AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5984 42-1453040
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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SUITE 1700, IES TOWER
200 1ST STREET, S.E.
CEDAR RAPIDS, IOWA 52401-1409
(319) 365-1550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RONALD R. ROMINIECKI
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
NATIONAL PROPANE CORPORATION
SUITE 1700, IES TOWER
200 1ST STREET, S.E.
CEDAR RAPIDS, IOWA 52401-1409
(319) 365-1550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [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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CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) FEE
Common Units representing limited partner
interests..................................... 400,000 $ 20.375 $8,150,000 $2,470
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low sales
prices of the Common Units on January 7, 1997, as reported on the New York
Stock Exchange.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 10, 1997
PROSPECTUS
400,000 COMMON UNITS
NATIONAL PROPANE PARTNERS, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
------------------------
The Common Units (the 'Common Units') offered hereby (the 'Offering')
represent limited partner interests in National Propane Partners, L.P. a
Delaware limited partnership (the 'Partnership'), and are being offered by the
selling unitholder named herein (the 'Selling Unitholder'). The Partnership was
formed in March 1996 to acquire, own and operate the propane business of its
managing general partner, National Propane Corporation, a Delaware corporation
('National Propane' or the 'Managing General Partner'). National Propane is an
indirect wholly-owned subsidiary of Triarc Companies, Inc. ('Triarc').
The Partnership will distribute to its partners, on a quarterly basis, all
of its Available Cash, which is generally all cash on hand at the end of a
quarter, as adjusted for reserves. The Managing General Partner has broad
discretion in making cash disbursements and establishing reserves. The
Partnership intends, to the extent there is sufficient Available Cash, to
distribute to each holder of Common Units at least $0.525 per Common Unit per
quarter (the 'Minimum Quarterly Distribution') or $2.10 per Common Unit on an
annualized basis.
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LIMITED PARTNER INTERESTS ARE INHERENTLY DIFFERENT FROM CAPITAL STOCK OF A
CORPORATION. PURCHASERS OF COMMON UNITS SHOULD CONSIDER EACH OF THE FACTORS
DESCRIBED UNDER 'RISK FACTORS,' STARTING ON PAGE 33, IN EVALUATING AN INVESTMENT
IN THE PARTNERSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING:
CASH DISTRIBUTIONS ARE NOT GUARANTEED, WILL DEPEND ON FUTURE PARTNERSHIP
OPERATING PERFORMANCE AND WILL BE AFFECTED BY THE FUNDING OF RESERVES,
OPERATING AND CAPITAL EXPENDITURES AND OTHER MATTERS WITHIN THE DISCRETION OF
THE MANAGING GENERAL PARTNER, AS WELL AS REQUIRED INTEREST AND PRINCIPAL
PAYMENTS ON THE PARTNERSHIP'S DEBT. PRO FORMA AVAILABLE CASH FROM OPERATING
SURPLUS (AS DEFINED IN THE GLOSSARY) GENERATED DURING 1994 AND 1995 WOULD HAVE
BEEN SUFFICIENT TO COVER THE MINIMUM QUARTERLY DISTRIBUTION ON ALL OF THE
OUTSTANDING COMMON UNITS (INCLUDING THE COMMON UNITS OFFERED HEREBY) AND THE
RELATED DISTRIBUTION ON THE GENERAL PARTNER INTERESTS (AS DEFINED IN THE
GLOSSARY), BUT WOULD HAVE BEEN INSUFFICIENT BY APPROXIMATELY $1.9 MILLION AND
$7.0 MILLION TO COVER THE MINIMUM QUARTERLY DISTRIBUTION ON THE SUBORDINATED
UNITS (AS DEFINED IN THE GLOSSARY) AND THE RELATED DISTRIBUTION ON THE GENERAL
PARTNER INTERESTS IN 1994 AND 1995, RESPECTIVELY.
(cover continued on page 2)
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The Common Units are listed on the New York Stock Exchange, Inc. ('NYSE')
under the symbol 'NPL.' The Common Units offered hereby have been approved for
listing on the NYSE. The last reported sale price of Common Units on the NYSE on
January 9, 1997 was $20.875 per Common Unit.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Common Units may be offered by the Selling Unitholder or any
transferees affiliated with the Selling Unitholder in transactions in which they
and any broker-dealer through whom such Common Units are sold may be deemed to
be underwriters within the meaning of the Securities Act of 1933, as amended
(the 'Securities Act'), as more fully described herein. The Selling Unitholder
or such transferees may sell the Common Units offered hereby from time to time
or at one time in transactions on the NYSE, in negotiated transactions or
through a combination of such methods of sale, at fixed prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The Partnership will
receive none of the proceeds from any such sales. Any commissions paid or
concessions allowed to any broker-dealer, and, if any broker-dealer purchases
such Common Units as principal, any profits received from the resale of such
Common Units, may be deemed to be underwriting discounts and commissions under
the Securities Act. Printing, certain legal, accounting, filing and other
similar expenses of the Offering will be paid by the Partnership. The Selling
Unitholder will generally bear all other expenses of this Offering, including
brokerage fees and any underwriting discounts or commissions.
------------------------
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
(cover continued from page 1)
APPROXIMATELY $5.5 MILLION OF THE PARTNERSHIP'S ANNUAL CASH RECEIPTS ARE
INTEREST PAYMENTS FROM TRIARC UNDER A $40.7 MILLION LOAN TO TRIARC (THE
'PARTNERSHIP LOAN'). ON A PRO FORMA BASIS, SUCH AMOUNT REPRESENTS APPROXIMATELY
31% OF THE PARTNERSHIP'S AVAILABLE CASH FROM OPERATING SURPLUS IN 1995.
CONSEQUENTLY, TRIARC'S FAILURE TO MAKE INTEREST OR PRINCIPAL PAYMENTS ON THE
PARTNERSHIP LOAN WOULD ADVERSELY AFFECT THE ABILITY OF THE PARTNERSHIP TO MAKE
THE MINIMUM QUARTERLY DISTRIBUTION TO ALL UNITHOLDERS. THE PARTNERSHIP LOAN IS
RECOURSE TO TRIARC AND IS SECURED BY A PLEDGE BY TRIARC OF ALL OF THE SHARES OF
CAPITAL STOCK OF THE MANAGING GENERAL PARTNER OWNED BY TRIARC (APPROXIMATELY
75.7% OF THE MANAGING GENERAL PARTNER'S OUTSTANDING CAPITAL STOCK AS OF THE
DATE OF THIS PROSPECTUS). SEE 'CASH DISTRIBUTION POLICY -- PARTNERSHIP LOAN'
AND 'CERTAIN INFORMATION REGARDING TRIARC.'
THE PARTNERSHIP HAS INDEBTEDNESS THAT IS SUBSTANTIAL IN RELATION TO ITS
PARTNERS' CAPITAL. ON A PRO FORMA BASIS, THE PARTNERSHIP'S TOTAL INDEBTEDNESS
AS A PERCENTAGE OF ITS TOTAL CAPITALIZATION WOULD HAVE BEEN APPROXIMATELY 79.0%
AT SEPTEMBER 30, 1996. FURTHERMORE, THE MANAGING GENERAL PARTNER MAY CAUSE THE
PARTNERSHIP TO INCUR ADDITIONAL INDEBTEDNESS, INCLUDING BORROWINGS THAT HAVE
THE PURPOSE OR EFFECT OF ENABLING THE MANAGING GENERAL PARTNER TO RECEIVE
DISTRIBUTIONS OR HASTENING THE CONVERSION OF SUBORDINATED UNITS INTO COMMON
UNITS.
