ferrellgas, Inc.
holds a 1% general partner interest in Ferrellgas Partners and also owns an
approximate 1% general partner interest in the operating partnership.
Our general partner does not receive any management fee in connection with
its management of us or our subsidiaries, and does not receive any remuneration
for its services as our general partner other than reimbursement for all direct
and indirect expenses it incurs in connection with our operations and those of
our subsidiaries.
Our executive offices and those of the operating partnership are located at
One Liberty Plaza, Liberty, Missouri 64068 and the telephone number is (816)
792-1600.
The Offering
The descriptions of the securities contained in this prospectus, together
with the applicable prospectus supplement, summarize all the material terms and
provisions of the various types of securities that we may offer under this
prospectus. The particular terms of the securities offered by this prospectus
will be described in a prospectus supplement.
Any prospectus supplement may also include additional risk factors or other
special considerations applicable to those securities. In addition, the
prospectus supplement may add, update or change information contained in this
prospectus, including, the securities exchange, if any, on which the securities
will be listed. If there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the information in
the prospectus supplement.
Ferrellgas Partners may sell the common units, senior units, deferred
participation units, warrants and debt securities described in this prospectus
and Ferrellgas, L.P. may sell the debt securities described in this prospectus:
o from time to time and in one or more offerings;
o in one or more series; and
o in any combination thereof,
up to a maximum aggregate principal amount of $500,000,000. Ferrellgas Partners
Finance Corp. may be the co-obligor of future issuances of debt securities by
Ferrellgas Partners and Ferrellgas Finance Corp. may be the co-obligor of future
issuances of debt securities by Ferrellgas, L.P.
If we issue securities at a discount from their original stated principal
amount, then, for purpose of calculating the total dollar amount of all
securities issued under this prospectus, we will treat the initial offering
price of those securities as the total original principal amount of such
securities.
4
Risk Factors
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, the applicable prospectus supplement and the documents we have
incorporated by reference before purchasing the securities to which this
prospectus relates.
Investing in securities is speculative and involves significant risk. Any
of the risks described in this prospectus, the applicable prospectus supplement
and the documents we have incorporated by reference could impair our business,
financial condition or results of operations. Any impairment may affect our
ability to make distributions to our unitholders or pay interest on or the
principal of any of our debt securities. In addition, the trading price, if any,
of our securities could decline and you could lose all or part of your
investment.
Risks Inherent to Our Industry
WEATHER CONDITIONS MAY ADVERSELY AFFECT THE DEMAND FOR PROPANE; OUR FINANCIAL
CONDITION IS VULNERABLE TO WARM WINTERS.
Weather conditions have a significant impact on the demand for propane for
both heating and agricultural purposes. Many of our customers rely heavily on
propane as a heating fuel. Accordingly, our retail sales volumes of propane are
highest during the five-month winter-heating season of November through March
and are directly affected by the temperatures during these months. During fiscal
2002, approximately 57% of our retail propane volume was attributable to sales
during the winter-heating season. Actual weather conditions can vary
substantially from year to year, which may significantly affect our financial
performance. Furthermore, variations in weather in one or more regions in which
we operate can significantly affect our total sales volume of propane and
therefore our realized profits. A negative effect on our sales volume may in
turn affect our results of operations. The agricultural demand for propane is
also affected by weather, as dry or warm weather during the harvest season may
reduce the demand for propane used in some crop drying applications.
THE RETAIL PROPANE BUSINESS IS HIGHLY COMPETITIVE, WHICH MAY AFFECT OUR SALES
VOLUMES AND/OR OUR RESULTS OF OPERATIONS.
Our profitability is affected by the competition for customers among all of
the participants in the retail propane business. We compete with a number of
large national and regional firms and several thousand small independent firms.
Because of the relatively low barriers to entry into the retail propane market,
there is the potential for small independent propane retailers, as well as other
companies not previously engaged in retail propane distribution, to compete with
our retail outlets. In recent years, some rural electric cooperatives and fuel
oil distributors have expanded their businesses to include propane distribution.
As a result, we are subject to the risk of additional competition in the future.
Some of our competitors may have greater financial resources than we do. Should
a competitor attempt to increase market share by reducing prices, our financial
condition and results of operations could be materially adversely affected.
Generally, warmer-than-normal weather further intensifies competition. We
believe that our ability to compete effectively depends on our service
reliability, our responsiveness to customers and our ability to maintain
competitive retail propane prices and control our operating expenses.
THE RETAIL PROPANE INDUSTRY IS A MATURE ONE, WHICH MAY LIMIT OUR GROWTH.
The retail propane industry is a mature one. We foresee only limited growth
in total national demand for propane in the near future. We believe the overall
demand for retail propane has remained relatively constant over the past several
years, with year-to-year industry volumes impacted primarily by fluctuations in
temperatures and economic conditions. Our ability to grow our sales volumes
within the retail propane industry is primarily dependent upon our ability to
acquire other retail distributors and upon the success of our marketing efforts
to acquire new customers. If we are unable to compete effectively in the retail
propane business, we may lose existing customers or fail to acquire new
customers.
THE RETAIL PROPANE BUSINESS FACES COMPETITION FROM OTHER ENERGY SOURCES, WHICH
MAY ADVERSELY IMPACT THE EXISTING DEMAND FOR OUR PROPANE.
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. We compete for customers against other
retail propane suppliers and against suppliers of electricity, natural gas and
fuel oil. Electricity is a major competitor of propane, but propane generally
enjoys a competitive price advantage over electricity. Except for some
industrial and commercial applications, propane is generally not competitive
with natural gas in areas where natural gas pipelines already exist because such
pipelines generally make it possible for the delivered cost of natural gas to be
less expensive than the bulk delivery of propane. The expansion of natural gas
into traditional propane markets has historically been inhibited by the capital
cost required to expand distribution and pipeline systems, however, the gradual
expansion of the nation's natural gas distribution systems has resulted in the
availability of natural gas in areas that were previously dependent upon
propane. Although propane is similar to fuel oil in some applications and market
demand, propane and fuel oil compete to a lesser extent primarily because of the
cost of converting from one to the other and due to the fact that both fuel oil
and propane have generally developed their own distinct geographic markets. We
cannot predict the effect that the development of alternative energy sources
might have on our operations.
5
ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES MAY AFFECT DEMAND FOR PROPANE;
INCREASES IN PROPANE PRICES MAY CAUSE OUR CUSTOMERS TO INCREASE THEIR
CONSERVATION EFFORTS.
The national trend toward increased conservation and technological
advances, including installation of improved insulation and the development of
more efficient furnaces and other heating devices, has adversely affected the
retail demand for propane in our industry. We cannot predict the materiality of
the effect of future conservation measures or the effect that any technological
advances in heating, conservation, energy generation or other devices might have
on our operations. As the price of propane increases, our retail customers tend
to increase their conservation efforts and thereby decrease their consumption of
propane. We cannot predict the materiality of the effect of those decreases on
our financial results.
Risks Inherent to Our Business
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 October
31, 2002, we had:
o total indebtedness of approximately $737 million;
o partners' capital deficit of Ferrellgas Partners of approximately
$23 million;
o availability under the operating partnership's bank credit facility of
approximately $85 million and approximately $12 million under the
operating partnership's accounts receivables securitization
facility; and
o aggregate future minimum rental commitments under non-cancelable tank
and other equipment operating leases of approximately $71 million.
As of October 31, 2002, adjusted on a pro forma basis after giving effect to:
o the incurrence on December 10, 2002 of $156.8 million of debt by the
operating partnership, the proceeds of which were used to purchase
propane tanks and related assets that we previously leased;
o the incurrence on December 13, 2002 of $48 million of 8 3/4% senior
debt by Ferrellgas Partners and the application of the proceeds
thereof; and
o the refinancing of the operating partnership's bank credit facility,
we had:
o total indebtedness of approximately $892 million;
o partners' capital deficit of Ferrellgas Partners of approximately
$23 million;
o availability under the operating partnership's bank credit facility of
approximately $130 million and approximately $12 million under the
operating partnership's accounts receivables securitization facility;
and
o aggregate future minimum rental commitments under non-cancelable tank
and other equipment operating leases of approximately $67 million.
If we elect to purchase the underlying assets at the end of the lease
terms, such aggregate buyout would be approximately $30 million.
The operating partnership notes have maturity dates ranging from 2005 to
2013, and bear interest at rates ranging from 6.99% to 8.87%. These notes do not
contain any sinking fund provisions but do require annual aggregate principal
payments, without premium, during the following calendar years of approximately:
o $109 million - 2005;
o $ 58 million - 2006;
o $ 90 million - 2007;
o $ 52 million - 2008;
o $ 73 million - 2009;
o $ 82 million - 2010; and
o $ 70 million - 2013.
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Amounts outstanding under the operating partnership's bank credit facility
will be due on April 28, 2006. All of the indebtedness and other obligations
described above are obligations of the operating partnership except for $218
million of senior debt due 2012 issued by Ferrellgas Partners and Ferrellgas
Partners Finance Corp. This $218 million in principal amount of senior notes
also contain no sinking fund provisions.
Subject to the restrictions governing the operating partnership's
indebtedness and other financial obligations and the indenture governing
Ferrellgas Partners' outstanding senior notes due 2012, we may incur significant
additional indebtedness and other financial obligations, which may be secured
and/or structurally senior to any debt securities we may issue.
Our substantial indebtedness and other financial obligations could have
important consequences to you. For example, it could:
o make it more difficult for us to satisfy our obligations with respect
to our securities;
o impair our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes;
o 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;
o have a material adverse effect on us 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;
o 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;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
o place us at a competitive disadvantage compared to our competitors that
have proportionately less debt.
WE MAY BE UNABLE TO REFINANCE OUR INDEBTEDNESS OR PAY THAT INDEBTEDNESS IF IT
BECOMES DUE EARLIER THAN SCHEDULED.
If Ferrellgas Partners or the operating partnership are unable to meet
their debt service obligations or other financial obligations, we could be
forced to restructure or refinance our indebtedness and other financial
transactions, seek additional equity capital or sell our assets. We may then be
unable to obtain such financing or capital or sell our assets on satisfactory
terms, if at all. Our failure to make payments, whether after acceleration of
the due date of that indebtedness or otherwise, or our failure to refinance the
indebtedness would have a material adverse effect on us.
THE TERMS OF OUR SENIOR UNITS LIMIT OUR USE OF PROCEEDS FROM SALES OF EQUITY.
While our senior units are outstanding, other than issuances of equity
pursuant to an exercise of any of our common unit options, Ferrellgas Partners
may use up to $20 million of aggregate cash proceeds from sales of its equity to
reduce our indebtedness. Any other cash proceeds from equity issuances must be
used to redeem a portion of our outstanding senior units, all of which are owned
by JEF Capital Management, Inc. As a result, as long as any of our senior units
are outstanding, our ability to access the equity capital markets for purposes
other than the redemption of our senior units, including meeting our future
obligations under our existing securities or any other securities that we may
issue, will be limited. JEF Capital Management is beneficially owned by James E.
Ferrell, the President and Chief Executive Officer of our general partner and
the Chairman of its Board of Directors.
RESTRICTIVE COVENANTS IN THE AGREEMENTS GOVERNING OUR INDEBTEDNESS AND OTHER
FINANCIAL OBLIGATIONS MAY REDUCE OUR OPERATING FLEXIBILITY.
The indenture governing the outstanding notes of Ferrellgas Partners 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 under this
prospectus and an applicable prospectus supplement may contain, various
covenants that limit our ability and the ability of specified subsidiaries of
ours to, among other things:
o incur additional indebtedness;
o make distributions to our unitholders;
o purchase or redeem our outstanding equity interests or subordinated
debt;
o make specified investments;
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o create or incur liens;
o sell assets;
o engage in specified transactions with affiliates;
o restrict the ability of our subsidiaries to make specified payments,
loans, guarantees and transfers of assets or interests
in assets;
o engage in sale-leaseback transactions;
o effect a merger or consolidation with or into other companies or a sale
of all or substantially all of our properties or assets; and
o engage in other lines of business.
These restrictions could limit the ability of Ferrellgas Partners, the operating
partnership and our other subsidiaries:
o to obtain future financings;
o to make needed capital expenditures;
o to withstand a future downturn in our business or the economy in
general; or
o 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 have a materially adverse effect on our operating capacity and cash flows
and could restrict our ability to incur debt or to make cash distributions, 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 our outstanding notes and any future debt securities.
OUR RESULTS OF OPERATIONS AND OUR ABILITY TO MAKE DISTRIBUTIONS OR PAY INTEREST
OR PRINCIPAL ON DEBT SECURITIES COULD BE ADVERSELY AFFECTED BY PRICE AND
INVENTORY RISK AND MANAGEMENT OF THESE RISKS.
The amount of gross profit we make depends significantly on the excess of
the sales price over our costs to purchase and distribute propane. Consequently,
our profitability is sensitive to changes in energy prices, in particular,
changes in wholesale propane prices. Propane is a commodity whose market price
can fluctuate significantly based on changes in supply, changes in other energy
prices or other market conditions. We have no control over these market
conditions. In general, product supply contracts permit suppliers to charge
posted prices plus transportation costs at the time of delivery or the current
prices established at major delivery points. Any increase in the price of
product could reduce our gross profit because we may not be able to immediately
pass rapid increases in such costs, or costs to distribute product, on to our
customers.
While we generally attempt to minimize our inventory risk by purchasing
product on a short-term basis, we may purchase and store propane or other
natural gas liquids depending on inventory and price outlooks. We may purchase
large volumes of propane at the then current market price during periods of low
demand and low prices, which generally occurs during the summer months. The
market price for propane could fall below the price at which we made the
purchases, which would adversely affect our profits or cause sales from that
inventory to be unprofitable. A portion of our inventory is purchased under
supply contracts that typically have a one-year term and at a price that
fluctuates based on the prevailing market prices. To limit our overall price
risk, we may purchase and store physical product and enter into fixed price
over-the-counter energy commodity forward contracts and options that have terms
of less than one year. This strategy may not be effective in limiting our price
risk.
8
Some of our sales are pursuant to commitments at fixed prices. To manage
these commitments, we may purchase and store physical product and/or enter into
fixed price-over-the-counter energy commodity forward contracts and options. We
may enter into these agreements at volume levels that we believe are necessary
to mitigate the price risk related to our anticipated sales volumes under the
commitments. If the price of propane declines and our customers purchase less
propane than we have purchased from our suppliers, we could incur losses when we
sell the excess volumes. If the price of propane increases and our customers
purchase more propane than we have purchased from our suppliers, we could incur
losses when we are required to purchase additional propane to fulfill our
customers' orders. The risk management of our inventory and contracts for the
future purchase of product could result in material adverse effects to us if the
price of product changes in ways we do not anticipate.
We also purchase and sell derivatives to manage other risks associated with
commodity prices. Our risk management trading activities use various types of
energy commodity forward contracts, options, swaps traded on the
over-the-counter financial markets and futures and options traded on the New
York Mercantile Exchange to manage and hedge our exposure to the volatility of
floating commodity prices and to protect our inventory positions. These risk
management trading activities are based on our management's estimates of future
events and prices and are intended to generate a profit which we then apply to
reduce our cost of product sold. However, if those estimates are incorrect or
other market events outside of our control occur, such activities could generate
a loss in future periods which would increase our cost of product sold and
potentially result in a material adverse effect to us.
The board of directors of our general partner adopted a commodity risk
management policy which places specified restrictions on all of our commodity
risk management activities such as limits on the types of commodities, loss
limits, time limits on contracts and limitations on our ability to enter into
derivative contracts. The policy also requires the establishment of a risk
management committee of senior executives. This committee is responsible for
monitoring commodity risk management activities, establishing and maintaining
timely reporting and establishing and monitoring specific limits on the various
commodity risk management activities. These limits may be waived on a
case-by-case basis by a majority vote of the risk management committee and/or
board of directors, depending on the specific limit being waived. From time to
time, for valid business reasons based on the facts and circumstances,
authorization has been granted to allow specific commodity risk management
positions to exceed established limits. In addition, the operating partnership's
credit facility places limitations on our ability to amend our commodity risk
management policy. If we sustain material losses from our risk management
activities due to our failure to anticipate future events, a failure of the
policy, incorrect waivers or otherwise, our ability to make distributions to our
unitholders or pay interest or principal of any debt securities may be adversely
affected.
WE ARE DEPENDENT ON OUR PRINCIPAL SUPPLIERS, WHICH INCREASES THE RISKS FROM AN
INTERRUPTION IN SUPPLY AND TRANSPORTATION.
Through our supply procurement activities, we purchased approximately 54%
of our propane from ten suppliers during our fiscal year ended July 31, 2002. In
addition, during extended periods of colder than normal weather, suppliers may
temporarily run out of propane necessitating the transportation of propane by
truck, rail car or other means from other areas. If supplies from these sources
were interrupted or difficulties in alternative transportation were to arise,
the cost of procuring replacement supplies and transporting those supplies from
alternative locations might be materially higher and, at least on a short-term
basis, our margins could be adversely affected.
THE AVAILABILITY OF CASH FROM OUR CREDIT FACILITIES MAY BE IMPACTED BY MANY
FACTORS BEYOND OUR CONTROL.
We typically borrow on the operating partnership's bank credit facility or
sell accounts receivable under its accounts receivable securitization facility
to fund our working capital requirements. We may also borrow on the operating
partnership's bank credit facility to fund distributions to our unitholders. We
purchase product from suppliers and make payments with terms that are typically
within five to ten days of delivery. We believe that the availability of cash
from the operating partnership's bank credit facility and the accounts
receivable securitization facility will be sufficient to meet our future working
capital needs. However, if we were to experience an unexpected significant
increase in working capital requirements or have insufficient funds to fund
distributions, this need could exceed our immediately available resources.
Events that could cause increases in working capital borrowings or letter of
credit requirements may include:
o a significant increase in the cost of propane;
o a significant delay in the collections of accounts receivable;
o increased volatility in energy commodity prices related to risk
management activities;
o increased liquidity requirements imposed by insurance providers;
o a significant downgrade in our credit rating; or
o decreased trade credit.
9
As is typical in our industry, our customers do not pay upon receipt, but
pay between thirty and sixty days after delivery. During the winter heating
season, we experience significant increases in accounts receivable and inventory
levels and thus a significant decline in working capital availability. Although
we have the ability to fund working capital with borrowings from the operating
partnership's bank credit facility and sales of accounts receivable under its
accounts receivable securitization facility, we cannot predict the effect that
increases in propane prices and colder than normal winter weather may have on
future working capital availability.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS AND ANY ACQUISITIONS WE MAKE MAY
NOT RESULT IN OUR ANTICIPATED RESULTS; IN EITHER CASE, POTENTIALLY LIMITING OUR
GROWTH AND ADVERSELY AFFECTING OUR ABILITY TO COMPETE AND OUR RESULTS OF
OPERATIONS.
We have historically expanded our business through acquisitions. We
regularly consider and evaluate opportunities to acquire local, regional and
national propane distributors. We may choose to finance these acquisitions
through internal cash flow, external borrowings or the issuance of additional
common units or other securities. We have substantial competition for
acquisitions of propane companies among the publicly-traded master limited
partnerships. Although we believe there are numerous potential large and small
acquisition candidates in our industry, there can be no assurance that:
o we will be able to acquire any of these candidates on economically
acceptable terms;
o we will be able to successfully integrate acquired operations with any
expected cost savings;
o any acquisitions made will not be dilutive to our earnings and
distributions;
o any additional equity we issue as consideration for an acquisition will
not be dilutive to our unitholders; or
o any additional debt we incur to finance an acquisition will not affect
the operating partnership's ability to make distributions to Ferrellgas
Partners or service the operating partnership's existing debt.
WE ARE SUBJECT TO OPERATING AND LITIGATION RISKS, WHICH MAY NOT BE COVERED BY
INSURANCE.
Our operations are subject to all operating hazards and risks normally
incidental to the handling, storing and delivering of combustible liquids such
as propane. As a result, we have been, and are likely to be, a defendant in
various legal proceedings arising in the ordinary course of business. We will
maintain insurance policies with insurers in such amounts and with such
coverages and deductibles as we believe are reasonable and prudent. However, we
cannot guarantee that such insurance will be adequate to protect us from all
material expenses related to potential future claims for personal injury and
property damage or that such levels of insurance will be available in the future
at economical prices.
CURRENT ECONOMIC AND POLITICAL CONDITIONS MAY HARM THE ENERGY BUSINESS
DISPROPORTIONATELY TO OTHER INDUSTRIES.
Deteriorating regional and global economic conditions and the effects of
ongoing military actions against terrorists may cause significant disruptions to
commerce throughout the world. When those disruptions occur, it is most likely
that the energy industry will be either affected first or affected to a greater
extent than other industries. These conditions or disruptions may:
o result in delays or cancellations of customer orders;
o impair our ability to effectively market or acquire propane; or
o impair our ability to raise equity or debt capital for acquisitions,
capital expenditures or ongoing operations.
Risks Inherent to an Investment in Our Debt Securities
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.
Subject to the limitations on restricted payments contained in the
indenture that governs Ferrellgas Partners' outstanding 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 under this prospectus and an applicable
prospectus supplement, 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. As a result
of these distribution requirements, we do not expect either Ferrellgas Partners
or the operating partnership to accumulate significant amounts of cash. Our
general partner will determine the timing and amount of our distributions and
has broad discretion to establish and make additions to our reserves for any
proper purpose, including, but not limited to, reserves:
10
o to comply with the terms of any of our agreements or obligations
(including the establishment of reserves to fund the payment of
interest and principal in the future);
o to provide for level distributions of cash notwithstanding the
seasonality of our business; and
o to provide for future capital expenditures and other payments deemed by
our general partner to be necessary or advisable.
Depending on the timing and amount of our cash distributions, these
distributions could significantly reduce the cash available to us in subsequent
periods to make payments on our debt securities.
DEBT SECURITIES OF FERRELLGAS PARTNERS WILL BE STRUCTURALLY SUBORDINATED TO ALL
INDEBTEDNESS AND OTHER LIABILITIES OF THE OPERATING PARTNERSHIP AND ITS
SUBSIDIARIES.
Debt securities of Ferrellgas Partners will be effectively subordinated to
all existing and future claims of creditors of the operating partnership and its
subsidiaries, including: o the lenders under the operating partnership's
indebtedness;
o the claims of lessors under the operating partnership's operating
leases;
o the claims of the lenders and their affiliates under the operating
partnership's accounts receivable securitization facility;
o debt securities, including any subordinated debt securities, issued by
the operating partnership under this prospectus and an applicable
prospectus supplement; and
o 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, your
claims as holders of Ferrellgas Partners' debt securities. 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' debt securities.
Thereafter, the holders of Ferrellgas Partners' debt securities 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 its debt
securities may therefore receive less, ratably, than creditors of the operating
partnership and its subsidiaries. As of October 31, 2002, on a pro forma basis
after giving effect to:
o the incurrence on December 10, 2002, of $156.8 million of debt by the
operating partnership, the proceeds of which were used to purchase
propane tanks and related assets previously leased; and
o the incurrence on December 13, 2002 of $48 million of 8 3/4% senior
debt by Ferrellgas Partners and the application of the proceeds
thereof,
the operating partnership had approximately $849.7 million of outstanding
indebtedness and other liabilities to which any of the debt securities of
Ferrellgas Partners will effectively rank junior.