THE $125 MILLION FIRST MORTGAGE NOTES (AS DEFINED BELOW) AND THE $55 MILLION
BANK CREDIT FACILITY (AS DEFINED BELOW) ARE SECURED BY A LIEN ON SUBSTANTIALLY
ALL OF THE ASSETS OF THE OPERATING PARTNERSHIP (AS DEFINED BELOW). IN THE CASE
OF A CONTINUING DEFAULT BY THE OPERATING PARTNERSHIP THEREUNDER, THE LENDERS
WOULD HAVE THE RIGHT TO FORECLOSE ON THE OPERATING PARTNERSHIP'S ASSETS, WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE PARTNERSHIP.
FUTURE PARTNERSHIP PERFORMANCE WILL DEPEND UPON THE SUCCESS OF THE PARTNERSHIP
IN MAXIMIZING PROFITS FROM PROPANE SALES. PROPANE SALES ARE AFFECTED BY, AMONG
OTHER THINGS, WEATHER PATTERNS, PRODUCT PRICES AND COMPETITION, INCLUDING
COMPETITION FROM OTHER ENERGY SOURCES.
HOLDERS OF COMMON UNITS HAVE ONLY LIMITED VOTING RIGHTS AND THE MANAGING
GENERAL PARTNER MANAGES AND CONTROLS THE PARTNERSHIP. SUBJECT TO CERTAIN
CONDITIONS, THE MANAGING GENERAL PARTNER MAY BE REMOVED ONLY UPON THE APPROVAL
OF THE HOLDERS OF AT LEAST 66-2/3% OF THE OUTSTANDING UNITS (INCLUDING THOSE
UNITS HELD BY THE MANAGING GENERAL PARTNER AND ITS AFFILIATES). IF THE MANAGING
GENERAL PARTNER IS REMOVED OTHER THAN FOR CAUSE, THE SUBORDINATION PERIOD (AS
DEFINED IN THE GLOSSARY) WILL END, ALL ARREARAGES ON THE COMMON UNITS WILL
TERMINATE AND ANY OUTSTANDING SUBORDINATED UNITS WILL CONVERT INTO COMMON UNITS
AND THE GENERAL PARTNERS (AS DEFINED IN THE GLOSSARY) WILL HAVE THE RIGHT TO
CONVERT THE GENERAL PARTNER INTERESTS INTO COMMON UNITS OR TO RECEIVE IN
EXCHANGE FOR SUCH INTERESTS, A CASH PAYMENT EQUAL TO THE FAIR MARKET VALUE OF
SUCH INTERESTS.
THE TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP ARE COMPLEX. IT IS
ANTICIPATED THAT THROUGH 2000, A UNITHOLDER WILL RECEIVE SUBSTANTIAL
DISTRIBUTIONS THAT WILL REDUCE SUCH HOLDER'S TAX BASIS, WITH THE RESULT THAT
SUCH HOLDER MAY RECOGNIZE SUBSTANTIAL GAIN AND A RELATED INCOME TAX LIABILITY
UPON A SUBSEQUENT SALE OF SUCH HOLDER'S UNITS.
CONFLICTS OF INTEREST MAY ARISE BETWEEN THE MANAGING GENERAL PARTNER AND ITS
AFFILIATES, ON THE ONE HAND, AND THE PARTNERSHIP AND THE HOLDERS OF COMMON
UNITS, ON THE OTHER. THE PARTNERSHIP AGREEMENT CONTAINS PROVISIONS THAT ALLOW
THE MANAGING GENERAL PARTNER TO TAKE INTO ACCOUNT THE INTERESTS OF PARTIES IN
ADDITION TO THE PARTNERSHIP IN RESOLVING CONFLICTS OF INTEREST, THEREBY
LIMITING THE MANAGING GENERAL PARTNER'S FIDUCIARY DUTY TO THE UNITHOLDERS, AS
WELL AS PROVISIONS THAT MAY RESTRICT THE REMEDIES AVAILABLE TO UNITHOLDERS FOR
ACTIONS THAT MIGHT, WITHOUT SUCH LIMITATIONS, CONSTITUTE BREACHES OF FIDUCIARY
DUTY. HOLDERS OF COMMON UNITS ARE DEEMED TO HAVE CONSENTED TO CERTAIN ACTIONS
AND CONFLICTS OF INTEREST THAT MIGHT OTHERWISE BE DEEMED A BREACH OF FIDUCIARY
OR OTHER DUTIES UNDER APPLICABLE STATE LAW. THE VALIDITY AND ENFORCEABILITY OF
THESE TYPES OF PROVISIONS UNDER DELAWARE LAW ARE UNCERTAIN.
PRIOR TO MAKING ANY DISTRIBUTION ON THE COMMON UNITS, THE PARTNERSHIP WILL
REIMBURSE THE MANAGING GENERAL PARTNER AND ITS AFFILIATES (INCLUDING TRIARC) AT
COST FOR ALL EXPENSES INCURRED ON BEHALF OF THE PARTNERSHIP. ON A PRO FORMA
BASIS, APPROXIMATELY $56.8 MILLION OF EXPENSES WOULD HAVE BEEN REIMBURSED BY
THE PARTNERSHIP TO THE MANAGING GENERAL PARTNER IN 1995. AFFILIATES OF THE
MANAGING GENERAL PARTNER (INCLUDING TRIARC) MAY PROVIDE CERTAIN ADMINISTRATIVE
SERVICES FOR THE MANAGING GENERAL PARTNER ON BEHALF OF THE PARTNERSHIP AND WILL
BE REIMBURSED FOR ALL EXPENSES INCURRED IN CONNECTION THEREWITH. IN ADDITION,
THE MANAGING GENERAL PARTNER AND ITS AFFILIATES MAY PROVIDE ADDITIONAL SERVICES
TO THE PARTNERSHIP, FOR WHICH THE PARTNERSHIP WILL BE CHARGED REASONABLE FEES
AS DETERMINED BY THE MANAGING GENERAL PARTNER.
(cover continued on page 3)
2
(cover continued from page 2)
Outstanding Common Units (including those offered hereby) represent an
aggregate 57.3% limited partner interest in the Partnership and National
Propane, L.P., the Partnership's subsidiary operating partnership (the
'Operating Partnership'), on a combined basis. The General Partners own General
Partner Interests representing an aggregate 4% unsubordinated general partner
interest in the Partnership and the Operating Partnership on a combined basis.
In addition, the Managing General Partner owns 4,533,638 Subordinated Units
representing an aggregate 38.7% subordinated general partner interest in the
Partnership and the Operating Partnership on a combined basis. All references in
this Prospectus to the General Partner Interests or to distributions of 4% of
Available Cash constitute references to the amount of the General Partners'
combined percentage interest in the Partnership and the Operating Partnership
exclusive of any rights as holder of Common Units or Subordinated Units or
rights to receive Incentive Distributions (as defined in the Glossary). Upon
expiration of the Subordination Period, Subordinated Units will convert
automatically into Common Units on a one-for-one basis, and will thereafter
participate pro rata with the other Common Units in distributions of Available
Cash, thereby increasing the amount of Available Cash required to make the
Minimum Quarterly Distribution on the Common Units. Under certain circumstances,
up to 50% of the Subordinated Units may convert into Common Units prior to the
expiration of the Subordination Period. All 4,533,638 Subordinated Units held by
the Managing General Partner and its Affiliates (as defined in the Glossary) are
general partner interests in the Partnership (although the Managing General
Partner and its Affiliates may, at their election, convert such Subordinated
Units into limited partner interests at any time) and all Common Units sold in
the Partnership's initial public offering and in the Offering or issued upon the
conversion of the Subordinated Units will be limited partner interests. The
Common Units and the Subordinated Units are collectively referred to herein as
the 'Units.' Holders of the Common Units and the Subordinated Units are
collectively referred to herein as 'Unitholders.'