ALL PAYMENTS ON ANY SUBORDINATED DEBT SECURITIES THAT WE MAY ISSUE WILL BE
SUBORDINATED TO THE PAYMENTS OF ANY AMOUNTS DUE ON ANY SENIOR INDEBTEDNESS THAT
WE MAY HAVE ISSUED OR INCURRED.
The right of the holders of subordinated debt securities to receive payment
of any amounts due to them, whether interest, premium or principal, will be
subordinated to the right of all of the holders of our senior indebtedness, as
such term will be defined in the applicable subordinated debt indenture, to
receive payments of all amounts due to them. If an event of default on any of
our senior indebtedness occurs, then until such event of default has been cured,
we may be unable to make payments of any amounts due to the holders of our
subordinated debt securities. Accordingly, in the event of insolvency, creditors
who are holders of our senior indebtedness may recover more, ratably, than the
holders of our subordinated debt securities.
DEBT SECURITIES OF FERRELLGAS PARTNERS ARE EXPECTED TO BE NON-RECOURSE TO THE
OPERATING PARTNERSHIP, WHICH WILL LIMIT REMEDIES OF THE HOLDERS OF FERRELLGAS
PARTNERS' DEBT SECURITIES.
Ferrellgas Partners' obligations under any debt securities are expected to
be non-recourse to the operating partnership. Therefore, if Ferrellgas Partners'
should fail to pay the interest or principal on the notes or breach any of its
other obligations under its debt securities or any applicable indenture, holders
of debt securities of Ferrellgas Partners 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 Ferrellgas Partners' obligations under its debt securities or the
applicable indenture.
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FERRELLGAS PARTNERS OR THE OPERATING PARTNERSHIP MAY BE UNABLE TO REPURCHASE THE
DEBT SECURITIES ISSUED UNDER THIS PROSPECTUS UPON A CHANGE OF CONTROL AND IT MAY
BE DIFFICULT TO DETERMINE IF A CHANGE OF CONTROL HAS OCCURRED.
Upon the occurrence of "change of control" events as may be described in a
prospectus supplement related to the issuance by Ferrellgas Partners or the
operating partnership of debt securities, the applicable issuer or a third party
may be required to make a change of control offer to repurchase those debt
securities at a premium to their principal amount, plus accrued and unpaid
interest. The applicable issuer may not have the financial resources to purchase
its debt securities in that circumstance, particularly if a change of control
event triggers a similar repurchase requirement for, or results in the
acceleration of, other indebtedness. The indenture governing Ferrellgas
Partners' outstanding notes contains such a repurchase requirement. 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 Ferrellgas Partners' obligations to repurchase
its debt securities upon a change of control. In addition, future debt
agreements of Ferrellgas Partners or the operating partnership may contain other
restrictions on the ability of Ferrellgas Partners or the operating partnership
to repurchase its debt securities upon a change of control. These restrictions
could prevent the applicable issuer from satisfying its obligations to purchase
its debt securities unless it is able to refinance or obtain waivers under any
indebtedness of Ferrellgas Partners or of the operating partnership containing
these restrictions. The applicable issuer's failure to make or consummate a
change of control repurchase offer or pay the change of control purchase price
when due will give the trustee and the holders of the debt securities particular
rights that will be described in the applicable prospectus supplement.
In addition, one of the events that may constitute a change of control is a
sale of all or substantially all of the applicable issuer's assets. The 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 will likely govern any indenture for the debt securities.
This ambiguity as to when a sale of substantially all of the applicable issuer's
assets has occurred may make it difficult for holders of debt securities to
determine whether the applicable issuer has properly identified, or failed to
identify, a change of control.
THERE MAY BE NO ACTIVE TRADING MARKET FOR OUR DEBT SECURITIES, WHICH MAY LIMIT
YOUR ABILITY TO SELL OUR DEBT SECURITIES.
We do not intend to list the debt securities to be issued pursuant to a
prospectus supplement on any securities exchange or to seek approval for
quotations through any automated quotation system. An established market for the
debt securities may not develop, or if one does develop, it may not be
maintained. Although any underwriters may advise us that they intend to make a
market in the debt securities, they are not expected to be obligated to do so
and may discontinue such market making activity at any time without notice. In
addition, market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act. For these reasons, we cannot assure you
that:
o a liquid market for the debt securities will develop;
o you will be able to sell your debt securities; or
o you will receive any specific price upon any sale of your debt
securities.
If a public market for the debt securities did develop, the debt securities
could trade at prices that may be higher or lower than their principal amount or
purchase price, depending on many factors, including prevailing interest rates,
the market for similar debt securities and our financial performance.
Historically, the market for non-investment grade debt, such as our debt
securities, has been subject to disruptions that have caused substantial
fluctuations in the prices of these securities.
Risks Inherent to an Investment in Ferrellgas Partners' Equity
FERRELLGAS PARTNERS MAY SELL ADDITIONAL LIMITED PARTNER INTERESTS, DILUTING
EXISTING INTERESTS OF UNITHOLDERS.
The partnership agreement of Ferrellgas Partners generally allows
Ferrellgas Partners to issue additional limited partner interests and other
equity securities. When Ferrellgas Partners issues additional equity securities,
your proportionate partnership interest will decrease. Such an issuance could
negatively affect the amount of cash distributed to unitholders and the market
price of common units. The issuance of additional common units will also
diminish the relative voting strength of the previously outstanding common
units.
12
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH OUR PERFORMANCE AND
OTHER EXTERNAL FACTORS.
Although we distribute all of our available cash, we cannot guarantee the
amounts of available cash that will be distributed to our unitholders. The
actual amounts of available cash will depend upon numerous factors, including:
o cash flow generated by operations;
o weather in our areas of operation;
o borrowing capacity under our credit facilities;
o principal and interest payments made on our debt;
o the costs of acquisitions, including related debt service payments;
o restrictions contained in debt instruments;
o issuances of debt and equity securities;
o fluctuations in working capital;
o capital expenditures;
o adjustments in reserves made by our general partner in its discretion;
o prevailing economic conditions; and
o financial, business and other factors, a number of which will be beyond
our control.
Cash distributions are dependent primarily on cash flow, including from reserves
and, subject to limitations, working capital borrowings. Cash distributions are
not dependent on profitability, which is affected by non-cash items. Therefore,
cash distributions might be made during periods when we record losses and might
not be made during periods when we record profits.
THE DEBT AGREEMENTS OF FERRELLGAS PARTNERS AND THE OPERATING PARTNERSHIP MAY
LIMIT THEIR ABILITY TO MAKE DISTRIBUTIONS TO HOLDERS OF THEIR EQUITY SECURITIES.
The debt agreements governing Ferrellgas Partners' and the operating
partnership's outstanding indebtedness contain restrictive covenants that may
limit or prohibit distributions to holders of their equity securities under
various circumstances. Ferrellgas Partners' existing indenture generally
prohibits it from:
o making any distributions to unitholders if an event of default exists
or would exist when such distribution is made;
o if its consolidated fixed charge coverage ratio as defined in the
indenture is greater than 1.75 to 1.00, distributing amounts in excess
of 100% of available cash for the immediately preceding fiscal quarter;
or
o if its consolidated fixed charge coverage ratio as defined in the
indenture is less than or equal to 1.75 to 1.00, distributing amounts
in excess of $25 million less any restricted payments made for the
prior sixteen fiscal quarters plus the aggregate cash contributions
made to us during that period.
As of October 31, 2002, Ferrellgas Partners' consolidated fixed charge coverage
ratio, as defined in its existing indenture, was 2.7 to 1.0. See the first risk
factor under "--Risks Arising from Our Partnership Structure and Relationship
with Our General Partner" for a description of the restrictions on the operating
partnership's ability to distribute cash to Ferrellgas Partners. Any indenture
applicable to future issuances of debt securities by Ferrellgas Partners or the
operating partnership may contain restrictions that are the same as or similar
to those in their existing debt agreements.
THE DISTRIBUTION PRIORITY TO OUR COMMON UNITS OWNED BY THE PUBLIC TERMINATES NO
LATER THAN DECEMBER 31, 2005.
Assuming that the restrictions under our debt agreements are met, our
partnership agreements require us to distribute 100% of our available cash to
our unitholders on a quarterly basis. Available cash is generally all of our
cash receipts, less cash disbursements and adjustments for net changes in
reserves. Currently, the common units owned by the public have a right to
receive distributions of available cash before any distributions of available
cash are made on the common units owned by Ferrell Companies, Inc. After the
payment of any required distributions on our senior units, we must pay a
distribution on the publicly-held common units before we pay a distribution on
the common units held by Ferrell Companies. If there exists an outstanding
amount of deferred distributions on the common units held by Ferrell Companies
of $36 million, the common units held by Ferrell Companies will be paid in the
same manner as the publicly-held common units. While there are any deferred
distributions outstanding on common units held by Ferrell Companies, we may not
increase the distribution to our public common unitholders above the highest
quarterly distribution paid on our common units for any of the immediately
preceding four fiscal quarters. After payment of all required distributions, we
will use remaining available cash to reduce any amount previously deferred on
the common units held by Ferrell Companies. This distribution priority right is
scheduled to end December 31, 2005, or earlier if there is a change of control,
we dissolve or Ferrell Companies sells all of our common units held by it. The
termination of this distribution priority may adversely affect the market price
for our common units.
13
THE HOLDER OF OUR SENIOR UNITS MAY HAVE THE RIGHT IN THE FUTURE TO CONVERT THE
SENIOR UNITS INTO COMMON UNITS, SUBSTANTIALLY DILUTING OUR EXISTING COMMON
UNITHOLDERS.
The senior unitholder has the option to convert our senior units into
common units beginning on the earlier of December 31, 2005, or the occurrence of
a material event, as defined in the partnership agreement of Ferrellgas
Partners. The number of common units issuable upon conversion of a senior unit
is equal to the senior unit liquidation preference, currently $40 plus any
accrued and unpaid distributions, divided by the then current market price of a
common unit. This conversion may be dilutive to our existing common unitholders.
Generally, a material event includes:
o a change of control;
o our treatment as an association taxable as a corporation for federal
income tax purposes;
o our failure to use the aggregate cash proceeds from equity issuances,
other than issuances of equity pursuant to an exercise of any unit
options, to redeem a portion of our senior units other than up to
$20 million of cash proceeds from equity issuances used to reduce our
indebtedness; or
o our failure to pay the senior unit distribution in full for any fiscal
quarter.
THE HOLDER OF OUR SENIOR UNITS MAY HAVE THE RIGHT IN THE FUTURE TO SELL OUR
SENIOR UNITS, OR THE COMMON UNITS RECEIVED UPON A CONVERSION OF OUR SENIOR
UNITS, WITH SPECIAL INDEMNIFICATION RIGHTS.
Currently, our outstanding senior units may not be transferred. However,
that restriction will lapse on the earlier of December 31, 2005, or upon the
occurrence of a material event as described above. If the current restrictions
on the sale or conversion of our senior units lapse as discussed above and the
holder were to sell any of our senior units prior to December 17, 2007, we are
required to indemnify the holder for the amount of the shortfall, if any, if the
proceeds from that sale are less than the original aggregate face value of the
applicable senior units.
A REDEMPTION OF OUR SENIOR UNITS MAY BE DILUTIVE TO OUR COMMON UNITHOLDERS.
Our senior units are redeemable at the senior unit liquidation preference
plus any accrued and unpaid distributions. We may issue additional equity
interests to redeem all or part of our outstanding senior units. That issuance
may be dilutive to our common unitholders.
PERSONS OWNING 20% OR MORE OF FERRELLGAS PARTNERS' COMMON UNITS CANNOT VOTE.
THIS LIMITATION DOES NOT APPLY TO COMMON UNITS OWNED BY FERRELL COMPANIES, OUR
GENERAL PARTNER AND ITS AFFILIATES OR THE COMMON UNITS INTO WHICH OUR SENIOR
UNITS ARE CONVERTED BY THE CURRENT HOLDER THEREOF.
Any common units held by a person that owns 20% or more of Ferrellgas
Partners' common units cannot be voted. This provision may:
o discourage a person or group from attempting to remove our general
partner or otherwise change management; and
o reduce the price at which our common units will trade under various
circumstances.
This limitation does not apply to our general partner and its affiliates.
Ferrell Companies, the parent of our general partner, owns all of the
outstanding capital stock of our general partner in addition to approximately
49% of our common units.
If our senior units convert into common units, the current holder may vote
any converted common units even if the aggregate number of common units issued
upon conversion exceeds 20% of the then outstanding common units. This voting
exemption does not apply if the converted common units are held by someone other
than the current holder or a related party of the current holder, as defined in
the partnership agreement of Ferrellgas Partners.
14
Risks Arising from Our Partnership Structure and Relationships with Our
General Partner
FERRELLGAS PARTNERS IS A HOLDING COMPANY AND HAS NO MATERIAL OPERATIONS OR
ASSETS. ACCORDINGLY, FERRELLGAS PARTNERS IS DEPENDENT ON DISTRIBUTIONS FROM THE
OPERATING PARTNERSHIP TO SERVICE ITS OBLIGATIONS. THESE DISTRIBUTIONS ARE NOT
GUARANTEED AND MAY BE RESTRICTED.
Ferrellgas Partners is a holding company for our subsidiaries, including
the operating partnership. Ferrellgas Partners has no material operations and
only limited assets. Ferrellgas Partners Finance Corp. is Ferrellgas Partners
wholly-owned finance subsidiary, may be a co-obligor on any of its debt
securities, conducts no business and has nominal assets. Accordingly, Ferrellgas
Partners is dependent on cash distributions from the operating partnership and
its subsidiaries to service obligations of Ferrellgas Partners. The 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 Ferrellgas Partners each fiscal quarter.
Holders of Ferrellgas Partners' securities will not receive payments required by
those securities unless the operating partnership is able to make distributions
to Ferrellgas Partners after the operating partnership 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 the 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 existing notes, a bank credit facility and
an accounts receivable securitization facility. Each of these agreements contain
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. These covenants limit the operating partnership's ability to, among
other things:
o incur additional indebtedness;
o engage in transactions with affiliates;
o create or incur liens;
o sell assets;
o make restricted payments, loans and investments;
o enter into business combinations and asset sale transactions; and
o engage in other lines of business.
THE OWNERSHIP OF OUR GENERAL PARTNER COULD CHANGE IF FERRELL COMPANIES DEFAULTS
ON ITS OUTSTANDING INDEBTEDNESS.
Ferrell Companies owns all of the outstanding capital stock of our general
partner in addition to approximately 49% of our common units. Ferrell
Companies has pledged these securities to secure some of its debt. Presently,
Ferrell Companies' only source of income to pay its debt is dividends that
Ferrell Companies receives from our general partner and distributions received
on our common units it holds. If Ferrell Companies defaults on its debt, its
lenders could acquire control of our general partner and the common units owned
by Ferrell Companies. In that case, the lenders could change management of our
general partner and operate the general partner with different objectives than
current management.
UNITHOLDERS HAVE SOME LIMITS ON THEIR VOTING RIGHTS; OUR GENERAL PARTNER MANAGES
AND OPERATES US PRECLUDING THE PARTICIPATION OF OUR UNITHOLDERS IN OPERATIONAL
DECISIONS.
Our general partner manages and operates us. Unlike the holders of common
stock in a corporation, unitholders have only limited voting rights on matters
affecting our business. Amendments to the partnership agreement of Ferrellgas
Partners may be proposed only by or with the consent of our general partner.
Proposed amendments must generally be approved by holders of at least a majority
of our common units and also, if the amendment will adversely affect our senior
units, a majority of our senior units.
Unitholders will have no right to elect our general partner on an annual or
other continuing basis, and our general partner may not be removed except
pursuant to:
o the vote of the holders of at least 66 2/3% of the outstanding units
entitled to vote thereon, which includes the common units owned by our
general partner and its affiliates; and
o upon the election of a successor general partner by the vote of the
holders of not less than a majority of the outstanding units entitled
to vote, which includes both common units and senior units.
15
Because Ferrell Companies, the parent of our general partner owns approximately
49% of our outstanding common units and JEF Capital Management owns 100% of
our outstanding senior units, amendments to the partnership agreement of
Ferrellgas Partners may not be made and our general partner may not be removed
without its consent and the consent of JEF Capital Management, if applicable.
JEF Capital Management is beneficially owned by James E. Ferrell, the president,
chief executive officer and chairman of the board of directors of our general
partner.
OUR GENERAL PARTNER HAS A LIMITED CALL RIGHT WITH RESPECT TO THE LIMITED PARTNER
INTERESTS OF FERRELLGAS PARTNERS.
If at any time less than 20% of the then-issued and outstanding limited
partner interests of any class of Ferrellgas Partners are held by persons other
than our general partner and its affiliates, our general partner has the right,
which it may assign to any of its affiliates or to us, to acquire all, but not
less than all, of the remaining limited partner interests of such class held by
such unaffiliated persons at a price generally equal to the then-current market
price of limited partner interests of such class. As a consequence, a unitholder
may be required to sell its common units at a time when the unitholder may not
desire to sell them or at a price that is less than the price desired to be
received upon such sale.
UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IN SPECIFIED CIRCUMSTANCES AND MAY BE
LIABLE FOR THE RETURN OF DISTRIBUTIONS.
The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established
in some states. If it were determined that we had been conducting business in
any state without compliance with the applicable limited partnership statute, or
that the right, or the exercise of the right by the limited partners as a group,
to:
o remove or replace our general partner;
o make specified amendments to our partnership agreements; or
o take other action pursuant to our partnership agreements that
constitutes participation in the "control" of our business,
then the limited partners could be held liable in some circumstances for our
obligations to the same extent as a general partner.
In addition, under some circumstances a unitholder may be liable to us for
the amount of a distribution for a period of three years from the date of the
distribution. Unitholders will not be liable for assessments in addition to
their initial capital investment in our common units. Under Delaware General
Corporate Law, we may not make a distribution to you if the distribution causes
all our liabilities to exceed the fair value of our assets. Liabilities to
partners on account of their partnership interests and liabilities for which
recourse is limited to specific property are not counted for purposes of
determining whether a distribution is permitted. Delaware law provides that a
limited partner who receives such a distribution and knew at the time of the
distribution that the distribution violated the Delaware law will be liable to
the limited partnership for the distribution amount for three years from the
distribution date. Under Delaware law, an assignee that becomes a substituted
limited partner of a limited partnership is liable for the obligations of the
assignor to make contributions to the partnership. However, such an assignee is
not obligated for liabilities unknown to that assignee at the time such assignee
became a limited partner if the liabilities could not be determined from the
partnership agreements.
OUR GENERAL PARTNER'S LIABILITY TO US AND OUR UNITHOLDERS MAY BE LIMITED.
The partnership agreements of Ferrellgas Partners and the operating
partnership contain language limiting the liability of our general partner to us
and to our unitholders. For example, those partnership agreements provide that:
o the general partner does not breach any duty to us or our unitholders
by borrowing funds or approving any borrowing; our general partner is
protected even if the purpose or effect of the borrowing is to increase
incentive distributions to our general partner;
o our general partner does not breach any duty to us or our unitholders
by taking any actions consistent with the standards of reasonable
discretion outlined in the definitions of available cash and cash from
operations contained in our partnership agreements; and
o our general partner does not breach any standard of care or duty by
resolving conflicts of interest unless our general partner acts in bad
faith.
16
The modifications of state law standards of fiduciary duty contained in our
partnership agreements may significantly limit the ability of unitholders to
successfully challenge the actions of our general partner as being a breach of
what would otherwise have been a fiduciary duty. These standards include the
highest duties of good faith, fairness and loyalty to the limited partners. Such
a duty of loyalty would generally prohibit a general partner of a Delaware
limited partnership from taking any action or engaging in any transaction for
which it has a conflict of interest. Under our partnership agreements, our
general partner may exercise its broad discretion and authority in our
management and the conduct of our operations as long as our general partner's
actions are in our best interest.
Our general partner and its affiliates may have conflicts with us.
The directors and officers of our general partner and its affiliates have
fiduciary duties to manage itself in a manner that is beneficial to its
stockholder. At the same time, our general partner has fiduciary duties to
manage us in a manner that is beneficial to us and our unitholders. Therefore,
our general partner's duties to us may conflict with the duties of its officers
and directors to its stockholder. Matters in which such conflicts of interest
may arise include:
o decisions of our general partner with respect to the amount and timing
of cash expenditures, borrowings, issuances of additional common units
and other securities, and changes in reserves in any quarter can affect
the amount of incentive distributions we pay to our general partner;
o we do not have any employees and rely solely on employees of our
general partner;
o under the terms of our partnership agreements, we will reimburse our
general partner and its affiliates for costs incurred in managing and
operating our business, including costs incurred in rendering corporate
staff and support services to us;
o our partnership agreements permit our general partner to limit our
liability in contractual arrangements to all or particular assets of
ours, thereby providing no recourse against our general partner, even
if we could have obtained more favorable terms without such limitations
of our general partner's liability; and
o our partnership agreements provide that it is not a breach of our
general partner's fiduciary duties to us or our unitholders for
affiliates of our general partner to engage in activities, other than
retail propane sales to end users in the continental United States,
that compete with us.
James E. Ferrell is the President and Chief Executive Officer of our
general partner and the Chairman of its Board of Directors. Mr. Ferrell also
owns JEF Capital Management, which is the owner of our outstanding senior units,
and owns other entities with whom we conduct our ordinary business operations.
Mr. Ferrell's ownership of those entities may conflict with his duties as an
officer and director of our general partner. Such conflicts of interest may
arise with respect to the following matters, among others:
o our issuance of common units and the redemption of our senior units;
see "--Risks Inherent to Our Business--The terms of our senior units
limit our use of proceeds from sales of equity" and "--Risks Inherent
to an Investment in Our Equity--The holder of our senior units may have
the right in the future to convert the senior units into common units,
substantially diluting our existing common unitholders;"
o a request by us for Mr. Ferrell to waive particular rights he may have
as the beneficial owner of our senior units; and
o our relationship and conduct of business with any of Mr. Ferrell's
companies.
Our general partner can protect itself against dilution.
Whenever we issue equity securities to any person other than our general
partner and its affiliates, our general partner has the right to purchase
additional limited partner interests on the same terms. This allows our general
partner to maintain its partnership interest in us. No other unitholder has a
similar right. Therefore, only our general partner may protect itself against
dilution caused by our issuance of additional equity securities.
Tax Risks
You are urged to read "Tax Consequences" for a more complete discussion of
the expected material federal income tax consequences of owning and disposing of
common units.
The IRS could treat us as a corporation for tax purposes, which would
substantially reduce the cash available for distribution to our unitholders.
The anticipated after-tax economic benefit of an investment in us depends
largely on our being treated as a partnership for federal income tax purposes.
Based on representations of us and our general partner, our counsel is of the
opinion that, under current law, we have been and will continue to be classified
as a partnership for federal income tax purposes. One of the representations on
which the opinion of counsel is based is that at least 90% of our gross income
for each taxable year has been and will be "qualifying income" within the
meaning of Section 7704 of the Internal Revenue Code. Whether we will continue
to be classified as a partnership in part depends on our ability to meet this
qualifying income test in the future.
17
If we were classified as a corporation for federal income tax purposes, we
would pay tax on our income at corporate rates, currently, 35% at the federal
level, and we would probably pay additional state income taxes as well. In
addition, distributions would generally be taxable to the recipient as corporate
distributions and no income, gains, losses or deductions would flow through to
you. Because a tax would be imposed upon us as a corporation, the cash available
for distribution to you would be substantially reduced. Therefore, treatment of
us as a corporation would result in a material reduction in the anticipated cash
flow and after-tax return to you and thus would likely result in a substantial
reduction in the value of our common units.
A change in current law or a change in our business could cause us to be
treated as a corporation for federal income tax purposes or otherwise subject us
to entity-level taxation. Our partnership agreements provide that if a law is
enacted or existing law is modified or interpreted in a manner that subjects us
to taxation as a corporation or otherwise subjects us to entity-level taxation
for federal, state or local income tax purposes, provisions of our partnership
agreements will be subject to change. These changes would include a decrease in
the minimum quarterly distribution and the target distribution levels to reflect
the impact of such law on us.
A successful IRS contest of the federal income tax positions we take may
adversely impact the market for our common units and the costs of any contest
will be borne by us and therefore indirectly by our unitholders and our general
partner.
We have not requested any ruling from the IRS with respect to:
o our classification as a partnership for federal income tax purposes; or
o whether our propane operations generate "qualifying income" under
Section 7704 of the Internal Revenue Code.
The IRS may adopt positions that differ from our counsel's conclusions expressed
in this prospectus 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
counsel's conclusions or the positions we take, and some or all of those
conclusions ultimately may not be sustained. Any contest with the IRS may
materially and adversely impact the market for our common units and the prices
at which our common units trade. In addition, our costs of any contest with the
IRS will be borne by us and therefore indirectly by our unitholders and our
general partner.
You may be required to pay taxes on income from us even if you do not receive
any cash distributions from us.
You will be required to pay federal income taxes and, in some cases, state
and local income taxes on your share of our taxable income, even if you do not
receive cash distributions from us. You may not receive cash distributions equal
to your share of our taxable income or even the tax liability that results from
that income. Further, you may incur a tax liability in excess of the amount of
cash you receive upon the sale of your units.
There are limits on the deductibility of losses.
In the case of unitholders subject to the passive loss rules (generally,
individuals and closely held corporations), any losses generated by us will only
be available to offset our future income and cannot be used to offset income
from other activities, including passive activities or investments. Unused
losses may be deducted when the unitholder disposes of its entire investment in
us in a fully taxable transaction with an unrelated party. A unitholder's share
of our net passive income may be offset by unused losses carried over from prior
years, but not by losses from other passive activities, including losses from
other publicly-traded partnerships.
Tax gain or loss on the disposition of our common units could be different than
expected.
If you sell your common units, you will recognize a gain or loss equal to
the difference between the amount realized and your tax basis in those common
units. Prior distributions in excess of the total net taxable income you were
allocated for a common unit, which decreased your tax basis in that common unit,
will, in effect, become taxable income to you if the common unit is sold at a
price greater than your tax basis in that common unit, even if the price you
receive is less than your original cost. A substantial portion of the amount
realized, whether or not representing a gain, will likely be ordinary income to
you. Should the IRS successfully contest some positions we take, you could
recognize more gain on the sale of units than would be the case under those
positions, without the benefit of decreased income in prior years. In addition,
if you sell your units, you may incur a tax liability in excess of the amount of
cash you receive from the sale.
18
Tax-exempt entities, regulated investment companies, and foreign persons face
unique tax issues from owning common units that may result in adverse tax
consequences to them.
An investment in common units by tax-exempt entities, such as individual
retirement accounts, regulated investment companies, generally known as mutual
funds, and non-U.S. persons, raises issues unique to them. For example,
virtually all of our income allocated to organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
will be unrelated business taxable income and thus will be taxable to them. Very
little of our income will be qualifying income to a regulated investment company
or mutual fund. Distributions to non-U.S. persons will be reduced by withholding
taxes, at the highest effective tax rate applicable to individuals, and non-U.S.
persons will be required to file federal income tax returns and generally pay
tax on their share of our taxable income.
Our tax shelter registration could increase the risk of a potential IRS audit.
We are registered with the IRS as a tax shelter. The IRS has issued to us
the following tax shelter registration number: 94201000010. Issuance of the
registration number does not indicate that an investment in us or the claimed
tax benefits have been reviewed, examined or approved by the IRS. The tax laws
require that some types of entities, including some partnerships, register as
"tax shelters" in response to the perception that they claim tax benefits that
may be unwarranted. As a result, we may be audited by the IRS and tax
adjustments could be made. The rights of a unitholder owning less than a 1%
interest in us to participate in the income tax audit process are very limited.
Further, any adjustments in our tax returns will lead to adjustments in the
unitholders' tax returns and may lead to audits of unitholders' tax returns and
adjustments of items unrelated to us. You will bear the cost of any expenses
incurred in connection with an examination of your personal tax return.
Reporting of partnership tax information is complicated and subject to audits;
we cannot guarantee conformity to IRS requirements.
We will furnish each unitholder with a Schedule K-1 that sets forth that
unitholder's allocable share of income, gains, losses and deductions. In
preparing these schedules, we will use various accounting and reporting
conventions and adopt various depreciation and amortization methods. We cannot
guarantee that these schedules will yield a result that conforms to statutory or
regulatory requirements or to administrative pronouncements of the IRS.
You may lose tax benefits as a result of nonconforming depreciation conventions.
Because we cannot match transferors and transferees of common units,
uniformity of the economic and tax characteristics of our common units to a
purchaser of common units of the same class must be maintained. To maintain
uniformity and for other reasons, we will take depreciation and amortization
positions that may not conform to all aspects of the Treasury Regulations. A
successful IRS challenge to those positions could adversely affect the amount of
tax benefits available to you. A successful challenge could also affect the
timing of these tax benefits or the amount of gain from the sale of common units
and could have a negative impact on the value of our common units or result in
audit adjustments to your tax returns.
As a result of investing in our common units, you will likely be subject to
state and local taxes and return filing requirements in jurisdictions where you
do not live.
In addition to federal income taxes, unitholders will likely be subject to
other taxes, such as state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. You will likely be
required to file state and local income tax returns and pay state and local
income taxes in some or all of the various jurisdictions in which we do business
or own property and may be subject to penalties for failure to comply with those
requirements. We currently conduct business in 45 states. It is your
responsibility to file all required United States federal, state and local tax
returns. Our counsel has not rendered an opinion on the state or local tax
consequences of owning our common units.
You may have negative tax consequences if we default on our debt or sell assets.
If we default on any of our debt, the lenders will have the right to sue us
for non-payment. That action could cause an investment loss and negative tax
consequences for our unitholders through the realization of taxable income by
unitholders without a corresponding cash distribution. Likewise, if we were to
dispose of assets and realize a taxable gain while there is substantial debt
outstanding and proceeds of the sale were applied to the debt, our unitholders
could have increased taxable income without a corresponding cash distribution.
19
Conflicts of Interest and Fiduciary Responsibilities
Conflicts of Interest
Conflicts of interest could arise as a result of the relationships between
us, on the one hand, and our general partner and its affiliates, on the other.
The directors and officers of our general partner have fiduciary duties to
manage our general partner in a manner beneficial to its stockholder. At the
same time, our general partner has fiduciary duties to manage us in a manner
beneficial to us and our unitholders. The duties of our general partner to us
and our unitholders, therefore, may conflict with the duties of the directors
and officers of our general partner to its stockholder.
Matters in which, and reasons that, such conflicts of interest may arise
include:
o decisions of our general partner with respect to the amount and timing
of our cash expenditures, borrowings, acquisitions, issuances of
additional securities and changes in reserves in any quarter may affect
the amount of incentive distributions we are obligated to pay our
general partner;
o borrowings do not constitute a breach of any duty owed by our general
partner to our unitholders even if these borrowings have the purpose or
effect of directly or indirectly enabling us to make distributions to
the holder of our incentive distribution rights, currently our general
partner, or to hasten the expiration of the deferral period with
respect to the common units held by Ferrell Companies;
o we do not have any employees and rely solely on employees of our
general partner and its affiliates;
o under the terms of our partnership agreements, we must reimburse our
general partner and its affiliates for costs incurred in managing and
operating us, including costs incurred in rendering corporate staff and
support services to us;
o our general partner is not restricted from causing us to pay it or its
affiliates for any services rendered on terms that are fair and
reasonable to us or causing us to enter into additional contractual
arrangements with any of such entities;
o neither our partnership agreements nor any of the other agreements,
contracts and arrangements between us, on the one hand, and our general
partner and its affiliates, on the other, are or will be the result of
arms-length negotiations;
o whenever possible, our general partner limits our liability under
contractual arrangements to all or a portion of our assets, with the
other party thereto having no recourse against our general partner or
its assets;
o our partnership agreements permit our general partner to make these
limitations even if we could have obtained more favorable terms if our
general partner had not limited its liability;
o any agreements between us and our general partner or its affiliates
will not grant to our unitholders, separate and apart from us, the
right to enforce the obligations of our general partner or such
affiliates in favor of us; therefore, our general partner will be
primarily responsible for enforcing those obligations;
o our general partner may exercise its right to call for and purchase
common units as provided in the partnership agreement of Ferrellgas
Partners or assign that right to one of its affiliates or to us;
o our partnership agreements provide that it will not constitute a breach
of our general partner's fiduciary duties to us for its affiliates to
engage in activities of the type conducted by us, other than retail
propane sales to end users in the continental United States in the
manner engaged in by our general partner immediately prior to our
initial public offering, even if these activities are in direct
competition with us; in addition, our general partner and its
affiliates have no obligation to present business opportunities to us;
and
o our general partner selects the attorneys, accountants and others who
perform services for us. These persons may also perform services for
our general partner and its affiliates. Our general partner is
authorized to retain separate counsel for us or our unitholders,
depending on the nature of the conflict that arises.
20
James E. Ferrell is the President and Chief Executive Officer of our
general partner and the Chairman of its Board of Directors. Mr. Ferrell also
owns JEF Capital Management, the holder of our senior units, and several other
companies with whom we conduct our ordinary business operations. Mr. Ferrell's
ownership of these entities may conflict with his duties as an officer and
director of our general partner. Matter in which such conflicts of interest may
arise include:
o our issuance of common units and the redemption of our senior units;
see "Risk Factors --Risks Inherent to Our Business--The terms of our
senior units limit our use of proceeds from sales of equity" and "Risk
Factors --Risks Inherent to an Investment in Our Equity--The holder of
our senior units may have the right in the future to convert the senior
units into common units, substantially diluting our existing common
unitholders;"
o a request by us for Mr. Ferrell to waive particular rights he may have
as the beneficial owner of our senior units; and
o our relationship and conduct of business with any of Mr. Ferrell's
companies.
Prior to July 31, 2004, our general partner has agreed:
o not to voluntarily withdraw as the general partner of Ferrellgas
Partners without the approval of the holders of at least two-thirds of
its outstanding common units, excluding common units held by our
general partner and its affiliates;
o not to voluntarily withdraw as the general partner of the operating
partnership without the approval of Ferrellgas Partners; and
o not to sell its general partner interest, other than to an affiliate or
under other limited circumstances, without the approval of the holders
of at least a majority of our outstanding common units, excluding
common units owned by our general partner and its affiliates.
Ferrell Companies, the owner of our general partner, may however dispose of
the capital stock of our general partner without the consent of our unitholders.
If the capital stock of our general partner is transferred to a third party, but
no transfer is made of its general partner interest in us, our general partner
will remain bound by our partnership agreements. If, through share ownership or
otherwise, persons not now affiliated with our general partner were to acquire
its general partner interest in us or effective control of our general partner,
our management and resolutions of conflicts of interest, such as those described
above, could change substantially.
Fiduciary Responsibilities
Unless otherwise provided for in a partnership agreement, Delaware law
generally requires a general partner of a Delaware limited partnership to adhere
to fiduciary duty standards under which it owes its limited partners the highest
duties of good faith, fairness and loyalty and which generally prohibit the
general partner from taking any action or engaging in any transaction as to
which it has a conflict of interest. Our partnership agreements expressly permit
our general partner to resolve conflicts of interest between itself or its
affiliates, on the one hand, and us or our unitholders, on the other, and to
consider, in resolving such conflicts of interest, the interests of other
parties in addition to the interests of our unitholders. In addition, the
partnership agreement of Ferrellgas Partners provides that a purchaser of common
units is deemed to have consented to specified conflicts of interest and actions
of our general partner and its affiliates that might otherwise be prohibited,
including those described above, and to have agreed that such conflicts of
interest and actions do not constitute a breach by our general partner of any
duty stated or implied by law or equity. Our general partner will not be in
breach of its obligations under our partnership agreements or its duties to us
or our unitholders if the resolution of such conflict is fair and reasonable to
us. Any resolution of a conflict approved by the audit committee of our general
partner is conclusively deemed fair and reasonable to us. The latitude given in
our partnership agreements to our general partner in resolving conflicts of
interest may significantly limit the ability of a unitholder to challenge what
might otherwise be a breach of fiduciary duty.
The partnership agreements of Ferrellgas Partners and the operating
partnership expressly limit the liability of our general partner by providing
that our general partner, its affiliates and their officers and directors will
not be liable for monetary damages to us, our unitholders or assignees thereof
for errors of judgment or for any acts or omissions if our general partner and
such other persons acted in good faith. In addition, we are required to
indemnify our general partner, its affiliates and their respective officers,
directors, employees, agents and trustees to the fullest extent permitted by law
against liabilities, costs and expenses incurred by our general partner or such
other persons if our general partner or such persons acted in good faith and in
a manner they reasonably believed to be in, or (in the case of a person other
than our general partner) not opposed to, the best interests of us and, with
respect to any criminal proceedings, had no reasonable cause to believe the
conduct was unlawful.
21
Use of proceeds
Ferrellgas Partners and the operating partnership expect to use the net
proceeds from the sale of our securities for general business purposes, which,
among other things, may include the following:
o the repayment of outstanding indebtedness;
o the redemption of our senior units;
o working capital;
o capital expenditures; or
o acquisitions.
The precise amount and timing of the application of the net proceeds will depend
upon our funding requirements and the availability and cost of other funds. We
may change the potential uses of the net proceeds in a prospectus supplement.
22
RATIO OF EARNINGS TO FIXED CHARGES
In connection with the registration of debt securities of Ferrellgas
Partners, Ferrellgas Partners' historical and pro forma ratio of earnings to
fixed charges for each of the periods indicated below is as follows:
Three months ended
Twelve months ended July 31, October 31,
--------------------------------------------------- -------------------
1998 1999 2000 2001 2002 2001 2002
------ ------ ------ ------ ------ ------ ------
Historical........ 1.1 1.3 1.0* 1.8 1.8 0.3 (0.3)
Pro Forma......... 1.2 1.4 1.1* 1.9 1.8 0.3 (0.3)
In connection with the registration of senior units of Ferrellgas Partners,
Ferrellgas Partners' historical and pro forma ratio of earnings to combined
fixed charges and preference distributions for each of the periods indicated
below is as follows:
Three months ended
Twelve months ended July 31, October 31,
--------------------------------------------------- -------------------
1998 1999 2000 2001 2002 2001 2002
------ ------ ------ ------ ------ ------ ------
Historical........ 1.1 1.3 0.9* 1.5 1.6 0.2 (0.2)
Pro Forma......... 1.2 1.4 1.0* 1.6 1.6 0.2 (0.2)
In connection with the registration of debt securities of the operating
partnership, the operating partnership's historical and pro forma ratio of
earnings to fixed charges for each of the periods indicated below is as follows:
Three months ended
Twelve months ended July 31, October 31,
--------------------------------------------------- -------------------
1998 1999 2000 2001 2002 2001 2002
------ ------ ------ ------ ------ ------ ------
Historical........ 1.6 1.9 1.3* 2.2 2.4 0.3 0.2
Pro Forma......... 1.7 2.0 1.4* 2.4 2.4 0.3 0.2
<FN>
* The ratio of earnings to fixed charges for the twelve months ended July
31, 2000, reflects the partial year cash flow contribution from our
acquisition of Thermogas in December 1999.
</FN>
The computations above for Ferrellgas Partners include the operating
partnership on a consolidated basis. For all of the ratios set forth above,
"earnings" is the amount resulting from the sum of:
o pre-tax income from continuing operations; and
o fixed charges;
less:
o capitalized interest.
The term "fixed charges" means the sum of:
o interest expensed or capitalized;
o amortized discounts and capitalized expenses related to indebtedness;
and
o an estimate of the interest within lease expense.
The term "combined fixed charges and preference distributions" means the sum of
fixed charges and the distribution to the holder of our senior units.
The pro forma ratio of earnings to fixed charges for the twelve months
ended July 31, 1998 through 2001 were calculated by adding back amortization on
goodwill and some intangible assets. For the three months ended October 31,
2002, we implemented Statement of Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets." The addition of amortization charges
related to goodwill and intangibles totaled approximately $4, $4, $6 and $11
million for the twelve months ended July 31, 1998 through 2001, respectively.
23
During the three months ended October 31, 2002 we adopted Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which required us to report expenses of $7.1 million associated with the early
extinguishment of debt in income from continuing operations. Prior to the
adoption of Statement of Financial Accounting Standards No. 145, we would have
classified this type of expense as an extraordinary item.
The market for propane is seasonal because propane is used primarily for
heating in residential and commercial buildings. Sales volumes for the three
months ended October 31 typically represent less than 20% of our annual propane
gallon sales. As a result, for the three months ended October 31, 2001 and 2002,
on both a historical and pro forma basis:
o Ferrellgas Partners' ratio of earnings to fixed charges were less than
1.0x; the additional earnings required for Ferrellgas Partners' ratio
of earnings to fixed charges to equal 1.0x for the aforementioned
periods are approximately $14 and $23 million, respectively;
o Ferrellgas Partners' ratio of earnings to combined fixed charges and
preference distributions were less than 1.0x; the additional earnings
required for Ferrellgas Partners' ratio of earnings to combined fixed
charges and preference distributions to equal 1.0x for the
aforementioned periods are approximately $14 and $23 million,
respectively; and
o the operating partnership's ratio of earnings to fixed charges were
less than 1.0x; the additional earnings required for the operating
partnership's ratio of earnings to fixed charges to equal 1.0x for the
aforementioned periods are approximately $10 and $12 million,
respectively.
Additionally, for the year ended July 31, 2000, Ferrellgas Partners' historical
ratio of earnings to combined fixed charges and preference distributions was
less than 1.0x; the additional earnings required for Ferrellgas Partners' ratio
of earnings to combined fixed charges and preference distributions to equal 1.0x
for the aforementioned period are approximately $10 million.
24
DESCRIPTION OF COMMON UNITS, SENIOR UNITS AND DEFERRED PARTICIPATION UNITS
COMMON UNITS
GENERAL
As of , 2003, Ferrellgas Partners had common units
outstanding, representing an aggregate 98% limited partner interest. Of those
common units, , representing an approximate 49% limited partner
interest in us, are held by Ferrell Companies, which in turn is wholly-owned by
the Ferrell Companies Inc. Employee Stock Ownership Trust. Ferrellgas Partners
is the sole limited partner of Ferrellgas L.P.
See "Prospectus Summary-Our Structure."
Our common units represent limited partner interests in us and entitle the
holders thereof to participate in distributions and exercise the rights and
privileges available to our limited partners under the partnership agreement of
Ferrellgas Partners. Under that partnership agreement, we may issue, without
further common unitholder action, an unlimited number of additional limited
partner interests and other equity securities with such rights, preferences and
privileges as may be established by our general partner in its sole discretion,
subject to the particular exceptions.
SUMMARY OF THE PARTNERSHIP AGREEMENT OF FERRELLGAS PARTNERS
A copy of the partnership agreement of Ferrellgas Partners is filed as an
exhibit to this registration statement of which this prospectus is a part. A
summary of the important provisions of the partnership agreement of Ferrellgas
Partners and the rights and privileges of our common units is included in our
registration statement on Form 8-A/A, including any amendments or reports filed
to update such descriptions, as filed with the SEC on February 18, 2003. See
"Where You Can Find More Information."
WHERE OUR COMMON UNITS ARE TRADED
Our outstanding common units are listed on the New York Stock Exchange
under the symbol "FGP." Any additional common units we issue will also be listed
on the New York Stock Exchange.
MINIMUM QUARTERLY DISTRIBUTION AND SENIOR UNIT DISTRIBUTION
Our common units are entitled to receive a minimum quarterly distribution
per fiscal quarter (currently $0.50 or, on an annualized basis, $2.00) before
any distributions are paid to the holders of our incentive distribution rights.
Our senior units are entitled to receive a senior unit distribution per fiscal
quarter (currently $1.00 or, on an annualized basis, $4.00) before any
distributions are paid on our common units. In addition, if we ever fail to pay
the senior unit distribution to the holder of our senior units, a senior unit
arrearage will occur that must be satisfied before we may make any distribution
to our common unitholders. As of the date of this prospectus, there is no senior
unit arrearage. There is no guarantee that we will pay the minimum quarterly
distribution on our common units or senior units in any fiscal quarter, and we
may be prohibited from making any distributions to our unitholders if it would
cause an event of default under particular agreements to which Ferrellgas
Partners or the operating partnership are parties. Under limited circumstances,
the minimum quarterly distribution and the senior unit distribution may be
adjusted.
INCENTIVE DISTRIBUTION RIGHTS
The incentive distribution rights constitute a separate class of
partnership interests in us, and the rights of holders of these interests to
participate in distributions differ from the rights of the holders of our senior
units and common units. For any given fiscal quarter, available cash will
generally be distributed to our general partner and to the holders of our senior
units and common units. Cash may also be distributed to the holders of our
incentive distribution rights depending upon the amount of available cash to be
distributed for that fiscal quarter and the amounts distributed in prior
quarters. The holders of our incentive distribution rights have the right to
receive an increasing percentage of our quarterly distributions of available
cash from operations after the minimum quarterly distribution and particular
target distribution levels have been achieved. Our general partner currently
holds all of our incentive distribution rights, but may transfer these rights
separately from its general partner interest.