To enhance the ability of the Partnership to distribute the Minimum
Quarterly Distribution on the Common Units during the Subordination Period,
which will generally extend at least through June 30, 2001, each holder of
Common Units will be entitled to receive the Minimum Quarterly Distribution plus
any arrearages thereon ('Common Unit Arrearages') before any distributions are
made on the outstanding Subordinated Units.
Immediately prior to the closing of the initial public offering of Common
Units by the Partnership in July, 1996, the Managing General Partner completed a
private placement of $125 million aggregate principal amount of 8.54% First
Mortgage Notes due June 30, 2010 (the 'First Mortgage Notes'). The Operating
Partnership assumed the Managing General Partner's obligations under the First
Mortgage Notes in connection with the conveyance by the General Partners of
substantially all of their assets (which assets did not include an existing
intercompany note from Triarc, approximately $59.3 million of the net proceeds
from the issuance of the First Mortgage Notes and certain other assets of the
General Partners) to the Operating Partnership. The First Mortgage Notes and
indebtedness under the Bank Credit Facility (as defined herein) are secured by a
mortgage on substantially all of the assets of the Operating Partnership. See
'The IPO and Additional Transactions' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Description of
Indebtedness.'
The Partnership will furnish or make available to record holders of Common
Units (i) within 120 days after the close of each fiscal year of the
Partnership, an annual report containing audited financial statements and a
report thereon by its independent public accountants, and (ii) within 90 days
after the close of each fiscal quarter (other than the fourth quarter), a
quarterly report containing unaudited summary financial information. The
Partnership will also furnish each Unitholder with tax information within 90
days after the close of each calendar year.
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions 'Risk
Factors,' 'Cash Distribution Policy,' 'Certain Information Regarding Triarc,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' 'Business and Properties,' 'Tax Considerations' and elsewhere in
this Prospectus constitute 'forward-looking statements' within the meaning of
the Private Securities Litigation Reform Act of 1995 (the 'Reform Act'). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Partnership or Triarc or industry results, to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors with respect to the Partnership
include, among others, weather conditions, which affect the demand for propane;
changes in wholesale propane prices, which may affect the Partnership's gross
profits; competition from others in the propane distribution industry and from
alternative energy sources, which may affect the Partnership's ability to
generate revenues; the mature nature of the retail propane industry and the
national trend toward increased conservation and technological advances, which
may affect demand for the Partnership's products; the Partnership being subject
to the operating hazards and risks associated with handling, storing and
delivering combustible liquids such as propane, which may subject the
Partnership to claims for which the Partnership is not insured; the amount of
the Partnership's Available Cash being dependent on a number of factors which
may be beyond the control of the Partnership, including, without limitation,
that a portion of the Partnership's annual cash receipts is derived from
interest payments from Triarc, which may affect the amount of the Partnership's
cash distributions; the Partnership being significantly leveraged, which may
limit the Partnership's ability to make cash distributions and may affect the
Partnership's results of operations; the Partnership's assumptions concerning
future operations and weather conditions may not be realized, which may affect
the amount of the Partnership's cash distributions and results of operations;
the Partnership's reimbursements and funds due to the Managing General Partner
may be substantial, which may adversely affect the Partnership's ability to make
cash distributions; changes in business strategy, which may, among other things,
prolong the time it takes to achieve the performance results included herein;
changes in, or the failure to comply with, government regulations; and other
factors referenced in this Prospectus; and such factors with respect to Triarc
include, among others, acceptance of new product offerings; brand awareness;
changing trends in customer tastes; the success of multi-branding; availability,
locations and terms of sites for restaurant development; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; Triarc not receiving from the Internal
Revenue Service a favorable ruling that the Spinoff Transactions referred to
herein will be tax-free to Triarc and its stockholders or the failure to satisfy
other customary conditions to closing for transactions of such type; labor and
employee benefit costs; availability and cost of raw materials and supplies;
changes in, or failure to comply with, government regulations; regional weather
conditions; construction schedules; trends in and strength of the textile
industry; the costs and other effects of legal and administrative proceedings;
and other risks and uncertainties detailed in Triarc's and RC/Arby's
Corporation's current and periodic filings with the Securities and Exchange
Commission. See 'Risk Factors.'
4
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................ 6
National Propane Partners, L.P........................ 6
Summary Historical and Pro Forma Consolidated
Financial and Operating Data........................ 22
The Offering.......................................... 25
Summary of Tax Considerations......................... 30
RISK FACTORS.............................................. 33
Risks Inherent in the Partnership's Business.......... 33
Risks Inherent in an Investment in the Partnership.... 36
Conflicts of Interest and Fiduciary Responsibility.... 42
Tax Risks............................................. 44
THE IPO AND ADDITIONAL TRANSACTIONS....................... 47
CAPITALIZATION............................................ 48
PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS............. 48
CASH DISTRIBUTION POLICY.................................. 49
General............................................... 49
Quarterly Distributions of Available Cash............. 50
Distributions from Operating Surplus during
Subordination Period................................ 50
Distributions from Operating Surplus after
Subordination Period................................ 52
Incentive Distributions -- Hypothetical Annualized
Yield............................................... 52
Distributions from Capital Surplus.................... 53
Adjustment of Minimum Quarterly Distribution and
Target Distribution Levels.......................... 54
Distributions of Cash Upon Liquidation................ 54
Cash Available for Distribution....................... 56
Partnership Loan...................................... 58
CERTAIN INFORMATION REGARDING TRIARC...................... 61
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL
AND OPERATING DATA...................................... 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 70
General............................................... 70
Results of Operations................................. 71
Liquidity and Capital Resources....................... 75
Initial Public Offering of Common Units and Other
Transactions........................................ 77
Contingencies......................................... 77
Description of Indebtedness........................... 78
Effects of Inflation.................................. 82
Recently Issued Accounting Pronouncements............. 82
BUSINESS AND PROPERTIES................................... 83
General............................................... 83
Operating Strategy.................................... 84
Strategies for Growth................................. 85
Industry Background................................... 86
Products, Services and Marketing...................... 87
Propane Supply and Storage............................ 88
Pricing Policy........................................ 90
Competition........................................... 91
Properties............................................ 91
Trademarks and Tradenames............................. 93
Government Regulation................................. 93
Employees............................................. 94
Litigation and Contingent Liabilities................. 94
MANAGEMENT................................................ 96
Partnership Management................................ 96
Directors and Executive Officers of the Managing
General Partner..................................... 97
Reimbursement of Expenses of the Managing General
Partner............................................. 98
Executive Compensation................................ 99
Cash Incentive Plans.................................. 100
Triarc's 1993 Equity Participation Plan............... 100
Unit Option Plan...................................... 101
Compensation of Directors............................. 103
Employment Arrangements with Executive Officers....... 103
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................. 105