DEFERRAL PERIOD
The partnership agreement of Ferrellgas Partners contains a mechanism for
the deferral of distributions on those common units held by Ferrell Companies in
an aggregate amount up to $36 million. This deferral means that if our available
cash were insufficient to pay all of our common unitholders the declared
distribution during any fiscal quarter, we would first pay a distribution on
those common units that are publicly-held and then pay a distribution on the
common units held by Ferrell Companies to the extent of remaining available
cash. If we are unable to pay the declared distribution on the common units held
by Ferrell Companies in any quarter during the deferral period, an arrearage
will occur. If this arrearage reaches $36 million, the common units held by
Ferrell Companies will be paid in the same manner as the publicly-held common
units. After payment of the declared distribution to all of our common units,
including those held by Ferrell Companies, we will use any remaining available
cash to reduce any amount previously deferred on the common units held by
Ferrell Companies. As of the date of this prospectus, there is no arrearage.
25
Our ability to defer the payment of a distribution on the Ferrell
Companies common units will end on the earlier of:
o December 31, 2005;
o a change of control as defined in the partnership agreement of
Ferrellgas Partners;
o our dissolution; or
o when Ferrell Companies no longer owns, directly or indirectly, any
common units.
After the end of this deferral period, distributions will be made to holders of
all common units equally, including those owned by Ferrell Companies. Our
general partner may not change the deferral period described above in a manner
adverse to holders of our publicly-held common units without the consent of a
majority of the holders of our publicly-held common units, excluding those
common units held by Ferrell Companies. In addition, if an arrearage exists, we
may not declare a quarterly distribution for any quarter in an amount greater
than we declared during any of the four immediately preceding quarters.
Other than with respect to distributions, the common units owned by Ferrell
Companies are the same as our publicly-held common units and continue to vote
together with our publicly-held common units and have the same rights and
privileges under the partnership agreement of Ferrellgas Partners as our
publicly-held common units.
QUARTERLY DISTRIBUTIONS
The partnership agreement of Ferrellgas Partners requires us to distribute
100% of our "available cash" to our unitholders and our general partner within
45 days following the end of each fiscal quarter. Available cash consists
generally of all of our cash receipts, less cash disbursements and adjustments
for net changes to reserves.
The discussion below indicates the percentages of distributions Ferrellgas
Partners must make to its limited partners and general partner. All
distributions are made in cash. All of the cash Ferrellgas Partners distributes
to its partners is derived from the operations of the operating partnership.
Pursuant to its partnership agreement and prior to any distribution Ferrellgas
Partners makes to its partners, the operating partnership makes a distribution
to Ferrellgas Partners, as its sole limited partner, and to our general partner.
This distribution is allocated 98.9899% to Ferrellgas Partners and 1.0101% to
our general partner. The effect of this distribution is that our general
partner, assuming it maintains its 1% general partner interest in Ferrellgas
Partners, receives 2% of the aggregate distributions made each quarter by
Ferrellgas Partners and the operating partnership and Ferrellgas Partners'
limited partners receive 98% of the aggregate distributions made each quarter by
Ferrellgas Partners and the operating partnership. With respect to the
descriptions of Ferrellgas Partners' quarterly distributions below, we are
describing only the quarterly distributions made by Ferrellgas Partners to its
limited partners and our general partner.
Assuming that:
o no arrearage exists;
o no arrearage will be created as a result of the distribution; and
o our general partner's general partner interest in us remains at 1%,
we will generally distribute our available cash each fiscal quarter as follows:
o first, 1% to our general partner and 99% to the holders of our senior
units until the sum of $1.00 and any accumulated and unpaid senior unit
distributions through the last day of our preceding fiscal quarter has
been distributed with respect to each senior unit;
o second, 1% to our general partner and 99% to the holders of our common
units until $0.50 has been distributed with respect to each common
unit;
26
o third, 1% to our general partner and 99% to the holders of our common
units until an aggregate sum of $0.55 has been distributed with respect
to each common unit;
o fourth, 1% to our general partner, 85.8673% to the holders of our
common units and 13.1327% to the holders of our incentive distribution
rights until an aggregate sum of $0.63 has been distributed with
respect to each common unit;
o fifth, 1% to our general partner, 75.7653% to the holders of our common
units and 23.2347% to the holders of our incentive distribution rights
until an aggregate sum of $0.82 has been distributed with respect to
each common unit; and
o thereafter, 1% to our general partner, 50.5102% to the holders of our
common units and 48.4898% to the holders of our incentive distribution
rights until there has been distributed with respect to each common
unit an amount equal to the excess of the declared quarterly
distribution over $0.82.
As of the date of this prospectus, no arrearage exists and our general partner
has a 1% general partner interest in us.
For a more detailed description of our distribution policies and
mechanisms, including how distributions are made when, among other things, an
arrearage exists or if our general partner does not maintain its 1% general
partner interest in us, please see our registration statement on Form 8-A/A,
including any amendments or reports filed to update such descriptions, as filed
with the SEC on February 18, 2003. See also "Where You Can Find More
Information."
VOTING RIGHTS
Generally, each holder of our common units is entitled to one vote for each
common unit on all matters submitted to a vote of our common unitholders and,
except as otherwise provided by law or the partnership agreement of Ferrellgas
Partners, the holders of our common units vote as one class. However, if at any
time any person or group, other than our general partner or its affiliates,
beneficially owns 20% or more of all then outstanding common units, those common
units will not be voted on any matter and will not be considered to be
outstanding:
o when sending notices of a meeting of unitholders, unless otherwise
required by law;
o when calculating required votes;
o when determining the presence of a quorum; or
o for other similar purposes under that partnership agreement.
Particular exceptions to the above statement do apply in limited circumstances.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common units is EquiServe Trust
Company, N.A. You may contact our transfer agent and registrar at the following
address:
EquiServe Trust Company, N.A.
Attn: Shareholder Services
P.O. Box 43010
Providence, Rhode Island 02940-3010
Telephone: (781) 575-3120
SENIOR UNITS AND DEFERRED PARTICIPATION UNITS
Except as set forth below, the partnership agreement of Ferrellgas Partners
authorizes Ferrellgas Partners to issue an unlimited number of additional
limited partner interests and other equity securities for the consideration and
with the rights, preferences and privileges established by our general partner
in its sole discretion without the approval of any of our limited partners. In
accordance with Delaware law and the provisions of that partnership agreement,
we may also issue additional partnership interests that, in the sole discretion
of our general partner, have special voting rights to which our common units are
not entitled.
27
Ferrellgas Partners currently has one class of senior units outstanding
representing limited partner interests. The terms of these senior units provide
that so long as any are outstanding, we may not create, authorize or issue any
additional limited partner interests, or securities convertible into limited
partner interests, that have distribution or liquidation rights ranking prior or
senior to, or on a parity with, these senior units, without the prior approval
of the holders of at least a majority of our then outstanding senior units. We
may however issue an unlimited number of additional limited partner interests
that are junior in distribution and liquidation rights to these senior units.
Any senior units we offer under this prospectus may or may not have terms
similar to our currently outstanding senior units. We have no deferred
participation units outstanding as of the date of this prospectus.
Should Ferrellgas Partners offer senior units or deferred participation
units under this prospectus, a prospectus supplement relating to the particular
series of senior units or deferred participation units offered will include the
specific terms of those senior units or deferred participation units, including
the following:
o the designation, stated value and liquidation preference of the senior
units or deferred participation units and the number of senior units or
deferred participation units offered;
o the initial public offering price at which the senior units or deferred
participation units will be issued;
o the conversion or exchange provisions of the senior units or deferred
participation units;
o any redemption or sinking fund provisions of the senior units or
deferred participation units;
o the distribution rights of the senior units or deferred participation
units, if any;
o a discussion of material federal income tax considerations, if any,
regarding the senior units or deferred participation
units; and
o any additional rights, preferences, privileges, limitations and
restrictions of the senior units or deferred participation units.
DESCRIPTION OF WARRANTS
Ferrellgas Partners may issue warrants to purchase debt securities, common
units or other securities issued by us or another issuer. Warrants may be issued
independently or together with other securities and may be attached to or
separate from these securities. The warrants will be issued under warrant
agreements to be entered into between us and a bank or trust company, as warrant
agent. The specific terms of the warrants as well as the warrant agreement and
the identification of the warrant agent shall be set forth in a prospectus
supplement.
DEBT WARRANTS
A prospectus supplement will describe the terms of Ferrellgas Partners'
debt warrants, the warrant agreement relating to the debt warrants and the debt
warrant certificates representing our debt warrants. These descriptions will
include the following:
o the title of the debt warrants;
o the aggregate number of debt warrants being offered;
o the price or prices at which the debt warrants will be issued;
o the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the debt warrants;
o the principal amount of debt securities purchasable upon exercise of
each debt warrant, and the price at which such principal amount of debt
securities may be purchased upon such exercise;
o the date, if any, on and after which the debt warrants and the related
debt securities will be separately transferable;
o the date on which the right to exercise the debt warrants shall
commence, and the date on which such right shall expire;
o the maximum or minimum number of debt warrants that may be exercised at
any time;
o a discussion of material federal income tax considerations of the debt
warrants and the exercise thereof, if any; and
o any other terms of the debt warrants, including terms, procedures and
limitations relating to the exchange and exercise of such debt
warrants.
28
Unless otherwise set forth in the applicable prospectus supplement, debt
warrant certificates will be exchangeable for new debt warrant certificates of
different denominations and debt warrants may be exercised at the corporate
trust office of the warrant agent or any other office indicated in the
prospectus supplement. Prior to the exercise of debt warrants, holders of debt
warrants will not have any of the rights of holders of the debt securities that
are purchasable upon such exercise and will not be entitled to payments of
principal of, or premium, if any, or interest, if any, on the debt securities
purchasable upon such exercise.
COMMON UNIT WARRANTS AND OTHER WARRANTS
A prospectus supplement will describe the terms of Ferrellgas Partners'
common unit warrants and other warrants, the warrant agreement relating to our
common unit warrants and other warrants and the warrant certificates
representing our common unit warrants and other warrants. These descriptions
will include the following:
o the title of the warrants;
o the aggregate number of warrants being offered;
o the price or prices at which the warrants will be issued;
o the securities for which the warrants are exercisable, and the price at
which such securities may be purchased upon such exercise;
o any provisions for adjustment of the exercise price of such warrants or
the number of common units or number or amount of other securities of
ours or another issuer that are receivable upon the exercise of such
warrants;
o the date, if any, on and after which the warrants and the related
common units or other securities of ours or another issuer will be
separately transferable;
o the date on which the right to exercise the warrants shall commence,
and the date on which such right shall expire;
o the maximum or minimum number of warrants that may be exercised at any
time;
o a discussion of material federal income tax considerations of the debt
warrants and the exercise thereof, if any; and
o any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
Unless otherwise set forth in the applicable prospectus supplement, warrant
certificates will be exchangeable for new warrant certificates of different
denominations and warrants may be exercised at the corporate trust office of the
warrant agent or any other office indicated in the prospectus supplement. Prior
to the exercise of warrants, holders of the warrants will not have any of the
rights of holders of the securities that are purchasable upon such exercise and
will not be entitled to any distributions or dividends, if any, on the
securities purchasable upon such exercise.
EXERCISE OF WARRANTS
Unless otherwise set forth in the applicable prospectus supplement, each
warrant will entitle the holder of the warrant to purchase for cash a particular
principal amount of debt securities, number of common units, or number or amount
of other securities at an exercise price that shall be described in, or be
determinable in, an applicable prospectus supplement. Warrants will be
exercisable at any time up to the close of business on the expiration date of
such warrants as set forth in the applicable prospectus supplement. After the
close of business on the expiration date, unexercised warrants will become void.
Warrants will be exercisable as set forth in the applicable prospectus
supplement. Upon receipt of payment and the properly completed and duly executed
warrant certificate at the corporate trust office of the warrant agent or any
other office indicated in the prospectus supplement, we will, as soon as
practicable, forward the debt securities, common units or other securities
purchasable upon such exercise to the warrant holder. If less than all of the
warrants represented by such warrant certificate are exercised, a new warrant
certificate will be issued for the remaining unexercised warrants.
29
DESCRIPTION OF DEBT SECURITIES
The debt securities issued pursuant to this prospectus and an applicable
prospectus supplement by Ferrellgas Partners will be:
o direct secured or unsecured general obligations of
Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp., as
co-obligors; and
o either senior debt securities or subordinated debt securities.
The debt securities issued pursuant to this prospectus and an applicable
prospectus supplement by the operating partnership will be:
o direct secured or unsecured obligations of Ferrellgas, L.P. and
Ferrellgas Finance Corp., as co-obligors;
o nonconvertible securities offered for cash;
o either senior debt securities or subordinated debt securities; and
o "investment grade" securities, meaning that at the time of the offering
of the debt securities, at least one nationally recognized statistical
rating organization, as defined in the Exchange Act, will have rated
the debt securities of the operating partnership in one of its generic
rating categories that signifies investment grade.
Typically, the four highest rating categories, within which there may be
sub-categories or gradations indicating relative standing, signify investment
grade. An investment grade rating is not a recommendation to buy, sell or hold
securities, is subject to revision or withdrawal at any time by the assigning
entity and should be evaluated independently of any other rating.
Senior debt securities will be issued under one or more senior indentures,
which may for Ferrellgas Partners include the Indenture dated as of September
24, 2002 among Ferrellgas Partners, Ferrellgas Partners Finance Corp. and U.S.
Bank, N.A., as Trustee, relating to its 8 3/4% Senior Notes due 2012 should
Ferrellgas Partners determine to issue additional notes of that series.
Subordinated debt securities will be issued under one or more subordinated
indentures. Any senior indenture and any subordinated indenture are each
referred to in this prospectus as an indenture and collectively referred to as
the indentures. We will enter into the indentures with a trustee that is
qualified to act under the Trust Indenture Act of 1939, as amended. Any
reference to the trustee in this prospectus shall refer to the trustee under the
indentures together with any other trustee(s) chosen by us and appointed in a
supplemental indenture with respect to a particular series of debt securities.
The trustee for each series of debt securities will be identified in the
applicable prospectus supplement.
The form of indentures and any supplemental indentures will be filed by us
from time to time by means of an exhibit to a Current Report on Form 8-K and
will be available for inspection at the corporate trust office of the applicable
trustee, or as described under "Where You Can Find More Information." The
indentures will be subject to, and governed by, the Trust Indenture Act. We will
execute, unless previously executed, any indenture and supplemental indenture if
and when we issue any debt securities.
We summarize some of the expected material provisions of the indentures in
the following order:
o those provisions that apply only to the senior indenture;
o those provisions that apply only to the subordinated indenture; and
o those provisions that apply to both indentures.
Although the material terms of any indenture or supplemental indenture will
be described in this prospectus and in a prospectus supplement, you should read
the applicable indenture and supplemental indenture, if any, because they, and
not this description or the description in the prospectus supplement, control
your rights as holders of the debt securities.
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For purposes of this description:
o the "partnership" refers to Ferrellgas Partners, L.P.;
o the words "we," "us," "our" and "ourselves" refer to the co-issuers of
the applicable debt securities, either Ferrellgas Partners, L.P. and
Ferrellgas Partners Finance Corp. or Ferrellgas, L.P. and
Ferrellgas Finance Corp.;
o the "operating partnership" refers to Ferrellgas, L.P.; and
o the "general partner" refers to Ferrellgas, Inc.
SPECIFIC TERMS OF EACH SERIES OF DEBT SECURITIES IN THE PROSPECTUS SUPPLEMENT
A prospectus supplement and an indenture or supplemental indenture relating
to any series of debt securities being offered will include specific terms
relating to that series of debt securities. These terms will include some or all
of the following:
o the issuers of the debt securities;
o the form and title of the debt securities;
o any limit on the total principal amount of the debt securities;
o the assets, if any, that are pledged as security for the payment of the
debt securities;
o the portion of the principal amount that will be payable if the maturity
of the debt securities is accelerated in the case of debt securities
issued at a discount from their face amount;
o the currency or currency unit in which the debt securities will be
payable, if not U.S. dollars;
o any right we may have to defer payments of interest by extending the
dates payments are due and whether interest on those deferred amounts
will be payable as well;
o the date or dates on which the principal of the debt securities will be
payable;
o the interest rate, if any, that the debt securities will bear, the date
or dates from which interest will accrue, the interest payment dates for
the debt securities and the regular record dates for interest payable on
any interest payment date;
o any conversion or exchange provisions;
o any optional redemption provisions;
o any change of control offer provisions;
o any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the debt securities;
o any changes to or additional Events of Default or covenants; and
o any other terms of the debt securities.
Debt securities may be issued as original issue discount debt securities.
Original issue discount debt securities bear no interest or bear interest at
below-market rates and are sold at a discount to their stated principal amount.
If we issue these securities, the prospectus supplement will describe any
special tax, accounting or other considerations relevant to these securities.
PROVISIONS ONLY IN THE SENIOR INDENTURE
The senior debt securities will rank equally in right of payment with all
of our other senior and unsubordinated debt and senior in right of payment to
any of our subordinated debt, including the subordinated debt securities.
However, any secured senior debt securities will effectively rank senior to any
unsecured senior debt to the extent of the value of the property securing the
secured senior debt securities.
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A senior indenture or a supplemental indenture relating to a specific
series of senior debt securities will contain restrictive covenants that, unless
otherwise specified in a prospectus supplement, will not be included in a
subordinated indenture or supplemental indenture relating to a specific series
of subordinated debt securities. We expect that the these covenants will include
a prohibition on our ability to incur liens on our property, other than
permitted liens, unless the debt securities are secured equally and ratably with
the obligation or liability secured by such liens. These covenants may also
include restrictions on our ability and the ability of our restricted
subsidiaries to:
o incur indebtedness;
o make restricted payments;
o engage in transactions with our affiliates;
o create restrictions on the ability of our restricted subsidiaries to
pay dividends or make particular other payments; and
o sell and lease back our assets.
The specific terms of any such covenants or other covenants applicable to
any specific series of debt securities will be contained in the applicable
prospectus supplement.
PROVISIONS ONLY IN THE SUBORDINATED INDENTURE
The subordinated debt securities will be unsecured. The subordinated debt
securities will be subordinate in right of payment to all senior indebtedness.
In addition, claims of our subsidiaries' creditors generally will have
priority with respect to the assets and earnings of the subsidiaries over the
claims of our creditors, including holders of the subordinated debt securities,
even though those obligations may not constitute senior indebtedness. The
subordinated debt securities, therefore, will be effectively subordinated to
creditors, including trade creditors, of our subsidiaries.
The subordinated indenture will define "senior indebtedness" to mean the
principal of, premium, if any, and interest on:
o all indebtedness for money borrowed or guaranteed by us other than the
subordinated debt securities, unless the indebtedness expressly states
that it has the same ranks as, or ranks junior to, the subordinated
debt securities; and
o any deferrals, renewals or extensions of any senior indebtedness.
However, the term "senior indebtedness" will not include:
o any of our obligations to our subsidiaries;
o any liability for Federal, state, local or other taxes owed or owing by
us;
o any accounts payable or other liability to trade creditors, arising in
the ordinary course of business, including guarantees of, or
instruments evidencing, those liabilities;
o any indebtedness, guarantee or obligation of ours which is expressly
subordinate or junior in right of payment in any respect to any other
indebtedness, guarantee or obligation of ours, including any senior
subordinated indebtedness and any subordinated obligations;
o any obligations with respect to any capital stock, partnership
interests, membership interests or other equity interests of any kind;
or
o any indebtedness incurred in violation of the subordinated indenture.
There is no limitation on our ability to issue additional senior
indebtedness. The senior debt securities constitute senior indebtedness under
the subordinated indenture. The subordinated debt securities will rank equally
with our other subordinated indebtedness.
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Under the subordinated indenture, no payment may be made on the
subordinated debt securities and no purchase, redemption or retirement of any
subordinated debt securities may be made in the event:
o any senior indebtedness is not paid when due; or
o the maturity of any senior indebtedness is accelerated as a result of a
default, unless the default has been cured or waived and the
acceleration has been rescinded or that senior indebtedness has been
paid in full.
We may, however, pay the subordinated debt securities without regard to the
above restriction if the representatives of the holders of the applicable senior
indebtedness approve the payment in writing to us and the trustee.
The representatives of the holders of senior indebtedness may notify us and
the trustee in writing of a default, which can result in the acceleration of
that senior indebtedness's maturity without further notice or the expiration of
any grace periods. In this event, we may not pay the subordinated debt
securities for 179 days after receipt of that notice of such default unless the
person who gave such notice gives written notice to the trustee and to us
terminating the period of non-payment, the senior indebtedness is paid in full
or the default that caused such notice is no longer continuing. If the holders
of senior indebtedness or their representatives have not accelerated the
maturity of the senior indebtedness at the end of the 179-day period, we may
resume payments on the subordinated debt securities. Not more than one such
notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to senior indebtedness during that period.
In the event we pay or distribute our assets to creditors upon a total or
partial liquidation or dissolution of us, or in bankruptcy or reorganization
relating to us or our property, the holders of senior indebtedness will be
entitled to receive payment in full of the senior indebtedness before the
holders of subordinated debt securities are entitled to receive any payment of
either principal or interest. Until the senior indebtedness is paid in full, any
payment or distribution to which holders of subordinated debt securities would
be entitled but for the subordination provisions of the subordinated indenture
will be made to holders of the senior indebtedness.
If a distribution is made to holders of subordinated debt securities that,
due to the subordination provisions, should not have been made to them, those
holders of subordinated debt securities are required to hold it in trust for the
holders of senior indebtedness, and pay it over to them as their interests may
appear.
If payment of the subordinated debt securities is accelerated because of an
Event of Default, either we or the trustee will promptly notify the holders of
senior indebtedness or their representatives of the acceleration. We may not pay
the subordinated debt securities until five business days after the holders of
senior indebtedness or their representatives receive notice of the acceleration.
Thereafter, we may pay the subordinated debt securities only if the
subordination provisions of the subordinated indenture otherwise permit payment
at that time.
As a result of the subordination provisions contained in the subordinated
indenture, in the event of insolvency, our creditors who are holders of senior
indebtedness may recover more, ratably, than the holders of subordinated debt
securities. In addition, our creditors who are not holders of senior
indebtedness may recover less, ratably, than holders of senior indebtedness and
may recover more, ratably, than the holders of subordinated indebtedness. It is
important to keep this in mind if you decide to hold our subordinated debt
securities.
PROVISIONS APPLICABLE TO BOTH INDENTURES
MERGER, CONSOLIDATION OR SALE OF ASSETS
Each indenture will provide that the partnership or the operating
partnership, as applicable, may not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions to, another
entity unless:
(a) the partnership or the operating partnership, as applicable, is the
surviving entity or the entity formed by or surviving the transaction, if other
than the partnership or the operating partnership, or the entity to which the
sale was made is a corporation or partnership organized or existing under the
laws of the United States, any state thereof or the District of Columbia;
(b) the entity formed by or surviving the transaction, if other than the
partnership or the operating partnership, or the entity to which the sale was
made assumes all the obligations of the partnership or the operating
partnership, as applicable, in accordance with a supplemental indenture in a
form reasonably satisfactory to the trustee, under the debt securities and an
indenture;
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(c) immediately after the transaction no Event of Default, or event that is or
after notice or the passage of time would be an Event of Default (a "Default"),
exists; and
(d) with respect to any series of debt securities of the partnership (but not of
the operating partnership), at the time of the transaction and after giving pro
forma effect to it as if the transaction had occurred at the beginning of the
applicable four-quarter period, the partnership or such other entity or survivor
is permitted to incur at least $1.00 of additional indebtedness under any
covenant restricting our ability to incur indebtedness applicable to that series
of debt securities.