Ownership of Partnership Units by the Directors and
Executive Officers of the Managing General Partner
and the Selling Unitholders......................... 105
Ownership of Triarc Common Stock by the Directors and
Executive Officers of the Managing General Partner
and Certain Beneficial Owners....................... 106
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 108
Rights of the General Partners........................ 108
Transactions Involving Triarc and its Affiliates...... 108
Partnership Note...................................... 109
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY........ 109
Conflicts of Interest................................. 109
Fiduciary Duties of the General Partners.............. 113
DESCRIPTION OF THE COMMON UNITS........................... 114
The Units............................................. 115
Transfer Agent and Registrar.......................... 115
Transfer of Common Units.............................. 115
THE PARTNERSHIP AGREEMENT................................. 117
Organization.......................................... 117
Special General Partner............................... 117
Purpose............................................... 118
Capital Contributions................................. 118
Power of Attorney..................................... 118
Limited Liability..................................... 118
Issuance of Additional Securities..................... 119
Amendment of Partnership Agreement.................... 120
Merger, Sale or Other Disposition of Assets........... 122
Termination and Dissolution........................... 122
Liquidation and Distribution of Proceeds.............. 122
Withdrawal or Removal of the General Partners......... 122
Transfer of General Partners' Interests and Right to
Receive Incentive Distributions and Conversion of
Units held by the Managing General Partner into
Limited Partner Interests........................... 124
Limited Call Right.................................... 124
Meetings; Voting...................................... 125
Status as Limited Partner or Assignee................. 126
Non-citizen Assignees; Redemption..................... 126
Indemnification....................................... 126
Books and Reports..................................... 127
Right to Inspect Partnership Books and Records........ 127
Reimbursement for Services............................ 127
Change of Management Provisions....................... 128
Registration Rights................................... 128
UNITS ELIGIBLE FOR FUTURE SALE............................ 128
TAX CONSIDERATIONS........................................ 130
Legal Opinions and Advice............................. 130
Tax Rates and Changes in Federal Income Tax Laws...... 131
Partnership Status.................................... 131
Limited Partner Status................................ 133
Tax Consequences of Unit Ownership.................... 133
Allocation of Partnership Income, Gain, Loss, and
Deduction........................................... 135
Tax Treatment of Operations........................... 136
Disposition of Common Units........................... 139
Uniformity of Units................................... 141
Administrative Matters................................ 142
State, Local and Other Tax Considerations............. 145
INVESTMENT IN THE PARTNERSHIP BY EMPLOYEE BENEFIT PLANS... 146
THE SELLING UNITHOLDER.................................... 147
PLAN OF DISTRIBUTION...................................... 147
LEGAL MATTERS............................................. 148
EXPERTS................................................... 148
AVAILABLE INFORMATION..................................... 149
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................ F-1
Appendix A -- Form of Application for Transfer of Common
Units................................................... A-1
Appendix B -- Glossary of Certain Terms................... B-1
5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial data appearing elsewhere in
this Prospectus and should be read only in conjunction with the entire
Prospectus. Except as the context otherwise requires, references to or
descriptions of operations of the Partnership include the operations of the
Operating Partnership and any other subsidiary operating partnership or
corporation and the operations of the Partnership's predecessor, National
Propane. For ease of reference, a glossary of certain terms used in this
Prospectus is included as Appendix B to this Prospectus. Capitalized terms not
otherwise defined herein have the meanings given in the glossary. Special Note:
Certain statements set forth below under this caption constitute 'forward-
looking statements' within the meaning of the Reform Act. See 'Special Note
Regarding Forward-Looking Statements' on page 4 for additional factors relating
to such statements.
NATIONAL PROPANE PARTNERS, L.P.
The Partnership, a Delaware limited partnership formed in March 1996 to
acquire, own and operate the business and assets of National Propane, is engaged
primarily in (i) the retail marketing of propane to residential, commercial and
industrial, and agricultural customers and to dealers (located primarily in the
Northeast) that resell propane to residential and commercial customers and (ii)
the retail marketing of propane-related supplies and equipment, including home
and commercial appliances. The Partnership believes it is the sixth largest
retail marketer of propane in terms of volume in the United States, supplying
approximately 250,000 active retail and wholesale customers in 25 states through
its 166 service centers located in 24 states. The Partnership's operations are
concentrated in the Midwest, Northeast, Southeast and Southwest regions of the
United States. The retail propane sales volume of the Partnership was
approximately 150 million gallons in 1995. In 1995, approximately 48.6% of the
Partnership's retail sales volume was to residential customers, 34.2% was to
commercial and industrial customers, 6.3% was to agricultural customers, and
10.9% was to dealers. Sales to residential customers in 1995 accounted for
approximately 64% of the Partnership's gross profit on propane sales, reflecting
the higher margin nature of this segment of the market. Approximately 90% of the
tanks used by the Partnership's retail customers are owned by the Partnership.
National Propane was incorporated in 1953 under the name Conservative Gas
Corporation. In April 1993, there was a change of control of the parent of the
Partnership (the 'Acquisition'). Since the Acquisition, the Partnership's new
management team, headed by Ronald D. Paliughi, who became President and Chief
Executive Officer of National Propane in April 1993, has implemented an
operating plan designed to make the Partnership more efficient, profitable and
competitive.
Since the Acquisition, the Partnership's management has: (i) consolidated
nine separately branded businesses into a single company with a new, national
brand and logo; (ii) consolidated eight regional offices into one national
headquarters; (iii) installed the Partnership's first system-wide data
processing system; (iv) implemented system-wide pricing, marketing and
purchasing strategies, thereby reducing the cost duplication and purchasing and
pricing inefficiencies associated with the Partnership's formerly decentralized
structure; and (v) centralized and standardized accounting, administrative and
other corporate services. As a result of these initiatives, the Partnership has
become more efficient and competitive, and believes it is now positioned to
capitalize on opportunities for business growth, both internally and through
acquisitions.
Although management has focused primarily on implementing the new operating
plan, the Partnership has acquired seven propane businesses since November 1993,
resulting in an increase in volume sales of approximately 14.2 million gallons
annually. Four of these acquired businesses operate in the Midwest, two operate
in the Southwest and one operates in the Southeast.
The Partnership believes that its competitive strengths include: (i) gross
profit and operating margins that it believes to be among the highest of the
major retail propane companies whose financial statements are publicly
available; (ii) the concentration of its operations in colder regions (such as
the upper Midwest and Northeast), high margin regions (such as the Northeast and
Florida), and regions experiencing population growth (such as Florida and the
Southwest); (iii) an experienced management team; (iv) a well-trained and
motivated work force; and (v) an effective pricing management system.
6
However, the propane industry is highly competitive and includes a number of
large national firms that may have greater financial or other resources or lower
operating costs than the Partnership.
On July 2, 1996, the Partnership consummated its initial public offering of
Common Units (the 'IPO'). In connection with the IPO, the Partnership acquired
the propane business and assets of the Managing General Partner.
BUSINESS STRATEGY
The Partnership's business strategy is to (i) increase its efficiency,
profitability and competitiveness by building on the efforts it has already
undertaken to improve pricing management, marketing and purchasing and to
further consolidate its operations and (ii) increase its market share through
strategic acquisitions and internal growth.
Key elements of this strategy include (i) continuing with the
implementation of centralized price monitoring, (ii) strengthening its image as
a reliable, full service, nationwide propane supplier, (iii) further improving
its propane purchasing and storage, thereby making more efficient use of its
system-wide storage capacity and (iv) further consolidating its operations,
where appropriate. In addition, because the retail propane industry is mature
and overall demand for propane is expected to involve little growth for the
foreseeable future, acquisitions are expected to be an important element of the
Partnership's business strategy. The Partnership intends to take two approaches
to acquisitions: (i) primarily to build on its broad geographic base by
acquiring smaller, independent competitors that operate within the Partnership's
existing geographic areas and incorporating them into the Partnership's
distribution network and (ii) to acquire propane businesses in areas in the
United States outside of its current geographic base where it believes there is
growth potential and where an attractive return on its investment can be
achieved. The Partnership recently entered into a letter of intent to acquire a
propane business for approximately $1.0 million; however, consummation of this
transaction is subject to customary closing conditions and completion of
definitive documentation, and no assurance can be given that this acquisition
will be completed. Although the Partnership continues to evaluate a number of
propane distribution companies, including regional and national firms, as part
of its ongoing acquisition program, except as described in the preceding
sentence, the Partnership does not have any present agreements or commitments
with respect to any acquisition. There can be no assurance that the Partnership
will identify attractive acquisition candidates in the future, will be able to
acquire such candidates on acceptable terms, or will be able to finance such
acquisitions. If the Partnership is able to make acquisitions, there can be no
assurance that such acquisitions will not dilute earnings and distributions or
that any additional debt incurred to finance such acquisitions will not
adversely affect the ability of the Partnership to make distributions to
Unitholders. In addition, to the extent that warm weather adversely affects the
Partnership's operating and financial results, the Partnership's access to
capital and its acquisition activities may be limited. The Managing General
Partner has broad discretion in making acquisitions and it is expected that the
Managing General Partner generally will not seek Unitholder approval of
acquisitions.
In order to facilitate the Partnership's acquisition strategy, concurrently
with the closing of the IPO, the Operating Partnership entered into a $55
million bank credit facility (the 'Bank Credit Facility'), including a $40
million facility to be used for acquisitions and improvements (the 'Acquisition
Facility'). See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Description of Indebtedness.' At December 31, 1996,
$7.9 million was outstanding under the Bank Credit Facility. The Partnership
also has the ability to fund acquisitions through the issuance of additional
partnership interests. See 'The Partnership Agreement -- Issuance of Additional
Securities.'
In addition to pursuing expansion through acquisitions, the Partnership
intends to pursue internal growth at its existing service centers and to expand
its business by opening new service centers. The Partnership believes that it
can attract new customers and expand its market base by providing superior
service, introducing innovative marketing programs and focusing on population
growth areas.
7
GENERAL
The Partnership is engaged primarily in the domestic retail marketing of
propane and propane-related supplies and equipment, including home and
commercial appliances.
Propane, a by-product of natural gas processing and petroleum refining is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative forms of stand-alone energy. The Partnership's retail
customers fall into four broad categories: residential customers, commercial and
industrial customers, agricultural customers and dealers (located primarily in
the Northeast) that resell propane to residential and commercial customers.
Residential customers use propane primarily for space heating, water heating,
cooking and clothes drying. Commercial and industrial customers use propane for
commercial applications such as cooking and clothes drying and industrial uses
such as fueling over-the-road vehicles, forklifts and stationary engines, firing
furnaces, as a cutting gas and in other process applications. Agricultural
customers use propane for tobacco curing, crop drying, poultry brooding and weed
control.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruptions in
natural gas service. Propane is generally less expensive to use than electricity
for space heating, water heating, clothes drying and cooking. Although propane
is similar to fuel oil in certain 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.
The Partnership distributes propane through a nationwide distribution
network integrating 166 service centers in 24 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast and
Southwest regions of the United States. No single customer accounted for 10% or
more of the Partnership's revenues in 1995. Historically, approximately 66% of
the Partnership's retail propane volume has been sold during the six-month
period from October through March, as many customers use propane for heating.
Consequently, sales, gross profits and cash flows from operations are
concentrated in the Partnership's first and fourth fiscal quarters. In 1995, on
a pro forma basis, the Partnership would have had net income of approximately
$10.7 million, and on an historical basis, had a net loss of approximately $0.6
million. For information regarding pro forma adjustments to the Partnership's
historical operating data, see 'Selected Historical and Pro Forma Consolidated
Financial and Operating Data' and the pro forma consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as less traditional products such
as barbecue equipment and gas logs.
In addition to its 166 service centers, the Partnership owns underground
storage facilities in Hutchinson, Kansas and Loco Hills, New Mexico, leases
above ground storage facilities in Crandon, Wisconsin and Orlando, Florida and
owns or leases smaller storage facilities in other locations throughout the
United States. As of December 31, 1996, the Partnership's total storage capacity
was approximately 33.1 million gallons (including approximately one million
gallons of storage capacity currently leased to third parties). As of December
31, 1996, the Partnership had a fleet of 7 transport truck tractors and
approximately 400 bulk delivery trucks, 400 service and light trucks and 150
cylinder delivery vehicles.
The principal executive office of the Partnership is located at Suite 1700,
IES Tower, 200 1st Street, S.E., Cedar Rapids, Iowa 52401-1409 and its telephone
number is (319) 365-1550.
RISK FACTORS
Limited partner interests are inherently different from the capital stock
of a corporation, although many of the business risks to which the Partnership
is subject are similar to those that would be faced by a
8
corporation engaged in a similar business. Prospective purchasers of the Common
Units should consider the following risk factors in evaluating an investment in
the Common Units:
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
Weather conditions, which can vary substantially from year to year, have a
significant impact on the demand for propane for both heating and
agricultural purposes. Many customers of the Partnership rely heavily on
propane as a heating fuel. Accordingly, the volume of propane sold is at
its highest during the six-month peak heating season of October through
March and is directly affected by the severity of the winter weather.
Historically, approximately 66% of the Partnership's retail propane volume
has been sold during this peak heating season. Actual weather conditions,
therefore, may significantly affect the Partnership's financial
performance. Furthermore, despite the fact that overall weather conditions
may be normal, variations in weather in one or more regions in which the
Partnership operates can significantly affect the total volume of propane
sold by the Partnership and, consequently, the Partnership's results of
operations.
Propane is a commodity, the market price of which is often subject to
volatile changes in response to changes in supply or other market
conditions. Because rapid increases in the wholesale cost of propane may
not be immediately passed on to customers, such increases could reduce
gross profits. In the fourth quarter of 1996, the price of propane was
significantly higher than historical levels. Between November 1, 1996 and
December 31, 1996, the price of propane in the spot market at Mont
Belvieu, Texas, the largest storage facility in the United States,
averaged $0.5953 per gallon, with a high of $0.7050 per gallon on December
16, 1996 and a low of $0.4875 per gallon on December 31, 1996. During the
1995-96 winter season, from November 1, 1995 to March 31, 1996, the price
of propane at Mont Belvieu averaged $0.3672 per gallon, with a high of
$0.5250 on February 15, 1996 and a low of $0.3037 on November 15, 1995.