Each indenture will also provide that Ferrellgas Partners Finance Corp. or
Ferrellgas Finance Corp., as applicable, may not consolidate or merge with or
into, whether or not it is the surviving entity, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions to, another entity except under
conditions similar to those described in the paragraph above.
LIMITATIONS ON FERRELLGAS PARTNERS FINANCE CORP. AND FERRELLGAS FINANCE CORP.
In addition to any other covenants restricting our ability to incur
indebtedness that may be contained in an indenture or supplemental indenture,
each indenture will provide that Ferrellgas Partners Finance Corp. or Ferrellgas
Finance Corp., as applicable, may not incur any indebtedness, as defined in the
applicable indenture, unless:
o the partnership or the operating partnership, as applicable, is a
co-obligor or guarantor of the indebtedness; or
o the net proceeds of the indebtedness are either:
o lent to the partnership or the operating partnership, as
applicable;
o used to acquire outstanding debt securities issued by the
partnership or the operating partnership, as applicable, or
o used, directly or indirectly, to refinance or discharge
indebtedness permitted under the limitation of this paragraph.
Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp., as
applicable, may not engage in any business not related, directly or indirectly,
to obtaining money or arranging financing for the partnership or the operating
partnership, as applicable.
EVENTS OF DEFAULT AND REMEDIES
Each indenture will describe in detail the occurrences that would
constitute an "Event of Default." Such occurrences include the following:
(a) default in the payment of the principal of or premium, if any, on any debt
security when the same becomes due and payable, upon stated maturity,
acceleration, optional redemption, required purchase, scheduled principal
payment or otherwise;
(b) default in the payment of an installment of interest on any of the debt
securities, when the same becomes due and payable, which default continues for a
period of 30 days;
(c) failure to perform or observe any other term, covenant or agreement
contained in the debt securities or an 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 or the operating partnership, as applicable,
by the trustee or to the partnership or the operating partnership, as
applicable, and the trustee by holders of 25% in aggregate principal amount of
the applicable series of debt securities then outstanding;
(d) default or defaults under one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of indebtedness under which the partnership
or the operating partnership, as applicable, or any restricted subsidiary of the
partnership or the operating partnership, as applicable, then has outstanding
indebtedness in excess of $10 million, if the default:
o is caused by a failure to pay principal of or premium, if any, or
interest on to such indebtedness within the applicable grace
period, if any, provided with respect to such indebtedness; or
o results in the acceleration of such indebtedness prior to its stated
maturity;
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(e) a final judgment or judgments, which is or are non-appealable and
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 partnership or the operating partnership, as applicable,
any restricted subsidiary of the partnership or the operating partnership, as
applicable, or the general partner; provided that such judgment or judgments
requires or require the payment of money in excess of $10 million in the
aggregate and is not covered by insurance or discharged or stayed pending appeal
or review within 60 days after entry of such judgment; in the event of a stay,
the judgment shall not be discharged within 30 days after the stay expires; or
(f) specified events of bankruptcy, insolvency or reorganization with respect to
us or any of our significant subsidiaries, as that term is defined in Rule
1.02(v) of Regulation S-X under the Securities Act, has occurred.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% of principal amount of the applicable series of debt
securities then outstanding may declare all the debt securities of that series
to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from specified events of bankruptcy or insolvency, with respect to the
applicable issuers or any significant subsidiary, all outstanding applicable
debt securities will become due and payable immediately without further action
or notice. Holders of debt securities may not enforce an indenture or the debt
securities except as provided in the applicable indenture. Subject to
limitations, holders of a majority in principal amount of a series of
then-outstanding debt securities may direct the trustee of that series of debt
securities in its exercise of any trust or power. The trustee may withhold from
holders of debt securities notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if the trustee determines in good faith that withholding notice is in
their interest. If any Event of Default occurs because the issuers or those
acting on their behalf willfully intended to avoid payment of the premium that
they would have to pay if they then elected to redeem a series of debt
securities under any optional redemption provisions applicable to that series of
debt securities, then an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon the acceleration of the debt
securities. The holders of a majority in aggregate principal amount of a series
of debt securities and then outstanding, by notice to the trustee for those debt
securities, may waive any existing Default or Event of Default for all holders
of that series and its consequences under an indenture, except a continuing
Default or Event of Default in the payment of any principal of, premium, if any,
or interest on the debt securities.
The issuers are required to deliver to the trustee annually a statement
regarding compliance with an indenture. In addition, upon becoming aware of any
Default or Event of Default, the issuers are required to deliver to the trustee
a statement specifying the Default or Event of Default.
An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under an indenture or under any other indenture.
NO PERSONAL LIABILITY OF LIMITED PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
UNITHOLDERS
No limited partner of the partnership or the operating partnership or any
director, officer, employee, incorporator or stockholder of our general partner,
Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp., as such, shall
have any liability for any of our obligations under the debt securities or any
indenture or any claim based on, in respect of, or by reason of, these
obligations. Each holder of debt securities, by accepting a debt security,
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the debt securities. The waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the SEC that such a waiver is against public policy.
NON-RECOURSE
The obligations under any debt securities and any indenture are:
o recourse to our general partner and the applicable issuers;
o non-recourse to any of our other entities; and
o are payable only out of the cash flow and assets of our general partner
and the applicable issuers.
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The trustee and each holder of a debt security, by accepting a debt
security, will be deemed to have agreed in the applicable indenture that:
o if the debt security is issued by the partnership, the operating
partnership and its other affiliates will not be liable for any of the
partnership's obligations under an indenture or the debt securities; or
o if the debt security is issued by the operating partnership, the
partnership and its other affiliates will not be liable for any of the
operating partnership's obligations under an indenture or the debt
securities.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at the option of the board of directors of our general partner, on
our behalf, and the board of directors of Ferrellgas Partners Finance Corp. or
Ferrellgas Finance Corp., as applicable, and at any time, elect to have all of
our obligations discharged with respect to outstanding debt securities. This is
known as "legal defeasance." However, under legal defeasance we cannot
discharge:
(a) the rights of holders of outstanding debt securities to receive payments
with respect to any principal, premium, and interest on the debt securities when
the payments are due;
(b) our obligations with respect to the debt securities concerning issuing
temporary debt securities, registration of debt securities or mutilated,
destroyed, lost or stolen debt securities;
(c) our obligation to maintain an office or agency for payment and money for
security payments held in trust;
(d) the rights, powers, trusts, duties and immunities of the trustee, and our
obligations in connection therewith; and
(e) the legal defeasance and covenant defeasance provisions of an indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to specified covenants that are described in
an indenture or supplemental indenture. This is called "covenant defeasance."
After our obligations have been released in this manner, any failure to comply
with these obligations will not constitute a Default or Event of Default with
respect to the debt securities. In the event covenant defeasance occurs,
specific events, not including non-payment, bankruptcy, receivership,
reorganization and insolvency, described in the section entitled "--Events of
Default and Remedies," will no longer constitute an Event of Default with
respect to the debt securities.
In order to exercise either legal defeasance or covenant defeasance, we
must irrevocably deposit with the trustee, in trust, for the benefit of the
holders of debt securities, cash in U.S. dollars, non-callable U.S. government
securities, or a combination thereof, in amounts sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal, any premium and interest on the outstanding debt securities on the
stated maturity date or on the applicable redemption date.
In addition, we will be required to deliver to the trustee an opinion of
counsel stating 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, and that
all conditions precedent provided for or relating to legal defeasance or
covenant defeasance have been complied with, and confirming other matters.
Furthermore, in the case of a legal defeasance, the opinion must confirm that we
have received from, or there shall have been published by, the IRS a ruling, or
since the date of an indenture, there shall have been a change in the applicable
federal income tax law, in either case, to the effect that, and based thereon,
the holders of the outstanding debt securities will not recognize income, gain
or loss for federal income tax purposes as a result of the 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 the legal defeasance had
not occurred. In the case of covenant defeasance, the opinion must confirm that
the holders of the outstanding debt securities will not recognize income, gain
or loss for federal income tax purposes as a result of the 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 the covenant
defeasance had not occurred.
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 debt
securities over our other creditors or with the intent of defeating, hindering,
delaying or defrauding our other creditors.
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We may not exercise either legal defeasance or covenant defeasance if an
Event of Default has occurred and is continuing on the date of the 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. In
addition, we may not exercise either legal defeasance or covenant defeasance if
such legal defeasance or covenant defeasance will result in a breach, violation
or constitute a default under any material agreement or instrument, other than
an indenture to which we or any of our restricted subsidiaries is a party or by
which we or any of our restricted subsidiaries is bound.
AMENDMENT, SUPPLEMENT AND WAIVER
In general, each indenture and the debt securities may be amended or
supplemented, and any existing default or compliance with any provision of an
indenture or the debt securities may be waived, with the consent of the holders
of at least a majority in principal amount of the debt securities of each
affected series of the applicable issuers then outstanding. This includes
consents obtained in connection with a tender offer or exchange offer for debt
securities. However, without the consent of each holder of affected debt
securities of the applicable issuers, an amendment or waiver may not, with
respect to any debt securities held by a non-consenting holder of debt
securities:
(a) reduce the principal amount of debt securities whose holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any debt security or
alter the provisions with respect to the redemption of the debt securities,
other than provisions relating to our obligation to repurchase the debt
securities upon specific asset sales or a change of control;
(c) reduce the rate of or change the time for payment of interest on any debt
securities;
(d) waive a Default in the payment of principal or interest on the debt
securities;
(e) make any debt security payable in money other than that stated in the debt
securities;
(f) make any change in the provisions of an indenture relating to waivers of
past Defaults or the rights of holders of debt securities to receive payments of
principal, premium, if any, or interest on the debt securities; or
(g) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of debt
securities, we and the trustee may amend or supplement an indenture or the debt
securities to:
(a) cure any ambiguity, defect or inconsistency;
(b) provide for uncertificated debt securities in addition to or in place of
certificated debt securities;
(c) establish a new series of debt securities;
(d) provide for the assumption of our obligations to holders of debt securities
in the case of a merger or consolidation;
(e) make any change that could provide any additional rights or benefits to the
holders of debt securities that does not adversely affect the legal rights under
an indenture of any such holder;
(f) comply with requirements of the SEC in order to effect or maintain the
qualification of an indenture under the Trust Indenture Act; or
(g) to provide security for or add guarantees with respect to the debt
securities.
If an Event of Default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in aggregate principal
amount of the debt securities of the series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
this happens, subject to specific conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a Default, a trustee is not obligated to
exercise any of its rights or powers under any indenture at the request, order
or direction of any holders, unless the holders offer the trustee reasonable
indemnity. If they provide this reasonable indemnification, the holders of a
majority in principal amount of any series of debt securities may direct the
time, method and place of conducting any proceeding or any remedy available to
the trustee, or exercising any power conferred upon the trustee, for any series
of debt securities.
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NO LIMIT ON AMOUNT OF DEBT SECURITIES
The indentures may not contain limits on the amount of debt securities that
we may issue under the indentures, subject to compliance with any covenant in
respect of any previously issued series of debt securities under the applicable
indenture that limits our ability to incur indebtedness.
REGISTRATION OF DEBT SECURITIES
We may issue debt securities of a series in registered, bearer, coupon or
global form.
THE TRUSTEE
The trustee may resign or be removed by us with respect to one or more
series of debt securities and a successor trustee may be appointed to act with
respect to any such series. Any resignation will require the appointment of a
successor trustee under the applicable indenture in accordance with the terms
and conditions of such indenture. The holders of a majority in aggregate
principal amount of the debt securities of any series may remove the trustee
with respect to the debt securities of such series. Should the trustee become
our creditor, each indenture will contain specific limitations on the trustee's
rights to obtain payment of claims or to realize on specific property received
in respect of any claim as security or otherwise. The trustee will be permitted
to engage in other transactions; however, if it acquires any conflicting
interest it must eliminate the conflict within 90 days, apply to the SEC for
permission to continue or resign.
The holders of a majority in principal amount of the outstanding debt
securities of the affected series will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the trustee, subject to specific exceptions. Each indenture will provide that in
case an uncured Event of Default occurs, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to these provisions, the trustee will be under no
obligation to exercise any of its rights or powers under any indenture at the
request of any holder of debt securities, unless the holder offers to the
trustee security and indemnity satisfactory to the trustee against any loss,
liability or expense.
BOOK-ENTRY, DELIVERY AND FORM OF THE DEBT SECURITIES
GLOBAL NOTES
Unless otherwise stated in the prospectus supplement, we will issue the
debt securities in denominations of $1,000 and in fully registered form without
coupons. Each debt security will be represented by a global note registered in
the name of a nominee of the depositary. Except as set forth in the prospectus
supplement, the debt securities will be issuable only in global form. Upon
issuance, all debt securities will be represented by one or more fully
registered global notes. Each global note will be deposited with, or on behalf
of, the depositary and registered in the name of the depositary or its nominee
or will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between the depositary and the trustee. Your beneficial
interest in a debt security will be shown on, and transfers of beneficial
interests will be effected only through, records maintained by the depositary or
its participants. Payments of principal of, premium, if any, and interest, if
any, on the debt securities represented by a global note will be made by us or
our paying agent to the depositary or its nominee. The Depository Trust Company,
often referred to as DTC, will be the initial depositary.
We have provided the following descriptions of the operations and
procedures of DTC and its participants solely as a matter of convenience. These
operations and procedures are solely within the control of DTC and its
participants and are subject to change by them from time to time. Neither we,
any underwriter, dealer, agent, trustee nor paying agent take any responsibility
for these operations or procedures, and you are urged to contact DTC or its
participants directly to discuss these matters.
In addition, neither we, any trustee nor any paying agent will be liable
for any delay by DTC, its nominee or any direct or indirect participant in
identifying the beneficial owners of the debt securities. We, any trustee and
any paying agent may conclusively rely on, and will be protected in relying on,
instructions from DTC or its nominee, including instructions about the
registration and delivery, and the respective principal amounts, of any debt
securities issued.
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THE DEPOSITARY
DTC has advised us that:
o DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered under Section 17A of
the Exchange Act;
o DTC holds securities that its direct participants deposit with DTC and
facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical
movement of securities certificates;
o direct participants include securities brokers and dealers, including
the underwriters of this offering, banks, trust companies, clearing
corporations and other organizations;
o DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc.;
o access to the DTC system is also available to indirect participants
such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly; and
o the rules applicable to DTC and its direct and indirect participants
are on file with the SEC.
OWNERSHIP OF GLOBAL NOTES
We expect that under procedures established by DTC:
o upon deposit of the global notes with DTC or its nominee, DTC will
credit on its internal system the accounts of direct participants
designated by the underwriters with portions of the principal amounts
of the global notes; and
o ownership of beneficial interests in the debt securities will be shown
on, and the transfer of that ownership will be effected only through,
records maintained by the depositary, or by participants in the
depositary or persons that may hold interests through participants.
Ownership of beneficial interests in a global note will be limited to
participants or persons that hold interests through participants. Ownership of
beneficial interests in debt securities represented by a global note will be
limited to participants or persons that hold interests through participants.
So long as the depositary for a global note, or its nominee, is the
registered owner of the global note, the depositary or its nominee will be
considered the sole owner or holder of the debt securities represented by a
global note for all purposes under an indenture. Except as provided below, as
the owner of beneficial interests in debt securities represented by a global
note or global notes, you:
o will not be entitled to register the debt securities represented by a
global note in your name;
o will not receive or be entitled to receive physical delivery of debt
securities in definitive form; and
o will not be considered the owner or holder of any of the debt
securities under an indenture.
The laws of some states require that purchasers of securities take physical
delivery of securities in definitive form. Therefore, the limits and
restrictions listed above may impair your ability to transfer beneficial
interests in a global note. In addition, the lack of a physical certificate
evidencing your beneficial interests in the global notes may limit your ability
to pledge the interests to a person or entity that is not a participant in DTC.
We understand that under existing policy of the depositary and industry
practices, if:
o we request any action of holders; or
o you desire to give notice or take action which a holder is entitled to
under an indenture or a global note,
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the depositary would authorize the participants holding the beneficial interests
to give the notice or take the action. Accordingly, if you are a beneficial
owner that is not a participant, you must rely on the procedures of the
depositary or on the procedures of the participant as well as the contractual
arrangements you have directly, or indirectly through your financial
intermediary, with a participant to exercise any rights of a holder under an
indenture or a global note or to give notice or take action.
To facilitate subsequent transfers, all global notes deposited by
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of global notes with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the book-entry debt securities.
DTC's records reflect only the identity of the direct participants to whose
accounts the book-entry debt securities are credited, which may or may not be
the beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Neither DTC nor Cede & Co. will consent or vote with respect to book-entry
debt securities. Under its usual procedures, DTC will mail an "omnibus proxy" to
us as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants to whose accounts
the book-entry debt securities are credited on the record date, which are
identified in a listing attached to the omnibus proxy.
A beneficial owner will give notice to elect to have its book-entry debt
securities purchased or tendered, through its participant, to the paying agent,
and shall effect delivery of such book-entry debt securities by causing the
direct participant to transfer the participant's interest in the book-entry debt
securities, on the depositary's records, to the paying agent. The requirement
for physical delivery of book-entry debt securities in connection with a demand
for purchase or a mandatory purchase will be deemed satisfied when the ownership
rights in the book-entry debt securities are transferred by a direct participant
on the depositary's records.
PAYMENTS
We will make payments of principal of, premium, if any, and interest, if
any, on the debt securities represented by a global note through the trustee to
the depositary or its nominee, as the registered owner of a global note. So long
as the debt securities are represented by global notes registered in the name of
DTC or its nominee, all payments will be made by us in immediately available
funds. We expect that the depositary, upon receipt of any payments, will
immediately credit the accounts of the related participants with payments in
amounts proportionate to their beneficial interest in the global note. We also
expect that payments by participants to owners of beneficial interests in a
global note will be governed by standing customer instructions and customary
practices and will be the responsibility of the participants. However, these
payments will be the sole responsibility of the participant.
Neither we, the trustee, any paying agent or any other of our agents will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of a global note
or for maintaining, supervising or reviewing any records relating to beneficial
ownership interests.
CERTIFICATED DEBT SECURITIES
We will issue certificated debt securities in exchange for all the global
notes if:
o DTC or any other designated replacement depositary is at any time
unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under the Exchange Act and a successor
depositary registered as a clearing agency under the Exchange Act and a
successor depositary registered as a clearing agency under the Exchange
Act is not appointed by us within 90 calendar days; or
o we determine in our sole discretion to not have the debt securities
represented by the global notes.
In either instance, you, as an owner of a beneficial interest in a global
note, will be entitled to have certificated debt securities equal in principal
amount to the beneficial interest registered in your name and will be entitled
to physical delivery of the certificated debt securities. The certificated debt
securities will be registered in the name or names as the depositary shall
instruct the trustee. These instructions may be based upon directions received
by the depositary from participants with respect to beneficial interests in the
global notes. The certificated debt securities will be issued in denominations
of $1,000 and will be issued in registered form only, without coupons. No
service charge will be made for any transfer or exchange of certificated debt
securities, but we may require payment of a sum sufficient to cover any tax or
other governmental charge.
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SETTLEMENT PROCEDURES
Unless otherwise described in the applicable prospectus supplement, initial
settlement of the debt securities will be made by us, the underwriters, dealers,
agents, or sales managers, as applicable, in immediately available funds. So
long as the debt securities are represented by global notes registered in the
name of DTC or its nominee, secondary market trading between DTC participants
will occur in the ordinary way in accordance with DTC's rules and procedures and
will be settled in immediately available funds using DTC's same-day funds
settlement system. No assurance though can be given as to the effect, if any, of
settlement in immediately available funds on the trading activity of the debt
securities.
TAX CONSEQUENCES
This section discusses the material tax consequences that may be relevant
to prospective unitholders who are individual citizens or residents of the
United States. It is based upon current provisions of the Internal Revenue Code,
existing regulations, proposed regulations to the extent noted, and current
administrative rulings and court decisions, all of which are subject to change.
Later changes in these authorities may cause the actual tax consequences to vary
substantially from the consequences described below. Unless the context
otherwise requires, references in this section to "us" or "we" are references to
Ferrellgas Partners, L.P. and the operating partnership, and not to Ferrellgas
Partners Finance Corp. or Ferrellgas Finance Corp.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, this
discussion focuses on unitholders who are individual citizens or residents of
the United States and it has only limited application to corporations, estates,
trusts, non-resident aliens or other unitholders that may be subject to
specialized tax treatment, such as tax-exempt institutions, foreign persons,
individual retirement accounts, real estate investment trusts or mutual funds.
Accordingly, we recommend that each prospective unitholder consult, and depend
on, that unitholder's own tax advisor in analyzing the federal, state, local and
foreign tax consequences particular to that unitholder of the ownership or
disposition of our common units.
All statements as to matters of law and legal conclusions, but not as to
factual matters, contained in this section, unless otherwise noted, are the
opinion of Mayer, Brown, Rowe & Maw, counsel to us and our general partner, and
are, to the extent noted herein, based on the accuracy of various factual
matters.
No ruling has been or will be requested from the IRS regarding any matter
affecting us or prospective unitholders, other than a ruling we received
relating to our taxable year. An opinion of counsel represents only that
counsel's best legal judgment and does not bind the IRS or the courts.
Accordingly, the opinions and statements made here may not be sustained by a
court if contested by the IRS. Any contest of this sort with the IRS may
materially and adversely impact the market for our common units and the prices
at which our common units trade. In addition, the costs of any contest with the
IRS will be borne directly or indirectly by the unitholders and our general
partner. Furthermore, the tax treatment of us, or of an investment in us, may be
significantly modified by future legislative or administrative changes or court
decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, Mayer, Brown, Rowe & Maw has not rendered
an opinion with respect to the following specific federal income tax issues:
o the treatment of a unitholder whose common units are loaned to a short
seller to cover a short sale of common units; see "--Tax Consequences
of Unit Ownership--Treatment of Short Sales;"
o whether our monthly convention for allocating taxable income and losses
is permitted by existing Treasury Regulations; see
"--Disposition of Common Units--Allocations Between Transferors
and Transferees;" and
o whether our method for depreciating Section 743 adjustments is
sustainable; see "--Tax Consequences of Unit Ownership--
Section 754 Election."
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account that partner's allocable share of items of income, gain, loss and
deduction of the partnership in computing that partner's federal income tax
liability, regardless of whether cash distributions are made. Distributions by a
partnership to a partner are generally not taxable unless the amount of any cash
distributed is in excess of the partner's adjusted basis in that partner's
partnership interest.
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No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status for federal income tax purposes or whether our
operations generate "qualifying income" under Section 7704 of the Internal
Revenue Code. Instead, we rely on the opinion of Mayer, Brown, Rowe & Maw that,
based upon the Internal Revenue Code, its regulations, published revenue rulings
and court decisions, that we and the operating partnership will each be
classified as a partnership for federal income tax purposes so long as:
o we do not elect to be treated as a corporation; and
o for each taxable year, more than 90% of our gross income has been and
continues to be "qualifying income" within the meaning of Section 7704
(d) of the Internal Revenue Code.
Qualifying income includes income and gains from the processing, refining,
transportation and marketing of crude oil, natural gas and products thereof,
including the transportation and retail and wholesale marketing of propane.
Other types of qualifying income include interest other than from a financial
business, dividends, gains from the sale of real property and gains from the
sale or other disposition of assets held for the production of income that
otherwise constitutes qualifying income. We believe that more than 90% of our
income has been, and will be, within one or more categories of income that are
qualifying income. The portion of our income that is qualifying income can
change from time to time.
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with respect
to publicly-traded partnerships of which 90% or more of the gross income for
every taxable year consists of "qualifying income." Although we expect to
conduct our business so as to meet the Qualifying Income Exception, if we fail
to meet the Qualifying Income Exception, other than a failure that is determined
by the IRS to be inadvertent and that is cured within a reasonable time after
discovery, we will be treated as if we had transferred all of our assets,
subject to liabilities, to a newly formed corporation on the first day of the
year in which we fail to meet the Qualifying Income Exception in return for
stock in that corporation, and as if we had then distributed that stock to the
unitholders in liquidation of their interests in us. This contribution and
liquidation should be tax-free to us so long as we, at that time, do not have
liabilities in excess of the tax basis of our assets and should be tax-free to a
unitholder so long as that unitholder does not have liabilities allocated to
that unitholder in excess of the tax basis in that unitholder's units.
Thereafter, we would be treated as a corporation for federal income tax
purposes.
If we were treated as a corporation in any taxable year, either as a result
of a failure to meet the Qualifying Income Exception or otherwise, our items of
income, gain, loss and deduction would be reflected only on our tax return
rather than being passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income (to the extent of
our current or accumulated earnings and profits) or (in the absence of earnings
and profits or any amount in excess of earnings and profits) a nontaxable return
of capital (to the extent of the tax basis in that unitholder's common units) or
taxable capital gain (after the tax basis in that unitholder's common units is
reduced to zero). Accordingly, treatment of us as a corporation would result in
a material reduction in a unitholder's cash flow and after-tax return and thus
would likely result in a substantial reduction of the value of our common units.
The discussion below assumes that we will be treated as a partnership for
federal income tax purposes.
TAX TREATMENT OF UNITHOLDERS
LIMITED PARTNER STATUS
Unitholders who have become our limited partners will be treated as our
partners for federal income tax purposes. Also:
o assignees who have executed and delivered transfer applications, and
are awaiting admission as limited partners; and
o unitholders whose common units are held in street name or by a nominee
and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common units;
will be treated as our partners for federal income tax purposes. Assignees of
common units who are entitled to execute and deliver transfer applications and
become entitled to direct the exercise of attendant rights, but who fail to
execute and deliver transfer applications, may not be treated as one of our
partners for federal income tax purposes. Furthermore, a purchaser or other
transferee of common units who does not execute and deliver a transfer
application may not receive particular federal income tax information or reports
furnished to record holders of common units unless our common units are held in
a nominee or street name account and the nominee or broker has executed and
delivered a transfer application for those common units.
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A beneficial owner of common units whose common units have been transferred
to a short seller to complete a short sale would appear to lose its status as
one of our partners with respect to those common units for federal income tax
purposes. See "--Tax Consequences of Unit Ownership--Treatment of Short Sales."
No portion of our income, gains, deductions or losses is reportable by a
unitholder who is not one of our partners for federal income tax purposes, and
any cash distributions received by a unitholder who is not one of our partners
for federal income tax purposes would therefore appear to be fully taxable as
ordinary income. These holders are urged to consult their own tax advisors with
respect to the consequences of holding common units for federal income tax
purposes.
The following discussion assumes that a unitholder is treated as one of our
partners.
TAX CONSEQUENCES OF UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME
Each unitholder will be required to report on that unitholder's income tax
return its allocable share of our income, gains, losses and deductions without
regard to whether corresponding cash distributions are received by that
unitholder. Consequently, we may allocate income to a unitholder even if that
unitholder has not received a cash distribution. Each unitholder will be
required to include in income that unitholder's allocable share of our income,
gain, loss and deduction for our taxable year. Our taxable year is the calendar
year.
TREATMENT OF PARTNERSHIP DISTRIBUTIONS
Our distributions to a unitholder generally will not be taxable to that
unitholder for federal income tax purposes to the extent of the tax basis in
that unitholder's common units immediately before the distribution. Our cash
distributions in excess of a unitholder's tax basis generally will be considered
to be gain from the sale or exchange of our common units, taxable in accordance
with the rules described under "--Disposition of Common Units" below. Any
reduction in a unitholder's share of our liabilities for which no partner,
including our general partner, bears the economic risk of loss, which are known
as "nonrecourse liabilities," will be treated as a distribution of cash to that
unitholder. To the extent that our distributions cause a unitholder's "at risk"
amount to be less than zero at the end of any taxable year, that unitholder must
recapture any losses deducted in previous years. See "--Tax Consequences of Unit
Ownership--Limitations on Deductibility of Partnership Losses."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease that unitholder's share of our
nonrecourse liabilities and result in a corresponding deemed distribution of
cash. A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of the tax basis in that unitholder's common
units, if the distribution reduces the unitholder's share of our "unrealized
receivables"," including depreciation recapture, and substantially appreciated
"inventory items," both as defined in Section 751 of the Internal Revenue Code
and collectively referred to as "Section 751 Assets." To that extent, the
unitholder will be treated as having been distributed that unitholder's
proportionate share of the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual distribution made
to that unitholder. This latter deemed exchange will generally result in the
unitholder's realization of ordinary income which will equal the excess of:
o the non-pro rata portion of that distribution; over
o the unitholder's tax basis for the share of Section 751 Assets deemed
relinquished in the exchange.
RATIO OF TAXABLE INCOME TO CASH DISTRIBUTIONS
We estimate that a person who:
o acquires common units in an offering pursuant to this prospectus; and
o owns those common units through the record dates for all cash
distributions payable for all periods within the 2003 calendar year,
43
will be allocated, on a cumulative basis, an amount of federal taxable income
that will be less than 10% of the cumulative cash distributed to such person for
those periods. The taxable income allocable to a unitholder for subsequent
periods may constitute an increasing percentage of distributable cash. These
estimates are based upon many assumptions regarding our business and operations,
including assumptions about weather conditions in our area of operations,
capital expenditures, cash flows and anticipated cash distributions. These
estimates and our assumptions are subject to numerous business, economic,
regulatory, competitive and political uncertainties beyond our control. Further,
these estimates are based on current tax law and tax reporting positions with
which the IRS could disagree. Accordingly, we cannot assure you that these
estimates will be correct. The actual percentage of distributions that will
constitute taxable income could be higher or lower and any differences could
materially affect the value of our common units.
BASIS OF COMMON UNITS
A unitholder will have an initial tax basis for its common units equal to
the amount that unitholder paid for our common units plus that unitholder's
share of our nonrecourse liabilities. That basis will be increased by that
unitholder's share of our income and by any increases in that unitholder's share
of our nonrecourse liabilities. That basis will be decreased, but not below
zero, by distributions that that unitholder receives from us, by that
unitholder's share of our losses, by any decreases in that unitholder's share of
our nonrecourse liabilities and by that unitholder's share of our expenditures
that are not deductible in computing our taxable income and are not required to
be capitalized. A unitholder generally will have no share of our debt which is
recourse to our general partner, but will have a share, generally based on that
unitholder's share of profits, of our nonrecourse liabilities. See
"--Disposition of Common Units--Recognition of Gain or Loss."
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
The deduction by a unitholder of that unitholder's share of our losses will
be limited to the unitholder's tax basis in its common units and, in the case of
an individual unitholder or a corporate unitholder (if more than 50% of the
value of the corporate unitholder's stock is owned directly or indirectly by
five or fewer individuals or particular tax-exempt organizations), to the amount
for which the unitholder is considered to be "at risk" with respect to our
activities, if that is less than the unitholder's tax basis. A unitholder must
recapture losses deducted in previous years to the extent that our distributions
cause that unitholder's at risk amount to be less than zero at the end of any
taxable year. Losses disallowed to a unitholder or recaptured as a result of
these limitations will carry forward and will be allowable to the extent that
the unitholder's tax basis or at risk amount, whichever is the limiting factor,
subsequently increases. Upon the taxable disposition of a common unit, any gain
recognized by a unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by losses suspended by
the basis limitation. Any excess loss, above such gain, previously suspended by
the at risk or basis limitations would no longer be utilizable.
In general, a unitholder will be at risk to the extent of the tax basis in
that unitholder's common units, excluding any portion of that basis attributable
to that unitholder's share of our nonrecourse liabilities, reduced by any amount
of money the unitholder borrows to acquire or hold that unitholder's common
units if the lender of such borrowed funds owns an interest in us, is related to
the unitholder or can look only to the common units for repayment. A
unitholder's at risk amount will increase or decrease as the tax basis of the
unitholder's common units increases or decreases, other than tax basis increases
or decreases attributable to increases or decreases in that unitholder's share
of our nonrecourse liabilities.
The passive loss limitations generally provide that individuals, estates,
trusts and specific closely held corporations and personal service corporations
can deduct losses from passive activities (generally, activities in which the
taxpayer does not materially participate) only to the extent of the taxpayer's
income from those passive activities. The passive loss limitations are applied
separately with respect to each publicly-traded partnership. Consequently, any
passive losses generated by us will only be available to offset our passive
income generated in the future and will not be available to offset income from
other passive activities or investments (including other publicly-traded
partnerships) or salary or active business income. Passive losses which are not
deductible because they exceed a unitholder's share of our income may be
deducted in full when that unitholder disposes of its entire investment in us in
a fully taxable transaction with an unrelated party. The passive activity loss
rules are applied after other applicable limitations on deductions such as the
at risk rules and the basis limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses from us, but it may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly-traded partnerships. The IRS has announced that Treasury
Regulations will be issued which characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
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LIMITATIONS ON INTEREST DEDUCTIONS
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a unitholder's net passive income from us will be treated as
investment income for this purpose. In addition, the unitholder's share of our
portfolio income will be treated as investment income. Investment interest
expense includes:
o interest on indebtedness properly allocable to property held for
investment;
o our interest expense attributed to portfolio income; and
o the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to portfolio
income.
The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a common unit. Net investment income includes gross income
from property held for investment and amounts treated as portfolio income
pursuant to the passive loss rules less deductible expenses, other than
interest, directly connected with the production of investment income, but
generally does not include gains attributable to the disposition of property
held for investment.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
In general, if we have a net profit, our items of income, gain, loss and
deduction will be allocated among our general partner and the unitholders in
accordance with their respective percentage interests in us. At any time that
cash distributions are made to the holders of our senior units and our incentive
distribution rights or a disproportionate distribution is made to a holder of
our common units, gross income will be allocated to the recipients to the extent
of such distributions. If we have a net loss, our items of income, gain, loss
and deduction will generally be allocated first, to the general partner and the
unitholders in accordance with their respective percentage interests in us to
the extent of their positive capital accounts, as maintained under our
partnership agreements, and, second, to our general partner.
Various items of our income, gain, loss and deduction will be allocated to
account for the difference between the tax basis and fair market value of
property contributed to us by our general partner or any other person
contributing property to us, and to account for the difference between the fair
market value of our assets and their carrying value on our books at the time of
any offering made pursuant to this prospectus. The effect of these allocations
to a unitholder purchasing common units pursuant to this prospectus will be
essentially the same as if the tax basis of our assets were equal to their fair
market value at the time of purchase. In addition, items of recapture income
will be allocated to the extent possible to the partner allocated the deduction
or curative allocation giving rise to the treatment of such gain as recapture
income to minimize the recognition of ordinary income by some unitholders.
Finally, although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital accounts nevertheless
result, items of our income and gain will be allocated in an amount and manner
sufficient to eliminate the negative balance as quickly as possible.
Mayer, Brown, Rowe & Maw is of the opinion that, with the exception of the
issues described in "--Tax Consequences of Unit Ownership--Section 754 Election"
and "--Disposition of Common Units--Allocations Between Transferors and
Transferees," the allocations in the partnership agreement of Ferrellgas
Partners will be given effect for federal income tax purposes in determining how
our income, gain, loss or deduction will be allocated among the holders of its
equity that is outstanding immediately after an offering made pursuant to this
prospectus.
ENTITY-LEVEL COLLECTIONS
If we are required or elect under applicable law to pay any federal, state
or local income tax on behalf of any unitholder or the general partner or any
former unitholder, we are authorized to pay those taxes from our funds. Such
payment, if made, will be treated as a distribution of cash to the unitholder on
whose behalf the payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat the payment as a
distribution to current unitholders. We are authorized to amend the partnership
agreement of Ferrellgas Partners in the manner necessary to maintain uniformity
of intrinsic tax characteristics of common units and to adjust subsequent
distributions, so that after giving effect to such distributions, the priority
and characterization of distributions otherwise applicable under that
partnership agreement is maintained as nearly as is practicable. Payments by us
as described above could give rise to an overpayment of tax on behalf of a
unitholder in which event the unitholder could file a claim for credit or
refund.
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TREATMENT OF SHORT SALES
A unitholder whose common units are loaned to a "short seller" to cover a
short sale of common units may be considered as having disposed of ownership of
those common units. If so, that unitholder would no longer be a partner with
respect to those common units during the period of the loan and may recognize
gain or loss from the disposition. As a result, during this period:
o any of our income, gain, loss or deduction with respect to those common
units would not be reportable by the unitholder;
o any cash distributions received by the unitholder with respect to those
common units would be fully taxable; and
o all of such distributions would appear to be treated as ordinary
income.
Mayer, Brown, Rowe & Maw has not rendered an opinion regarding the
treatment of a unitholder whose common units are loaned to a short seller;
therefore, unitholders desiring to assure their status as partners and avoid the
risk of gain recognition should modify any applicable brokerage account
agreements to prohibit their brokers from borrowing their common units. The IRS
has announced that it is actively studying issues relating to the tax treatment
of short sales of partnership interests. See "--Disposition of Common
Units--Recognition of Gain or Loss."
ALTERNATIVE MINIMUM TAX
Each unitholder will be required to take into account that unitholder's
distributive share of any of our items of income, gain, loss or deduction for
purposes of the alternative minimum tax. A portion of our depreciation
deductions may be treated as an adjustment item for this purpose. A unitholder's
alternative minimum taxable income derived from us may be higher than that
unitholder's share of our net income because we may use accelerated methods of
depreciation for purposes of computing federal taxable income or loss. The
minimum tax rate for non-corporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption amount and 28% on
any additional alternative minimum taxable income. Prospective unitholders
should consult with their tax advisors as to the impact of an investment in
common units on their liability for the alternative minimum tax.
TAX RATES
In general, the highest effective United States federal income tax rate for
individuals for 2003 is 38.6% and the maximum United States federal income tax
rate for net capital gains of an individual for 2003 is 20%, if the asset
disposed of was held for more than 12 months at the time of disposition.
SECTION 754 ELECTION
We have made the election permitted by Section 754 of the Internal Revenue
Code. The election is irrevocable without the consent of the IRS. The election
generally permits us to adjust a common unit purchaser's tax basis in our assets
under Section 743(b) of the Internal Revenue Code to reflect that unitholder's
purchase price when common units are purchased from a holder thereof. The
Section 743(b) adjustment only applies to a person who purchases common units
from a holder of common units and not pursuant to an initial offering by us
under this prospectus.
The calculations that are required to determine a Section 743(b) adjustment
are made additionally complex because common units held by the public have been
issued pursuant to multiple offerings. For example, particular regulations
require that the portion of the Section 743(b) adjustment that eliminates the
effect of any unamortized difference in "book" and tax basis of recovery
property to the holder of such a common unit be depreciated over the remaining
recovery period of that property, but Treasury Regulation Section
1.167(c)-1(a)(6) may require that any such difference in "book" and tax basis of
other property be depreciated over a different period. In addition, the holder
of a common unit, other than a common unit that is sold in a current offering
pursuant to this prospectus, may be entitled by reason of a Section 743(b)
adjustment to amortization deductions in respect of property to which the
traditional method of eliminating differences in "book" and tax basis applies
but to which the holder of a common unit that is sold in a current offering will
not be entitled.
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Because we cannot match transferors and transferees of common units,
uniformity of the economic and tax characteristics of our common units to a
purchaser of such common units must be maintained. In the absence of uniformity,
compliance with a number of federal income tax requirements, both statutory and
regulatory, could be substantially diminished. Under the partnership agreement
of Ferrellgas Partners, our general partner is authorized to take a position to
preserve our ability to determine the tax attributes of a common unit from its
date of purchase and the amount that is paid therefor even if that position is
not consistent with the Treasury Regulations.
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to any unamortized difference between the "book" and tax basis of
an asset in respect of which we use the remedial method in a manner that is
consistent with the regulations under Section 743 of the Internal Revenue Code
as to recovery property in respect of which the remedial allocation method is
adopted. Such method is arguably inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6), which is not expected to directly apply to a material portion
of our assets. If we determine that this position cannot reasonably be taken, we
may take a depreciation or amortization position which may result in lower
annual depreciation or amortization deductions than would otherwise be allowable
to some unitholders. In addition, if common units held by the public other than
those that are sold in a current offering pursuant to this prospectus are
entitled to different treatment in respect of property as to which we are using
the traditional method of eliminating differences in "book" and tax basis, we
may also take a position that results in lower annual deductions to some or all
of our unitholders than might otherwise be available. Mayer, Brown, Rowe & Maw
is unable to opine as to the validity of any position that is described in this
paragraph because there is no clear applicable authority.
A Section 754 election is advantageous if the tax basis in a transferee's
common units is higher than such common units' share of the aggregate tax basis
of our assets immediately prior to the transfer. In such a case, as a result of
the election, the transferee would have a higher tax basis in its share of our
assets for purposes of calculating, among other items, the transferee's
depreciation and amortization deductions and the transferee's share of any gain
or loss on a sale of our assets. Conversely, a Section 754 election is
disadvantageous if the transferee's tax basis in such common units is lower than
such common unit's share of the aggregate tax basis of our assets immediately
prior to the transfer. Thus, the fair market value of our common units may be
affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and will
be made by us on the basis of assumptions as to the value of our assets and
other matters. For example, the allocation of the Section 743(b) adjustment
among our assets must be made in accordance with the Internal Revenue Code. The
IRS could seek to reallocate some or all of any Section 743(b) adjustment
allocated by us to our tangible assets to goodwill instead. Goodwill, as an
intangible asset, is generally amortizable over a longer period of time or under
a less accelerated method than our tangible assets. The determinations we make
may be successfully challenged by the IRS and the deductions resulting from them
may be reduced or disallowed altogether. Should the IRS require a different
basis adjustment to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek permission from the
IRS to revoke our Section 754 election. If such permission is granted, a
subsequent purchaser of common units may be allocated more income than that
purchaser would have been allocated had the election not been revoked.
TAX TREATMENT OF OPERATIONS
ACCOUNTING METHOD AND TAXABLE YEAR
We use the year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each unitholder will be
required to include in income that unitholder's share of our income, gain, loss
and deduction for our taxable year ending within or with that unitholder's
taxable year. In addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of its units following the close
of our taxable year but before the close of its taxable year must include that
unitholder's share of our income, gain, loss and deduction in income for its
taxable year, with the result that that unitholder will be required to include
in income for its taxable year that unitholder's share of more than one year of
our income, gain, loss and deduction. See "--Disposition of Common
Units--Allocations Between Transferors and Transferees."
INITIAL TAX BASIS, DEPRECIATION AND AMORTIZATION
We will use the tax basis of our various assets for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain or loss on the
disposition of such assets. Assets that we acquired from our general partner in
connection with our formation initially had an aggregate tax basis equal to the
tax basis of the assets in the possession of the general partner immediately
prior to our formation. Assets that we acquired after our formation generally
had an initial tax basis equal to their cost, however some of our assets were
contributed to us and had an initial tax basis equal to the contributor's tax
basis in those assets immediately prior to such contribution. The federal income
tax burden associated with the difference between the fair market value of our
property and its tax basis immediately prior to a current offering will be borne
by unitholders holding interests in us prior to that offering. See "--Tax
Consequences of Unit Ownership--Allocation of Partnership Income, Gain, Loss and
Deduction."
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We may elect to use permitted depreciation and cost recovery methods that
will result in the largest deductions being taken in the early years after
assets are placed in service. Property we acquire or construct in the future may
be depreciated using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or otherwise,
all or a portion of any gain, determined by reference to the amount of
depreciation previously deducted and the nature of the property, may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a unitholder who has taken cost recovery or depreciation deductions
with respect to property owned by us may be required to recapture such
deductions as ordinary income upon a sale of that unitholder's interest in us.
See "--Tax Consequences of Unit Ownership--Allocation of Partnership Income,
Gain, Loss and Deduction" and "--Disposition of Common Units--Recognition of
Gain or Loss."
The costs that we incurred in our organization have previously been
amortized over a period of 60 months. The costs incurred in selling our common
units, i.e. syndication expenses, must be capitalized and cannot be deducted
currently, ratably or upon our termination. Uncertainties exist regarding the
classification of costs as organization expenses, which have previously been
amortized by us over a period of 60 months, and as syndication expenses, which
may not be amortized by us. The underwriting discounts and commissions we incur
will be treated as syndication expenses.
VALUATION AND TAX BASIS OF OUR PROPERTIES
The federal income tax consequences of the ownership and disposition of
common units will depend in part on our estimates of the fair market values, and
determinations of the tax bases, of our assets. Although we may from time to
time consult with professional appraisers regarding valuation matters, we will
make many of the fair market value estimates ourselves. These estimates of value
and determinations of basis are subject to challenge and will not be binding on
the IRS or the courts. If the estimates and determinations of fair market value
or basis are later found to be incorrect, the character and amount of items of
income, gain, loss or deduction previously reported by unitholders might change,
and unitholders might be required to adjust their tax liability for prior years
and incur interest and penalties with respect to those adjustments.
DISPOSITION OF COMMON UNITS
RECOGNITION OF GAIN OR LOSS
Gain or loss will be recognized on a sale of common units equal to the
difference between the amount realized and the unitholder's tax basis for the
common units sold. A unitholder's amount realized will be measured by the sum of
the cash or the fair market value of other property received plus that
unitholder's share of our nonrecourse liabilities. Because the amount realized
includes a unitholder's share of our nonrecourse liabilities, the gain
recognized on the sale of common units could result in a tax liability in excess
of any cash received from such sale. Prior distributions from us in excess of
cumulative net taxable income in respect of a common unit which decreased a
unitholder's tax basis in such common unit will, in effect, become taxable
income if our common unit is sold at a price greater than the unitholder's tax
basis in such common unit, even if the price is less than that unitholder's
original cost.