Between November 1, 1996 and December 31, 1996, the price of propane in
the spot market at Conway, Kansas averaged $0.7494 per gallon, with a high
of $1.0400 per gallon on December 16, 1996 and a low of $0.5100 per gallon
on November 7, 1996. During the 1995-96 winter season, from November 1,
1995 to March 31, 1996, the price of propane at Conway averaged $0.3713
per gallon, with a high of $0.4363 on February 15, 1996 and a low $0.3237
on November 15, 1995. The Partnership has to date purchased a significant
amount of its propane in the Conway, Kansas spot market. Although the
increased wholesale price of propane has increased the Partnership's
revenues for the fourth quarter of 1996, the Partnership was unable to
fully pass on the increased product cost to its customers resulting in a
lower per gallon profit margin. As a result, the Partnership expects that
it will have slightly lower operating income for the fourth quarter of
1996 compared to the corresponding period of 1995. Except for
occasional opportunistic buying and storage of propane during periods of
low demand, the Partnership has not engaged in any significant hedging
activities with respect to its propane supply requirements, although it
may do so in the future.
The domestic retail propane business is highly competitive, and some of
the Partnership's competitors may be larger or have greater financial and
other resources or lower operating costs than the Partnership. In
addition, propane is sold in competition with other sources of energy,
some of which are less costly for equivalent energy values.
The domestic retail propane industry is mature, and the Partnership
foresees only limited growth in total demand for the product. The
Partnership expects the overall demand for propane to remain relatively
constant over the next several years, with year-to-year industry volumes
being affected primarily by weather patterns. Therefore, the growth of the
Partnership's propane business depends in large part on its ability to
acquire other retail distributors. There can be no assurance that the
Partnership will identify attractive acquisition candidates in the future,
will be able to acquire such candidates on acceptable terms or will be
able to finance such acquisitions. If the Partnership is able to make
acquisitions, there can be no assurance that such acquisitions will not
dilute earnings and distributions or that any additional debt incurred to
finance such acquisitions will not adversely affect the ability of the
Partnership to make distributions to Unitholders.
9
The Partnership's operations are subject to the operating hazards and
risks normally associated with handling, storing and delivering
combustible liquids such as propane. As a result, the Partnership has
been, and will likely continue to be, a defendant in various legal
proceedings and litigation arising in the ordinary course of business. In
addition, in connection with the IPO the Partnership assumed certain
contingent liabilities of National Propane, including certain potential
environmental remediation costs at properties owned by National Propane.
Although the Partnership self insures and maintains such insurance
policies as the Managing General Partner believes are reasonable and
prudent, future claims or environmental liabilities not covered by
insurance or indemnification, or a large number of claims incurred by the
Partnership in the future that are within the Partnership's self insured
retention, may have a material adverse effect on the business, results of
operations or financial position of the Partnership, including the
Partnership's ability to make the Minimum Quarterly Distribution.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
Cash distributions to Unitholders are not guaranteed and may fluctuate
based upon the Partnership's performance. Cash distributions are dependent
primarily on cash flow and not on profitability, which is affected by
non-cash items. Therefore, cash distributions may be made during periods
when the Partnership records losses and may not be made during periods
when the Partnership records profits. In addition, the Managing General
Partner may establish reserves that reduce the amount of Available Cash.
Due to the seasonal nature of the Partnership's business, the Managing
General Partner anticipates that it may make additions to reserves during
certain of the Partnership's fiscal quarters in order to fund operating
expenses, interest payments and cash distributions to partners with
respect to future fiscal quarters. As a result of these and other factors,
there can be no assurance regarding the actual levels of cash
distributions by the Partnership.
The amount of Available Cash from Operating Surplus needed to distribute
the Minimum Quarterly Distribution for four quarters on the Common Units
(including the Common Units offered hereby) and Subordinated Units
outstanding as of the date of this Prospectus and the related distribution
on the General Partner Interests is approximately $24.6 million
(approximately $14.1 million for the Common Units, $9.5 million for the
Subordinated Units and $1.0 million for the General Partner Interests).
The amount of pro forma Available Cash from Operating Surplus generated
during 1995 was approximately $17.6 million. Such amount would have been
sufficient to cover the Minimum Quarterly Distribution for the four
quarters in such year on all of the outstanding Common Units (including
the Common Units offered hereby) and the related distribution on the
General Partner Interests, but would have been insufficient by
approximately $7.0 million to cover the Minimum Quarterly Distribution on
the Subordinated Units and the related distribution on the General Partner
Interests.
Approximately $5.5 million of the Partnership's annual cash receipts are
interest payments from Triarc under the Partnership Loan, which bears
interest at an annual rate of 13.5%. On a pro forma basis, such amount
represents approximately 31% of the Partnership's Available Cash from
Operating Surplus in 1995. Because Triarc is a holding company, its
ability to meet its cash requirements (including required interest and
principal payments on the Partnership Loan) is primarily dependent (in
addition to its cash on hand) upon cash flows from its subsidiaries,
including loans and cash dividends and reimbursement by subsidiaries to
Triarc in connection with its providing certain management services and
payments by subsidiaries under certain tax sharing agreements. Under the
terms of various indentures and credit arrangements, Triarc's principal
subsidiaries are currently unable to pay any dividends or make any loans
or advances to Triarc. In addition, the Partnership Loan does not restrict
Triarc's ability to sell, convey, transfer or encumber the stock or assets
of any of its subsidiaries (other than certain limitations with respect to
the Managing General Partner and Southeastern Public Service Company
('SEPSCO')) or its ability to dispose of its cash on hand or other assets.
On October 29, 1996, Triarc announced that its Board of Directors approved
a plan to undertake the Spinoff Transactions (as defined herein) and in
connection therewith it is expected that the Managing General Partner may
be merged with and into Triarc, see 'Certain Information Regarding
Triarc.' Triarc's cash
10
on hand and marketable securities as of November 30, 1996 was
approximately $177.0 million. The Partnership believes that such amount of
cash and marketable securities, plus payments or distributions from
certain of Triarc's subsidiaries, will enable Triarc to have adequate cash
resources to meet its short term cash requirements, including required
interest payments on the Partnership Loan. See 'Cash Distribution
Policy -- Partnership Loan' and 'Certain Information Regarding Triarc.'
However, there can be no assurance that Triarc will continue to have cash
on hand or that it will in the future receive sufficient payments or
distributions from its subsidiaries in order to enable it to satisfy its
obligations under the Partnership Loan. Triarc's failure to make interest
or principal payments under the Partnership Loan would adversely affect
the ability of the Partnership to make the Minimum Quarterly Distribution
to all Unitholders. In addition, Triarc is permitted to prepay the
Partnership Loan under certain circumstances. The prepayment by Triarc of
all or a portion of the Partnership Loan and the failure by the
Partnership to reinvest such funds in a manner that generates an
equivalent amount of annual cash flow could have an adverse effect on the
Partnership's ability to make distributions to Unitholders. The
Partnership Loan is recourse to Triarc and is secured by a pledge by
Triarc of all of the shares of capital stock of the Managing General
Partner owned by Triarc (approximately 75.7% of the Managing General
Partner's outstanding capital stock as of the date of this Prospectus).
See 'Cash Distribution Policy -- Partnership Loan' and 'Certain
Information Regarding Triarc.'
The Partnership is significantly leveraged and has indebtedness that is
substantial in relation to its partners' capital. On a pro forma basis as
of September 30, 1996, the Partnership's total indebtedness as a
percentage of its total capitalization would have been approximately
79.0%. The principal and interest payable on such indebtedness and
compliance with the requirements of such indebtedness with respect to the
maintenance of reserves will reduce the cash available to make
distributions on the Units. As of December 31, 1996, the Partnership had
$7.9 million outstanding under the Bank Credit Facility and additional
borrowings could result in a significant increase in the Partnership's
leverage. Furthermore, the Managing General Partner may cause the
Partnership to incur additional indebtedness, including borrowings that
have the purpose or effect of enabling the Managing General Partner to
receive distributions or hastening the conversion of Subordinated Units
into Common Units.