Should the IRS successfully contest our convention to amortize only a
portion of the Section 743(b) adjustment attributable to an amortizable
intangible asset described in Section 197 of the Internal Revenue Code after a
sale of common units, a unitholder could realize additional gain from the sale
of common units than had such convention been respected. See "--Tax Consequences
of Unit Ownership--Section 754 Election." In that case, the unitholder may have
been entitled to additional deductions against income in prior years but may be
unable to claim them, with the result to that unitholder of greater overall
taxable income than appropriate. Counsel is unable to opine as to the validity
of the convention but believes such a contest by the IRS to be unlikely because
a successful contest could result in substantial additional deductions to other
unitholders.
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Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in common units, on the sale or exchange of a common unit will
generally be taxable as capital gain or loss. Capital gain recognized on the
sale of common units held for more than 12 months will generally be taxed at a
maximum rate of 20%. A portion of this gain or loss, which will likely be
substantial, however, will be separately computed and taxed as ordinary income
or loss under Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" owned by us. The term
"unrealized receivables" includes potential recapture items, including
depreciation recapture. Ordinary income attributable to unrealized receivables,
inventory items and depreciation recapture may exceed net taxable gain realized
upon the sale of our common unit and may be recognized even if there is a net
taxable loss realized on the sale of our common unit. Thus, a unitholder may
recognize both ordinary income and a capital loss upon a disposition of common
units. Net capital loss may offset no more than $3,000 of ordinary income in the
case of individuals and may only be used to offset capital gain in the case of
corporations.
The IRS has ruled that a partner who acquires interests in a partnership in
separate transactions must combine those interests and maintain a single
adjusted tax basis for all those interests. Upon a sale or other disposition of
less than all of such interests, a portion of that tax basis must be allocated
to the interests sold using an "equitable apportionment" method. Treasury
Regulations under Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an ascertainable
holding period to elect to use the actual holding period of the common units
transferred. Thus, according to the ruling, a holder of common units will be
unable to select high or low basis common units to sell, but, under the
regulations, may designate specific common units sold for purposes of
determining the holding period of the common units sold. A unitholder electing
to use the actual holding period of common units transferred must consistently
use that identification method for all subsequent sales or exchanges of our
common units. A unitholder considering the purchase of additional common units
or a sale of common units purchased in separate transactions should consult that
unitholder's tax advisor as to the possible consequences of this ruling and
application of the regulations.
The Internal Revenue Code treats a taxpayer as having sold a partnership
interest, such as our units, in which gain would be recognized if it were
actually sold at its fair market value, if the taxpayer or related persons
enters into:
o a short sale;
o an offsetting notional principal contract; or
o a futures or forward contract with respect to the partnership interest
or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an offsetting
notional principal contract or a futures or forward contract with respect to the
partnership interest, the taxpayer will be treated as having sold that position
if the taxpayer or a related person then acquires the partnership interest or
substantially identical property.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES
In general, our taxable income and losses will be determined annually, will
be prorated on a monthly basis and will be subsequently apportioned among the
unitholders in proportion to the number of common units owned by each of them as
of the opening of the New York Stock Exchange on the first business day of the
month. However, gain or loss realized on a sale or other disposition of our
assets other than in the ordinary course of business will be allocated among the
unitholders as of the opening of the New York Stock Exchange on the first
business day of the month in which that gain or loss is recognized. As a result,
a unitholder transferring common units in the open market may be allocated
income, gain, loss and deduction accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Mayer, Brown, Rowe & Maw is unable to opine on the
validity of this method of allocating income and deductions between transferors
and transferees of common units. If this method is not allowed under the
Treasury Regulations, or only applies to transfers of less than all of the
unitholder's interest, our taxable income or losses might be reallocated among
the unitholders. We are authorized to revise our method of allocation between
transferors and transferees, as well as among unitholders whose interests
otherwise vary during a taxable period, to conform to a method permitted under
future Treasury Regulations.
A unitholder who owns common units at any time during a quarter and who
disposes of such common units prior to the record date set for a cash
distribution with respect to such quarter will be allocated items of our income,
gain, loss and deduction attributable to such quarter but will not be entitled
to receive that cash distribution.
NOTIFICATION REQUIREMENTS
A unitholder who sells or exchanges common units is required to notify us
in writing of that sale or exchange within 30 days after the sale or exchange
and in any event by no later than January 15 of the year following the calendar
year in which the sale or exchange occurred. We are required to notify the IRS
of that transaction and to furnish specific information to the transferor and
transferee. However, these reporting requirements do not apply with respect to a
sale by an individual who is a citizen of the United States and who effects the
sale or exchange through a broker. Additionally, a transferor and a transferee
of a common unit will be required to furnish statements to the IRS, filed with
their income tax return returns for the taxable year in which the sale or
exchange occurred, that sets forth the amount of the consideration paid for the
common unit. Failure to satisfy these reporting obligations may lead to the
imposition of substantial penalties.
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CONSTRUCTIVE TERMINATION
We will be considered to have been terminated for tax purposes if there is
a sale or exchange of 50% or more of the total interests in our capital and
profits within a 12-month period. A termination of us will result in the closing
of our taxable year for all unitholders. In the case of a unitholder reporting
on a taxable year other than a year ending December 31, the closing of our
taxable year may result in more than 12 months of our taxable income or loss
being includable in that unitholder's taxable income for the year of our
termination. New tax elections required to be made by us, including a new
election under Section 754 of the Internal Revenue Code, must be made subsequent
to a termination, and a termination could result in a deferral of our deductions
for depreciation. A termination could also result in penalties if we were unable
to determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted prior to the termination.
TAX-EXEMPT ORGANIZATIONS AND VARIOUS OTHER INVESTORS
Ownership of common units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
are subject to federal income tax on unrelated business taxable income.
Virtually all of the taxable income derived by such an organization from the
ownership of a common unit will be unrelated business taxable income and thus
will be taxable to such a unitholder.
A regulated investment company or "mutual fund" is required to derive 90%
or more of its gross income from interest, dividends, gains from the sale of
stocks or securities or foreign currency or related sources. It is not
anticipated that any significant amount of our gross income will include that
type of income.
Non-resident aliens and foreign corporations, trusts or estates which hold
common units will be considered to be engaged in business in the United States
on account of ownership of common units. As a consequence, they will be required
to file federal tax returns in respect of their share of our income, gain, loss
or deduction and pay federal income tax at regular rates on any net income or
gain. Moreover, under rules applicable to publicly-traded partnerships, we will
withhold at the highest effective tax rate applicable to individuals, currently,
38.6%, from cash distributions made quarterly to foreign unitholders. Each
foreign unitholder must obtain a taxpayer identification number from the IRS and
submit that number to our transfer agent on a Form W-8 BEN or applicable
substitute form in order to obtain credit for the taxes withheld. A change in
applicable law may require us to change these procedures.
In addition, because a foreign corporation which owns common units will be
treated as engaged in a United States trade or business, that corporation may be
subject to United States branch profits tax at a rate of 30%, in addition to
regular federal income tax, on its allocable share of our income and gain (as
adjusted for changes in the foreign corporation's "U.S. net equity") which are
effectively connected with the conduct of a United States trade or business.
That tax may be reduced or eliminated by an income tax treaty between the United
States and the country with respect to which the foreign corporate unitholder is
a "qualified resident." In addition, such a unitholder is subject to special
information reporting requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a common unit will be subject to federal income tax on gain realized
on the disposition of such common unit to the extent that such gain is
effectively connected with a United States trade or business of the foreign
unitholder. Apart from the ruling, a foreign unitholder will not be taxed upon
the disposition of a common unit if that foreign unitholder has held less than
5% in value of our common units during the five-year period ending on the date
of the disposition and if our common units are regularly traded on an
established securities market at the time of the disposition.
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ADMINISTRATIVE MATTERS
INFORMATION RETURNS AND AUDIT PROCEDURES
We intend to furnish to each unitholder, within 90 days after the close of
each calendar year, specific tax information, including a Schedule K-1, which
sets forth each unitholder's share of our income, gain, loss and deduction for
our preceding taxable year. In preparing this information, which will generally
not be reviewed by counsel, we will use various accounting and reporting
conventions, some of which have been mentioned in the previous discussion, to
determine the unitholder's share of income, gain, loss and deduction. There is
no assurance that any of those conventions will yield a result which conforms to
the requirements of the Internal Revenue Code, regulations or administrative
interpretations of the IRS. We cannot assure prospective unitholders that the
IRS will not successfully contend in court that such accounting and reporting
conventions are impermissible. Any such challenge by the IRS could negatively
affect the value of our common units.
The IRS may audit our federal income tax information returns. Adjustments
resulting from any such audit may require each unitholder to adjust a prior
year's tax liability, and possibly may result in an audit of the unitholder's
own return. Any audit of a unitholder's return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Internal Revenue Code requires
that one partner be designated as the "Tax Matters Partner" for these purposes.
Our partnership agreements appoint our general partner as our Tax Matters
Partner.
The Tax Matters Partner will make various elections on our behalf and on
behalf of the unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review (by which all the unitholders are bound) of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any unitholder having at least a 1%
interest in our profits and by the unitholders having in the aggregate at least
a 5% profits interest. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment
of any item on that unitholder's federal income tax return that is not
consistent with the treatment of the item on our return. Intentional or
negligent disregard of the consistency requirement may subject a unitholder to
substantial penalties.
NOMINEE REPORTING
Persons who hold an interest in us as a nominee for another person are
required to furnish to us:
o the name, address and taxpayer identification number of the beneficial
owner and the nominee;
o whether the beneficial owner is:
o a person that is not a United States person;
o a foreign government, an international organization or any
wholly-owned agency or instrumentality of either of the
foregoing; or
o a tax-exempt entity;
o the amount and description of common units held, acquired or
transferred for the beneficial owner; and
o particular information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost
for purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on common units they acquire, hold or transfer for their own
account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar
year, is imposed by the Internal Revenue Code for failure to report this
information to us. The nominee is required to supply the beneficial owner of our
common units with the information furnished to us.
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REGISTRATION AS A TAX SHELTER
The Internal Revenue Code requires that tax shelters be registered with the
Secretary of the Treasury. The temporary Treasury Regulations interpreting the
tax shelter registration provisions of the Internal Revenue Code are extremely
broad. Although we may not be a tax shelter for such purposes, we have
registered as a tax shelter with the Secretary of the Treasury in light of the
substantial penalties which might be imposed if registration is required and not
undertaken. The IRS has issued us the following tax shelter registration number:
94201000010. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN
INVESTMENT IN US OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE IRS. We must furnish the registration number to the unitholders,
and a unitholder who sells or otherwise transfers a common unit in a subsequent
transaction must furnish the registration number to the transferee. The penalty
for failure of the transferor of a common unit to furnish the registration
number to the transferee is $100 for each such failure. A unitholder must
disclose our tax shelter registration number on Form 8271 to be attached to that
unitholder's tax return on which any deduction, loss or other benefit we
generate is claimed or on which any of our income is included. A unitholder who
fails to disclose the tax shelter registration number on Form 8271 attached to
its return, without reasonable cause for that failure, will be subject to a $250
penalty for each failure. Any penalties discussed herein are not deductible for
federal income tax purposes. Registration as a tax shelter may increase the risk
of an audit.
ACCURACY-RELATED PENALTIES
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax which is attributable to one or more of particular listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the Internal Revenue Code. No penalty will be imposed, however, with
respect to any portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in good faith with
respect to that portion.
A substantial understatement of income tax in any taxable year exists
if the amount of the understatement exceeds the greater of 10% of the tax
required to be shown on the return for the taxable year or $5,000 ($10,000 for
most corporations). The amount of any understatement subject to penalty
generally is reduced if any portion is attributable to a position adopted on the
return:
o with respect to which there is, or was, "substantial authority;" or
o as to which there is a reasonable basis and the pertinent facts of such
position are disclosed on the return.
More stringent rules apply to "tax shelters," a term that in this context does
not appear to include us. If any item of our income, gain, loss or deduction
included in the distributive shares of unitholders might result in such an
"understatement" of income for which no "substantial authority" exists, we must
disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property,
or the adjusted basis of any property, claimed on a tax return is 200% or more
of the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement exceeds $5,000, $10,000 for most
corporations. If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSEQUENCES
In addition to federal income taxes, unitholders will be subject to other
taxes, such as state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder should
consider their potential impact on that unitholder's investment in us. We
currently conduct business in 45 states. A unitholder will be required to file
state income tax returns and to pay state income taxes in some or all of the
states in which we do business or own property and may be subject to penalties
for failure to comply with those requirements. In some states, tax losses may
not produce a tax benefit in the year incurred (if, for example, we have no
income from sources within that state) and also may not be available to offset
income in subsequent taxable years. Some of the states may require that we, or
we may elect to, withhold a percentage of income from amounts to be distributed
to a unitholder who is not a resident of the state. Withholding, the amount of
which may be greater or less than a particular unitholder's income tax liability
to the state, generally does not relieve the non-resident unitholder from the
obligation to file an income tax return. Amounts withheld may be treated as if
distributed to unitholders for purposes of determining the amounts distributed
by us. See "--Tax Consequences of Unit Ownership--Entity-Level Collections."
Based on current law and our estimate of future operations, we anticipate that
any amounts required to be withheld will not be material.
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It is the responsibility of each unitholder to investigate the legal and
tax consequences under the laws of pertinent states and localities of that
unitholder's investment in us. Accordingly, each prospective unitholder should
consult, and must depend upon, that unitholder's own tax counsel or other
advisor with regard to those matters. Further, it is the responsibility of each
unitholder to file all state and local, as well as U.S. federal, tax returns
that may be required of such unitholder. Mayer, Brown, Rowe & Maw has not
rendered an opinion on the state or local tax consequences of an investment in
us.
INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to additional
considerations because the investments of these plans are subject to:
o the fiduciary responsibility and prohibited transaction provisions of
the Employee Retirement Income Security Act of 1974, often referred to
as ERISA; and
o restrictions imposed by Section 4975 of the Internal Revenue Code.
For these purposes, the term "employee benefit plan" may include:
o qualified pension, profit-sharing and stock bonus plans;
o simplified employee pension plans; and
o tax deferred annuities or individual retirement accounts established or
maintained by an employer or employee organization.
Prior to making an investment in us, consideration should be given to,
among other things:
o whether the investment is permitted under the terms of the employee
benefit plan;
o whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
o whether in making the investment, the employee benefit plan will
satisfy the diversification requirements of Section 404(a)(1)(C) of
ERISA;
o whether the investment will result in recognition of unrelated business
taxable income by the employee benefit plan and, if so, the potential
after-tax investment return; and
o whether, as a result of the investment, the employee benefit plan will
be required to file an exempt organization business income tax return
with the IRS.
See "Tax Consequences--Disposition of Common Units--Tax-Exempt Organizations and
Various Other Investors."
The person with investment discretion with respect to the assets of an
employee benefit plan, often called a fiduciary, should determine whether an
investment in us is authorized by the appropriate governing instrument and is a
proper investment for the employee benefit plan. A fiduciary should also
consider whether the employee benefit plan will, by investing in us, be deemed
to own an undivided interest in our assets. If so, our general partner would
also be a fiduciary of the employee benefit plan, and we would be subject to the
regulatory restrictions of ERISA, including its prohibited transaction rules, as
well as the prohibited transaction rules of the Internal Revenue Code.
53
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
employee benefit plans, and also individual retirement accounts that are not
considered part of an employee benefit plan, from engaging in specified
transactions involving "plan assets" with parties that are "parties in interest"
under ERISA or "disqualified persons" under the Internal Revenue Code with
respect to the employee benefit plan. The Department of Labor regulations
provide guidance with respect to whether the assets of an entity in which
employee benefit plans acquire equity interests would be deemed "plan assets"
under some circumstances. Under these regulations, an entity's assets would not
be considered to be "plan assets" if, among other things:
o the equity interests acquired by employee benefit plans are
publicly-offered securities; meaning the equity interests are:
o widely held by 100 or more investors independent of us and each
other;
o freely transferable; and
o registered under some provisions of the federal securities laws;
o the entity is an "operating company;" meaning that it is primarily
engaged in the production or sale of a product or service, other than
the investment of capital, either directly or through a majority owned
subsidiary or subsidiaries; or
o there is no significant investment by employee benefit plan investors;
meaning that less than 25% of the value of each class of equity
interest, disregarding particular interests held by our general
partner, its affiliates, and particular other persons, is held by:
o the employee benefit plans referred to above;
o individual retirement accounts; and
o other employee benefit plans not subject to ERISA, including
governmental plans.
Our assets should not be considered "plan assets" under these regulations
because it is expected that an investment in us will satisfy the requirements of
the first bullet point immediately above.
Plan fiduciaries contemplating an investment in us should consult with
their own counsel regarding the potential consequences of such an investment
under ERISA and the Internal Revenue Code in light of the serious penalties
imposed on persons who engage in prohibited transactions or otherwise violate
any applicable statutory provisions.
PLAN OF DISTRIBUTION
We may sell our common units, senior units, deferred participation units,
warrants and debt securities:
o through agents or sales managers;
o through underwriters or dealers, possibly including our affiliates;
o directly to one or more purchasers; or
o pursuant to delayed delivery contracts or forward contracts.
BY AGENTS OR SALES MANAGERS
The securities may be sold from time to time through agents or sales
managers designated or engaged by us. Unless otherwise disclosed in the
applicable prospectus supplement, the agents or sales managers will agree to use
their reasonable best efforts to solicit purchases for the period of their
appointment. These sales, if any, may be made pursuant to the terms of a sales
agreement or otherwise that will be filed with the SEC as an exhibit to a
Current Report on Form 8-K or a post-effective amendment to the registration
statement of which this prospectus is a part. These sales, if any, may be made
by means of transactions through the facilities of the New York Stock Exchange,
to or through a market maker, or to or through an electronic communications
network, at prices prevailing at the time of sale, or in any other manner
permitted by law, including privately negotiated transactions. Any prospectus
supplement used by these agents or sales managers may be identical in all
respects to this prospectus, other than with respect to the inclusion of the
items described under "--General Information."
54
BY UNDERWRITERS OR DEALERS
Unless we state otherwise in the prospectus supplement, underwriters and
dealers will need to meet specified requirements before purchasing any
securities. The securities we offer will be acquired by the underwriters or
dealers for their own account. The underwriters or dealers may thereafter resell
such securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The obligations of the underwriters or dealers to purchase the securities
offered will be subject to various conditions. The underwriters or dealers will
be obligated to purchase all the securities offered if any of the securities are
purchased. Any initial public offering price and any discounts or concessions
allowed or re-allowed or paid to the underwriters or dealers may be changed from
time to time.
A prospectus in electronic form may be made available on the web sites
maintained by the underwriters or dealers. The underwriters or dealers may agree
to allocate a number of our securities for sale to their online brokerage
account holders. These allocations of our securities for Internet distributions
will be made on the same basis as other allocations. In addition, our securities
may be sold by the underwriters or dealers to securities dealers who resell such
securities to online brokerage account holders.
DIRECT SALES
Securities may also be sold directly by us. In this case, no underwriters,
dealers, agents or sales managers would be involved. We may use electronic
media, including the Internet, to sell securities directly.
DELAYED DELIVERY CONTRACTS OR FORWARD CONTRACTS
If indicated in the prospectus supplement, we will authorize underwriters,
dealers agents or sales managers to solicit offers to purchase securities from
us at the public offering price set forth in the prospectus supplement pursuant
to delayed delivery contracts or forward contracts providing for payment or
delivery on a specified date in the future at prices determined as described in
the prospectus supplement. Such contracts will be subject only to those
conditions set forth in the prospectus supplement, and the prospectus supplement
will set forth the commission payable for solicitation of such contracts.
TRADING MARKETS AND LISTING OF SECURITIES
Unless otherwise specified in the applicable prospectus supplement, each
class or series of securities will be a new issue with no established trading
market, other than our common units, which are listed on the New York Stock
Exchange. We may elect to list any other class or series of securities on any
exchange, but we are not obligated to do so. It is possible that one or more
underwriters, dealers, agents or sales managers may make a market in a class or
series of securities, but the underwriters, dealers, agents or sales managers
will not be obligated to do so and may discontinue any market making at any time
without notice. We cannot give any assurance as to the liquidity of the trading
market for any of the securities.
STABILIZATION ACTIVITIES
Any underwriter or dealer may engage in over-allotment, stabilizing
transactions, short-covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act. Over-allotment involves sales in excess of
the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum. Short-covering transactions involve purchases
of the securities in the open market after the distribution is completed to
cover short positions. Penalty bids permit the underwriters or dealers to
reclaim a selling concession from a dealer when the securities originally sold
by the dealer are purchased in a covering transaction to cover short positions.
Those activities may cause the price of the securities to be higher than it
would otherwise be. If commenced, the underwriters or dealers may discontinue
any of these activities at any time.
55
INSTITUTIONAL INVESTORS
If a prospectus supplement so indicates, we may authorize underwriters,
dealers, agents or sales managers to solicit offers by institutional investors
to purchase our securities, providing for payment and delivery on a future date
specified in a prospectus supplement. There may be limitations on the minimum
amount that may be purchased by any institutional investor or on the amount of
securities that may be sold pursuant to an arrangement. Institutional investors
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and such other
institutions as we may approve. The obligations of the purchasers pursuant to a
delayed delivery and payment arrangement will generally not be subject to any
conditions except that:
o the purchase by an institution of our securities will not be prohibited
under the applicable laws of any jurisdiction in the United States; and
o if our securities are being sold to underwriters, we must have sold to
the underwriters the total number of such securities less the number
thereof covered by such arrangements.
Underwriters will not have any responsibility with respect to the validity
of these arrangements or our performance or that of any institutional investors
thereunder.
GENERAL INFORMATION
Each prospectus supplement will contain specific information about the
terms of the securities being offered, including, and only if applicable,:
o the names of any underwriters, dealers, agents or sales managers;
o the offering price;
o the net proceeds to us from the sale of the securities;
o underwriting discounts;
o commissions to dealers, agents or sales managers;
o other forms of underwriter, dealers, agents or sales manager
compensation;
o discounts, concessions or commissions that underwriters may pass on to
other dealers; and
o any exchange on which the securities are or will be listed.
Underwriters, dealers, agents and sales managers that participate in the
distribution or sale of our securities may be "underwriters" as defined in the
Securities Act, and any discounts or commissions received by them from us and
any profit on the resale of our securities by them may be treated as
underwriting discounts and commissions under the Securities Act. Any
underwriters, dealers, agents or sales managers will be identified and their
compensation described in a prospectus supplement.
When necessary, we may fix the distribution of the securities using
changeable, fixed prices, market prices at the time of sale, prices related to
market prices or negotiated prices.
We may have agreements with the underwriters, dealers, agents and sales
managers and agents to indemnify them against civil liabilities, including
liabilities under the Securities Act. We may also reimburse underwriters,
dealers, agents and sales managers for payments they may be required to make in
that respect, or we may make such payments directly.
Underwriters, dealers, agents and sales managers or their affiliates may
engage in transactions with, or perform services for, us or our subsidiaries in
the ordinary course of their businesses.
56
WHERE YOU CAN FIND MORE INFORMATION
Where Documents are Filed; Copies of Documents
Ferrellgas Partners and Ferrellgas Partners Finance Corp. file annual,
quarterly and other reports and other information with the SEC. Following the
effectiveness of the registration statement of which this prospectus is a part,
the operating partnership and Ferrellgas Finance Corp. will file annual,
quarterly and other reports and other information with the SEC. You may read and
download our SEC filings over the Internet from several commercial document
retrieval services as well as at the SEC's website at http://www.sec.gov. You
may also read and copy our SEC filings at the SEC's public reference room
located at Judiciary Plaza, 450 5th Street, N.W., 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, it also provides its 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, you may also access further information about us by visiting
our website at http://www.ferrellgas.com. Please note that the information and
materials found on our website, except to the extent expressly described below,
are not part of this prospectus and are not incorporated by reference into this
prospectus.
Incorporation of Documents by Reference
We filed with the SEC a registration statement on Form S-3 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.
The information we incorporate by reference is an important part of this
prospectus and should be carefully read in conjunction with this prospectus and
any prospectus supplement. Information that we file with the SEC after the date
of this prospectus will automatically update and may supersede some of the
information in this prospectus as well as information we previously filed with
the SEC and that was incorporated by reference into this prospectus.
The following documents are incorporated by reference into this prospectus:
o the Annual Report on Form 10-K of Ferrellgas Partners and Ferrellgas
Partners Finance Corp. for the twelve months ended July 31, 2002,
excluding Items 8 and 15 thereof, as filed with the SEC on
October 23, 2002, as amended by Form 10-K/A, including Items 8 and 15
thereof, as filed with the SEC on December 10, 2002;
o the Quarterly Report on Form 10-Q of Ferrellgas Partners and Ferrellgas
Partners Finance Corp. for the three months ended October 31, 2002,
as filed with the SEC on December 11, 2002;
o the Current Report on Form 8-K of Ferrellgas Partners and Ferrellgas
Partners Finance Corp., as filed with the SEC on February 3, 2003;
o the Current Report on Form 8-K of Ferrellgas Partners and Ferrellgas
Partners Finance Corp., as filed with the SEC on February 18, 2003;
o the description of Ferrellgas Partners' common units in its
registration statement on Form 8-A/A as filed with the SEC on
February 18, 2003, and any amendments or reports filed to update the
description;
o the operating partnership's registration statement on Form 10 as filed
with the SEC on February 18, 2003;
o Ferrellgas Finance Corp.'s registration statement on Form 10 as filed
with the SEC on February 18, 2003; and
o all documents that we file under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and until the
earlier of the termination of the registration statement to which this
prospectus relates or until we sell all of the securities offered by
this prospectus.
57
If information in any of these incorporated documents conflicts with
information in this prospectus or any prospectus supplement you should rely on
the most recent information. If information in an incorporated document
conflicts with information in another incorporated document, you should rely on
the information in the most recent incorporated document.
You may request from us a copy of any 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 in the incorporated document, by making such a request in writing or by
telephone to the following address:
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 64068
Attention: Investor Relations
(816) 792-0203
LEGAL MATTERS
Particular legal matters related to the securities described in this
prospectus have been and/or will be passed upon for us by Mayer, Brown, Rowe &
Maw, including the validity of the securities described in the prospectus. If
legal matters in connection with any offering of any of the securities described
in this prospectus and the applicable prospectus supplement are passed on by
counsel for any underwriters or dealers of such offering, that counsel will be
named in the applicable prospectus supplement.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from Ferrellgas Partners,
L.P.'s and Ferrellgas Partners Finance Corp.'s Annual Report on Form 10-K/A for
the twelve months ended July 31, 2002, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports dated September 12, 2002
(which report relating to Ferrellgas Partners, L.P. expresses an unqualified
opinion and includes an explanatory paragraph relating to a change in accounting
principle), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from Ferrellgas, L.P.'s
registration statement on Form 10 as filed with the Securities and Exchange
Commission on February 18, 2003, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports dated September 12, 2002,
(which report relating to Ferrellgas, L.P. expresses an unqualified opinion and
includes an explanatory paragraph relating to a change in accounting principle),
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statement incorporated in this prospectus by reference from
Ferrellgas Finance Corp.'s registration statement on Form 10 as filed with the
Securities and Exchange Commission on February 18, 2003, has been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report dated
January 24, 2003, which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated balance sheet of Ferrellgas, Inc. and Subsidiaries as of
July 31, 2002, filed as exhibit 99.15 to Ferrellgas Partners, L.P.'s Quarterly
Report on Form 10-Q for the three months ended October 31, 2002, has been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report relating to Ferrellgas, Inc. and Subsidiaries dated September 12, 2002
(which report expresses an unqualified opinion and includes an explanatory
paragraph relating to a change in accounting principle), which is incorporated
herein by reference, and has been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
58
GRAPHIC IMAGE
FERRELLGAS LOGO APPEARS HERE
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
We will incur and pay the following expected costs in connection with the
securities being registered hereby. All amounts, other than the SEC registration
fee, are estimated. We expect to incur additional fees in connection with the
issuance and distribution of the securities registered hereby but the amount of
such expenses cannot be estimated at this time as they will depend upon the
nature of the securities offered, the form and timing of such offerings and
other related matters.
SEC registration fee $ 46,000
Legal fees and expenses
Accounting fees and expenses
Printing expenses
Miscellaneous -------------------
Total $
===================
Item 15. Indemnification of Directors and Officers
Ferrellgas Partners, L.P. and Ferrellgas, L.P.
Ferrellgas Partners, L.P. and its operating partnership, Ferrellgas, L.P.,
have no employees, officers or directors. Each is managed and operated by the
employees, officers and directors of its general partner, Ferrellgas, Inc.
The partnership agreements of Ferrellgas Partners, L.P. and Ferrellgas,
L.P. provide that Ferrellgas Partners, L.P. and Ferrellgas, L.P., as the case
may be and subject to any limitations expressly provided in the partnership
agreement of either partnership, shall indemnify and hold harmless to the
fullest extent permitted by current applicable law or as such law may hereafter
be amended (but, in the case of any such amendment, only to the extent that the
amendment permits either partnership to provide broader indemnification rights)
particular persons (each, an "Indemnitee") from and against any and all losses,
claims, damages, liabilities (joint or several), expenses (including, without
limitation, legal fees and expenses), judgments, fines, penalties, interest,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, by reason of their status as:
o the general partner, a former general partner, or any of their
affiliates;
o an officer, director, employee, partner, agent or trustee of either
partnership, the general partner, any former general partner, or any of
their affiliates; or
o a person or entity serving at the request of either partnership in
another entity in a similar capacity.
This indemnification is available only if the Indemnitee acted in good
faith, in a manner in which the Indemnitee believed to be in, or not opposed to,
the best interests of the applicable partnership and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not of itself create a presumption that the Indemnitee acted in a manner
contrary to that specified in the immediately preceding sentence. Any
indemnification shall be made only out of the assets of the applicable
partnership and our general partner shall not be personally liable for any
indemnification and shall have no obligation to contribute or loan any money or
property to the applicable partnership to enable it to effectuate any
indemnification. In no event may an Indemnitee subject the limited partners of
the applicable partnership to personal liability by reason of being entitled to
indemnification.
To the fullest extent permitted by current applicable law or as such law
may hereafter be amended (but, in the case of such amendment, only to the extent
that the amendment permits either partnership to provide broader indemnification
rights), expenses (including, without limitation, legal fees and expenses)
incurred by an Indemnitee in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the applicable partnership
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the applicable partnership of an undertaking by or on behalf of
the Indemnitee to repay such amount if it shall ultimately be determined by a
court of competent jurisdiction that the Indemnitee is not entitled to
indemnification.
II-1
We have, to the extent commercially reasonable, purchased and currently
maintain (or reimburse our general partner or its affiliates for the cost of)
insurance, on behalf of our general partner and such other persons or entities
as our general partner has determined, including particular other Indemnitees,
against any liability that may be asserted against or expenses that may be
incurred by such person or entity in connection with either partnership's
activities or in connection with such person's or entity's activities related to
either partnership in such person's or entity's professional capacity,
regardless of whether Ferrellgas Partners, L.P. or Ferrellgas, L.P. would have
the power to indemnify such person or entity against such liability under the
provisions of either partnerships' applicable partnership agreement.
An Indemnitee shall not be denied indemnification by the applicable
partnership, in whole or in part, because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies so long as the
transaction was otherwise permitted by the terms of the applicable partnership
agreement. Notwithstanding anything to the contrary set forth in the applicable
partnership agreement, no Indemnitee shall be liable for monetary damages to the
applicable partnership, the limited partners, their assignees or any other
persons or entities who have acquired partnership interests in Ferrellgas
Partners, L.P., for losses sustained or liabilities incurred as a result of any
act or omission if such Indemnitee acted in good faith. Also, our general
partner shall not be responsible for any misconduct or negligence on the part of
any agent appointed by our general partner in good faith to exercise any of the
powers granted to our general partner or to perform any of the duties imposed
upon it pursuant to the applicable partnership agreement.
Ferrellgas, Inc.
The Certificate of Incorporation, as amended, and bylaws of Ferrellgas,
Inc. also provide for similar indemnification rights and benefits for its
officers and directors from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
fees and expenses), judgments, fines, penalties, interest, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any officer
or director of Ferrellgas, Inc. may be involved, or is threatened to be
involved, as a party or otherwise; provided, however, the officers or directors
must have acted in good faith, in a manner in which such person or entity
believed to be in, or not opposed to, the best interests of Ferrellgas, Inc.
and, with respect to any criminal proceeding, had no reasonable cause to believe
its conduct was unlawful. Ferrellgas, Inc. is also under similar obligations to
advance expenses to its officers and directors relating to indemnified claims
and Ferrellgas, Inc. has, to the extent commercially reasonable, purchased and
currently maintains insurance on behalf of its officers and directors.
Furthermore, the directors of Ferrellgas, Inc. are not personally liable to
Ferrellgas, Inc. or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty to Ferrellgas, Inc. or
its stockholders,
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o for unlawful payments of dividends or unlawful stock repurchases or
redemptions under Section 174 of the General Corporation Law of the
State of Delaware; or
o for any transaction from which the director derived an improper
personal benefit.
Ferrellgas, Inc. has also entered into employment agreements with some of
its directors and officers. Pursuant to these employment agreements, Ferrellgas,
Inc. has contractually agreed to indemnify these officers and directors
generally in accordance with the indemnification terms and provisions set forth
above. Some of these employment agreements also provide that Ferrellgas, Inc.
shall indemnify such director or officer when they were or are a party or are
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of Ferrellgas, Inc. to procure a judgment in its favor
by reason of the fact that such director or officer is or was a director or
officer of Ferrellgas, Inc., or is or was serving at the request of Ferrellgas,
Inc. as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such director or
officer in connection with the defense or settlement of such action or suit if
such director or officer acted in good faith and in a manner that such director
or officer reasonably believed to be in or not opposed to the best interests of
Ferrellgas, Inc. and except that no indemnification pursuant to the employment
agreements shall be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to Ferrellgas,
Inc. unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such directors or officers are fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
II-2
Generally, any indemnification under these employment agreements (unless
ordered by a court) shall be made by Ferrellgas, Inc. only as authorized in each
specific case upon a determination, in accordance with the procedures set forth
in the applicable employment agreement, that indemnification of such director or
officer is proper in the circumstances because such director or officer has met
the applicable standard of conduct set forth in their particular employment
agreement. Such determination shall be made:
o by a majority vote of the board of directors of Ferrellgas, Inc. who
are not parties to such action, suit or proceeding, even though less
than a quorum;
o if there are no such directors or, if such directors so direct, by
independent legal counsel in a written opinion; or
o by the stockholders of Ferrellgas, Inc.
Also, if such director or officer institutes any legal action to enforce such
director's or officer's rights under their employment agreement, or to recover
damages for breach of their employment agreement, such director or officer, if
such director or officer prevails in whole or in part, shall be entitled to
recover from Ferrellgas, Inc. all fees and expenses (including attorneys' fees)
incurred by such director or officer in connection therewith.
None of the indemnification rights described herein are exclusive of any
other rights to which an Indemnitee, or other applicable person, may be entitled
under any bylaw, agreement, vote of stockholders, unitholders or disinterested
directors, as a matter of law or otherwise, both as to action in the
Indemnitee's, or other applicable person's, official capacity with either
partnership or Ferrellgas, Inc. and as to action in another capacity while
holding such office, and shall continue after the Indemnitee, or other
applicable person, has ceased to be an officer or director of either partnership
or Ferrellgas, Inc., and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee, or other applicable person.
Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp.
The Certificate of Incorporation and bylaws of both Ferrellgas Partners
Finance Corp. and Ferrellgas Finance Corp. contain provisions regarding
indemnification that are substantially similar to those described for
Ferrellgas, Inc.
II-3
Item 16. Exhibits
Exhibit Number Description
- -------------- -----------
** 1.1 Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Agreement of Limited
Partnership of Ferrellgas Partners, L.P. dated as
of February 18, 2003. Incorporated by reference to
Exhibit 4.3 to the Current Report on Form 8-K
of Ferrellgas Partners, L.P. filed February 18, 2003.
3.2 Second Amended and Restated Agreement of Limited
Partnership of Ferrellgas, L.P. dated as of October 14,
1998 . Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P.
filed April 6, 2001.
3.3 First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Ferrellgas, L.P. dated
as of June 5, 2000. Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Ferrellgas Partners, L.P. filed June 14, 2000.
3.4 Certificate of Incorporation of Ferrellgas Partners
Finance Corp. filed with the Delaware Secretary of State
on March 28, 1996. Incorporated by reference to
Exhibit 3.2 to the Quarterly Report on Form 10-Q of
Ferrellgas Partners, L.P. filed June 13, 1997.
3.5 Bylaws of Ferrellgas Partners Finance Corp. adopted as of
April 1, 1996. Incorporated by reference to Exhibit 3.3
to the Quarterly Report on Form 10-Q of Ferrellgas
Partners, L.P. filed June 13, 1997.
3.6 Certificate of Incorporation of Ferrellgas Finance Corp.
filed with the Delaware Secretary of State on January 16,
2003. Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Ferrellgas Partners, L.P.
filed February 18, 2003.
3.7 Bylaws of Ferrellgas Finance Corp. adopted as of
January 16, 2003. Incorporated by reference to Exhibit
4.2 to the Current Report on Form 8-K of Ferrellgas
Partners, L.P. filed February 18, 2003.
4.1 Specimen Certificate evidencing Common Units representing
Limited Partner Interests (contained in Exhibit 3.1 as
Exhibit A thereto).
**4.2 Specimen Certificate evidencing Senior Units representing
Limited Partner Interests.
** 4.3 Specimen Certificate evidencing Deferred Participation
Units representing Limited Partner Interests.
4.4 Indenture, dated as of September 24, 2002, with form of
Note attached, among Ferrellgas Partners, L.P.,
Ferrellgas Partners Finance Corp. and U.S. Bank National
Association, as trustee, relating to 83/4% Senior Notes
due 2012. Incorporated by reference to Exhibit 4.1 to
our Current Report on Form 8-K filed September 24, 2002.
** 4.5 Form of Senior Indenture.
** 4.6 Form of Subordinated Indenture.
** 4.7 Form of Note.
** 4.8 Form of Warrant.
** 4.9 Form of Warrant Agreement.
*** 5.1 Opinion of Mayer, Brown, Rowe & Maw as to the legality of
the securities registered hereby.
*** 8.1 Opinion of Mayer, Brown, Rowe & Maw as to tax matters.
*12.1 Calculation of Ratio of Earnings to Fixed Charges.
II-4
* 23.1 Consent of Deloitte & Touche LLP.
*** 23.2 Consent of Mayer, Brown, Rowe & Maw (contained in Exhibit
5.1 and 8.1 herewith).
** 25.1 Statement of Eligibility of Trustee on Form T-1.
- -------------
* Filed herewith.
** To be filed as an exhibit to a Current Report on Form 8-K or a
post-effective amendment to this registration statement on Form S-3.
*** To be filed as an exhibit to an amendment to this registration statement
on Form S-3.
II-5
Item 17. Undertakings
(a) The undersigned registrants hereby undertake:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
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 registration 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
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) of the Securities Act if, in the
aggregate, the changes in volume and price represent no more than 20% change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii)to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the registration statement is on Form S-3 and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the SEC by the registrants pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(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.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
registrants' Annual Report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their 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 Securities Act and will be governed by
the final adjudication of such issue.
(d) The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the SEC under Section 305(b)2 of the Trust
Indenture Act.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-3 and has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Liberty, State of
Missouri, on February 18, 2003.
FERRELLGAS PARTNERS, L.P.
By: FERRELLGAS, INC., its general partner
By: /s/ James E. Ferrell
-----------------------------------------------
James E. Ferrell
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ James E. Ferrell Chairman, President and Chief Executive Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Exectutive Officer)
James E. Ferrell
/s/ William K. Hoskins Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
William K. Hoskins
/s/ A. Andrew Levison Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
A. Andrew Levison
/s/ John R. Lowden Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
John R. Lowden
/s/ Michael F. Morrissey Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
Michael F. Morrissey
/s/ Elizabeth T. Solberg Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
Elizabeth T. Solberg
/s/ Kevin T. Kelly Senior Vice President and Chief Financial Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Financial and
Kevin T. Kelly Accounting Officer)
S-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Registration Statement on Form S-3 and has
duly caused this Registration Statement on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Liberty, State of
Missouri, on February 18, 2003.
FERRELLGAS, L.P.
By: FERRELLGAS, INC., its general partner
By: /s/ James E. Ferrell
-----------------------------------------------
James E. Ferrell
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ James E. Ferrell Chairman, President and Chief Executive Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Exectutive Officer)
James E. Ferrell
/s/ William K. Hoskins Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
William K. Hoskins
/s/ A. Andrew Levison Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
A. Andrew Levison
/s/ John R. Lowden Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
John R. Lowden
/s/ Michael F. Morrissey Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
Michael F. Morrissey
/s/ Elizabeth T. Solberg Director of Ferrellgas, Inc. February 18, 2003
- -------------------------------
Elizabeth T. Solberg
/s/ Kevin T. Kelly Senior Vice President and Chief Financial Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Financial and
Kevin T. Kelly Accounting Officer)
S-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-3 and has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Liberty, State of
Missouri, on February 18, 2003.
FERRELLGAS FINANCE CORP.
By: /s/ James E. Ferrell
-----------------------------------------------
James E. Ferrell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ James E. Ferrell Chairman, President and Chief Executive Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Exectutive Officer)
James E. Ferrell
/s/ Kevin T. Kelly Senior Vice President and Chief Financial Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Financial and
Kevin T. Kelly Accounting Officer)
S-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-3 and has duly
caused this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Liberty, State of
Missouri, on February 18, 2003.
FERRELLGAS PARTNERS FINANCE CORP.
By: /s/ James E. Ferrell
-----------------------------------------------
James E. Ferrell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ James E. Ferrell Chairman, President and Chief Executive Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Exectutive Officer)
James E. Ferrell
/s/ Kevin T. Kelly Senior Vice President and Chief Financial Officer February 18, 2003
- ------------------------------- of Ferrellgas, Inc. (Principal Financial and
Kevin T. Kelly Accounting Officer)
S-4
Exhibit Index
Exhibit Number Description
- -------------- -----------
** 1.1 Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Agreement of Limited
Partnership of Ferrellgas Partners, L.P. dated as
of February 18, 2003. Incorporated by reference to
Exhibit 4.3 to the Current Report on Form 8-K
of Ferrellgas Partners, L.P. filed February 18, 2003.
3.2 Second Amended and Restated Agreement of Limited
Partnership of Ferrellgas, L.P. dated as of
October 14, 1998 . Incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of
Ferrellgas Partners, L.P. filed April 6, 2001.
3.3 First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Ferrellgas, L.P. dated
as of June 5, 2000. Incorporated by reference to Exhibit
10.2 to the Quarterly Report on Form 10-Q of Ferrellgas
Partners, L.P. filed June 14, 2000.
3.4 Certificate of Incorporation of Ferrellgas Partners
Finance Corp. filed with the Delaware Secretary of State
on March 28, 1996. Incorporated by reference to
Exhibit 3.2 to the Quarterly Report on Form 10-Q of
Ferrellgas Partners, L.P. filed June 13, 1997.
3.5 Bylaws of Ferrellgas Partners Finance Corp. adopted as of
April 1, 1996. Incorporated by reference to Exhibit 3.3
to the Quarterly Report on Form 10-Q of Ferrellgas
Partners, L.P. filed June 13, 1997.
3.6 Certificate of Incorporation of Ferrellgas Finance Corp.
filed with the Delaware Secretary of State on
January 16, 2003. Incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K of Ferrellgas
Partners, L.P. filed February 18, 2003.
3.7 Bylaws of Ferrellgas Finance Corp. adopted as of
January 16, 2003. Incorporated by reference to Exhibit
4.2 to the Current Report on Form 8-K of Ferrellgas
Partners, L.P. filed February 18, 2003.
4.1 Specimen Certificate evidencing Common Units representing
Limited Partner Interests (contained in Exhibit 3.1 as
Exhibit A thereto).
**4.2 Specimen Certificate evidencing Senior Units representing
Limited Partner Interests.
** 4.3 Specimen Certificate evidencing Deferred Participation
Units representing Limited Partner Interests.
4.4 Indenture, dated as of September 24, 2002, with form of
Note attached, among Ferrellgas Partners,
L.P., Ferrellgas Partners Finance Corp. and U.S. Bank
National Association, as trustee, relating to 83/4%
Senior Notes due 2012. Incorporated by reference to
Exhibit 4.1 to our Current Report on Form 8-K filed
September 24, 2002.
** 4.5 Form of Senior Indenture.
** 4.6 Form of Subordinated Indenture.
** 4.7 Form of Note.
** 4.8 Form of Warrant.
** 4.9 Form of Warrant Agreement.
*** 5.1 Opinion of Mayer, Brown, Rowe & Maw as to the legality of
the securities registered hereby.
*** 8.1 Opinion of Mayer, Brown, Rowe & Maw as to tax matters.
*12.1 Calculation of Ratio of Earnings to Fixed Charges.
E-1
* 23.1 Consent of Deloitte & Touche LLP.
*** 23.2 Consent of Mayer, Brown, Rowe & Maw (contained in Exhibit
5.1 and 8.1 herewith).
** 25.1 Statement of Eligibility of Trustee on Form T-1.
- -------------
* Filed herewith.
** To be filed as an exhibit to a Current Report on Form 8-K or a
post-effective amendment to this registration statement on Form S-3.
*** To be filed as an exhibit to an amendment to this registration statement
on Form S-3.
E-2