The First Mortgage Notes and the Bank Credit Facility are secured by a
lien on substantially all of the assets of the Operating Partnership. In
the case of a continuing default by the Operating Partnership under such
indebtedness, the lenders would have the right to foreclose on the
Operating Partnership's assets, which would have a material adverse effect
on the Partnership. In addition, the First Mortgage Notes and the Bank
Credit Facility contain provisions relating to change of control. If such
provisions are triggered, such outstanding indebtedness may become
immediately due. In such event, there is no assurance that the Partnership
would be able to pay the indebtedness, in which case the lenders would
have the right to foreclose on the Operating Partnership's assets, which
would have a material adverse effect on the Partnership.
The Partnership's assumptions concerning future operations, including
assumptions that normal weather conditions will prevail in the
Partnership's operating areas, may not be realized. Although the
Partnership believes its assumptions are reasonable, whether such
assumptions are realized is not, in many cases, within the control of the
Partnership. Significant variances between the Partnership's assumptions
and actual conditions, particularly with respect to weather conditions,
could have a significant impact on the business of the Partnership.
The Managing General Partner manages and operates the Partnership, and
holders of Common Units have no right to participate in such management
and operation. Holders of Common Units have no right to elect the Managing
General Partner on an annual or other continuing basis, and have only
limited voting rights on matters affecting the Partnership's business.
Prior to making any distribution on the Common Units, the Partnership will
reimburse the Managing General Partner and its Affiliates (including
Triarc) at cost for all expenses incurred on behalf of the Partnership. On
a pro forma basis, approximately $56.8 million of expenses would have been
reimbursed by the Partnership to the Managing General Partner in 1995.
Affiliates of the Managing General Partner (including Triarc) may provide
certain administrative services for
11
the Managing General Partner on behalf of the Partnership and will be
reimbursed for all expenses incurred in connection therewith. In addition,
the Managing General Partner and its Affiliates may provide additional
services to the Partnership, for which the Partnership will be charged
reasonable fees as determined by the Managing General Partner.
Subject to certain limitations, the Partnership may issue additional Units
or other interests in the Partnership, the effect of which may be to
dilute the interests of holders of Common Units in distributions by the
Partnership and to make it more difficult for a person or group to remove
the Managing General Partner as general partner or otherwise change the
management of the Partnership.
The Managing General Partner has the right to acquire all, but not less
than all, of the outstanding Common Units at a price generally equal to
the then current market price of the Common Units in the event that not
more than 20% of the outstanding Common Units are held by persons other
than the Managing General Partner and its Affiliates. Consequently, a
Unitholder may have its Common Units purchased from him even though such
holder does not desire to sell them, and the price paid may be less than
the amount such Unitholder would desire to receive upon such sale.
The Partnership Agreement contains certain provisions that may discourage
a person or group from attempting to remove the Managing General Partner
as general partner or otherwise change the management of the Partnership.
The Partnership Agreement provides that if the Managing General Partner is
removed other than for Cause (as defined in the Glossary) and the Units
held by the General Partners and their Affiliates are not voted in favor
of such removal, the Subordination Period will end, all arrearages on the
Common Units will terminate and all outstanding Subordinated Units will
convert into Common Units and the General Partners will have the right to
convert the General Partner Interests into Common Units or to receive, in
exchange for such interests, cash payment equal to the fair market value
of such interests. The Managing General Partner's current ownership
interest in the Partnership precludes any vote to remove the Managing
General Partner without its consent. Further, the Partnership Agreement
provides that if any person or group other than the Managing General
Partner and its Affiliates acquires beneficial ownership of 20% or more of
the outstanding Units of any class, such person or group will lose voting
rights with respect to all of its Units. The effect of these provisions
may be to diminish the price at which the Common Units will trade under
certain circumstances.
Under certain circumstances, holders of Common Units could lose their
limited liability and could become liable for amounts improperly
distributed to them by the Partnership. See 'The Partnership
Agreement -- Limited Liability.'
The holders of the Common Units have not been represented by counsel in
connection with the preparation of the Partnership Agreement or the other
agreements referred to herein.
The propane industry consists of a small number of national retail
marketers and a larger number of regional companies. From time to time,
these national and regional retail marketers, including the Partnership,
have in the past engaged and may in the future engage, in discussions
concerning acquisitions, dispositions and combinations of operations.
While the Partnership is not currently engaged in negotiations with any
national or regional marketer concerning any such acquisition, disposition
or combination, there can be no assurance that in the future the
Partnership will not engage in any such negotiations or pursue
opportunities to engage in any such transaction. In addition, although any
merger, consolidation or combination involving the Partnership, and any
sale, exchange or disposition of all or substantially all of its assets,
would require the approval of a Unit Majority under the terms of the
Partnership Agreement, the Partnership and the General Partners are not
restricted under the Partnership Agreement from engaging in other
transactions that may not require the prior consent or vote of the
Unitholders and that could result in a change of control of the
Partnership. If any of such transactions were deemed to be a change of
control under the First Mortgage Notes or the Bank Credit Facility, the
Partnership would be required to offer to redeem all of the outstanding
First Mortgage Notes at a premium and to repay all indebtedness under the
Bank Credit Facility. As a result, the
12
occurrence of a change of control could have a material adverse effect on
the Partnership and its ability to pay the Minimum Quarterly Distribution
to the Unitholders.
The Partnership believes that its success has been and will continue to be
dependent to a significant extent upon the efforts and abilities of its
senior management team. The failure by the Managing General Partner to
retain members of its senior management team could adversely affect the
Partnership's ability to build on the efforts undertaken by its current
management to increase the efficiency and profitability of the
Partnership.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY
The Managing General Partner and its Affiliates may have conflicts of
interest with the Partnership and the holders of Common Units. The
Partnership Agreement permits the Managing General Partner to consider, in
resolving conflicts of interest, the interests of parties (including the
General Partner and its Affiliates) other than the Unitholders, thereby
limiting the Managing General Partner's fiduciary duties to the
Partnership and the Unitholders. The discretion given in the Partnership
Agreement to the Managing 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 under Delaware law. In
addition, holders of Common Units are deemed to have consented to certain
actions that might otherwise be deemed conflicts of interest or a breach
of fiduciary duty. The validity and enforceability of these types of
provisions under Delaware law are uncertain.
The Partnership Agreement provides that any borrowings by the Partnership
shall not constitute a breach of any duty owed by the Managing General
Partner, including borrowings that have the purpose or effect of enabling
the Managing General Partner to receive Incentive Distributions or
hastening the conversion of the Subordinated Units into Common Units.
The Partnership Agreement permits the Managing General Partner to merge
with and into Triarc (the 'Triarc Merger') without the prior approval of
any Unitholder. It is expected that the Triarc Merger may occur in
connection with the Spinoff Transactions. The Partnership Note contains a
covenant of Triarc that, in the event of a Triarc Merger, Triarc will
concurrently therewith pledge as security for the Partnership Loan certain
assets of the Managing General Partner. See 'Cash Distribution
Policy -- Partnership Loan' and 'Certain Information Regarding Triarc.'
The Partnership Agreement does not prohibit the Partnership from engaging
in roll-up transactions. Although the Managing General Partner has no
present intention of causing the Partnership to engage in any such
transaction, it is possible it will do so in the future. There can be no
assurance that a roll-up transaction would not have a material adverse
effect on a Unitholder's investment in the Partnership.
The Managing General Partner (unless merged with and into Triarc) and the
Special General Partner (as defined in the Glossary) are prohibited from
conducting any business or having any operations other than those
incidental to serving as general partners of the Partnership and the
Operating Partnership so long as they are general partners of the
Partnership. The Partnership Agreement does not restrict the ability of
Affiliates of the Managing General Partner (other than the Special General
Partner) to engage in any activities, except for the retail sale of
propane to end users in the continental United States. The Managing
General Partner's Affiliates (other than the Special General Partner) may
compete with the Partnership in other propane related activities, such as
trading, transportation, storage and wholesale distribution of propane.
Further, in the event of the Triarc Merger the ability of the Managing
General Partner to engage in activities other than those incidental to
serving as a general partner of the Operating Partnership and the
Partnership and to compete in other propane related activities, such as
trading, transportation, storage and wholesale distribution, will not be
restricted. Furthermore, the Partnership Agreement provides that the
Managing General Partner and its Affiliates have no obligation to present
business opportunities to the Partnership.
TAX RISKS
The availability to a Common Unitholder of federal income tax benefits of
an investment in the Partnership depends, in large part, on the
classification of the Partnership as a partnership for
13
federal income tax purposes. Based on certain representations by the
General Partners, Andrews & Kurth L.L.P., special counsel to the General
Partners and the Partnership ('Counsel'), is of the opinion that, under
current law, the Partnership will be classified as a partnership for
federal income tax purposes.
No ruling has been requested from the Internal Revenue Service (the 'IRS')
with respect to classification of the Partnership as a partnership for
federal income tax purposes or any other matter affecting the Partnership.
A Unitholder will be required to pay income taxes on his allocable share
of the Partnership's income, whether or not he receives cash distributions
from the Partnership.
Investment in Units by certain tax-exempt entities, regulated investment
companies and foreign persons raises issues unique to such persons. For
example, virtually all of the taxable income derived by most organizations
exempt from federal income tax (including individual retirement accounts
and other retirement plans) from the ownership of a Unit will be unrelated
business taxable income and thus will be taxable to such a Unitholder.
In the case of taxpayers subject to the passive loss rules (generally
individuals and closely held corporations), losses generated by the
Partnership, if any, will only be available to offset future income
generated by the Partnership and cannot be used to offset income from
other activities, including passive activities or investments. Passive
losses which are not deductible because they exceed the Unitholder's
income generated by the Partnership may be deducted in full when the
Unitholder disposes of his entire investment in the Partnership in a fully
taxable transaction to an unrelated party.
A Unitholder will be required to file state income tax returns and pay
state income taxes in some or all of the various jurisdictions in which
the Partnership does business or owns property.
The Partnership has been registered with the IRS as a 'tax shelter.' No
assurance can be given that the Partnership will not be audited by the IRS
or that tax adjustments will not be made. Any adjustments in the
Partnership's tax returns will lead to adjustments in the Unitholders' tax
returns and may lead to audits of the Unitholders' tax returns and
adjustments of items unrelated to the Partnership.
See 'Risk Factors,' 'Cash Distribution Policy,' 'Conflicts of Interest and
Fiduciary Responsibility,' 'Description of the Common Units,' 'The Partnership
Agreement' and 'Tax Considerations' for a more detailed description of these and
other risk factors and conflicts of interest that should be considered in
evaluating an investment in the Common Units.
THE IPO AND ADDITIONAL TRANSACTIONS
On July 2, 1996, the Partnership consummated the IPO and received therefrom
net proceeds aggregating approximately $115.7 million. On July 22, 1996, the
over-allotment option granted by the Partnership to the underwriters in the IPO
(the 'IPO Over-Allotment Option') was exercised with respect to 111,074 Common
Units, and the Partnership received net proceeds therefrom aggregating
approximately $2.2 million, which the Partnership used for general partnership
purposes.
Concurrently with the closing of the IPO, both the Managing General Partner
and the Special General Partner contributed substantially all of their assets
(which assets did not include an existing intercompany note from Triarc,
approximately $59.3 million of the net proceeds from the issuance of the First
Mortgage Notes and certain other assets of the Managing General Partner) to the
Operating Partnership (the 'Conveyance') as a capital contribution and the
Operating Partnership assumed substantially all of the liabilities of the
Managing General Partner and the Special General Partner (other than certain
income tax liabilities), including the First Mortgage Notes and all indebtedness
of the Managing General Partner outstanding under the Former Credit Facility (as
defined below). Immediately thereafter, the Managing General Partner and the
Special General Partner conveyed their limited partner interests in the
Operating Partnership to the Partnership. As a result of such contributions,
each of the Managing General Partner and the Special General Partner have a 1.0%
general partner interest in the Partnership and a 1.0101% general partner
interest in the Operating Partnership. In addition, the Managing General Partner
received in exchange for its contribution to the Partnership 4,533,638
Subordinated Units and the right to receive the Incentive Distributions.
14
Also immediately prior to the closing of the IPO, the Managing General
Partner issued $125 million aggregate principal amount of First Mortgage Notes
to certain institutional investors in a private placement. Approximately $59.3
million of the net proceeds from the sale of the First Mortgage Notes (the
entire net proceeds of which were approximately $118.4 million) were used by the
Managing General Partner to pay a dividend to Triarc. The remainder of the net
proceeds from the sale of the First Mortgage Notes (approximately $59.1 million)
were contributed by the Managing General Partner to the Operating Partnership in
connection with the Conveyance and were used by the Operating Partnership to
repay (in the manner described below) a portion of the Managing General
Partner's indebtedness outstanding under the Revolving Credit and Term Loan
Agreement, dated as of October 7, 1994, as amended, among the Managing General
Partner, the Bank of New York, as Administrative Agent, certain Co-Agents and
the several lending institutions party thereto (the 'Former Credit Facility')
and to repay other indebtedness of the Managing General Partner and certain of
its subsidiaries outstanding under equipment notes, notes issued in connection
with acquisitions ('Acquisition Notes') and capital leases (collectively, 'Other
Former Indebtedness'). First, approximately $30.1 million of such net proceeds
were used by the Operating Partnership to repay the indebtedness outstanding
under the Former Credit Facility which was evidenced by the Refunding Notes (as
defined in the Former Credit Facility), and then the remainder of such net
proceeds (approximately $29.1 million) together with cash on hand was used to
repay other indebtedness outstanding under the Former Credit Facility and Other
Former Indebtedness.
After the repayment of the Refunding Notes and such other indebtedness as
described above, the net proceeds of the IPO (approximately $115.7 million) were
contributed to the Operating Partnership which used such proceeds to repay all
remaining indebtedness under the Former Credit Facility, to make the Partnership
Loan and to pay certain accrued management fees and tax sharing payments due to
Triarc from the Managing General Partner.
Concurrently with the closing of the IPO, the Operating Partnership also
entered into the Bank Credit Facility, which includes a $15 million revolving
credit facility to be used for working capital and other general partnership
purposes (the 'Working Capital Facility') and the $40 million Acquisition
Facility. These facilities were undrawn at the time of the consummation of the
IPO and the transactions referred to above (collectively, the 'Transactions').
For additional information regarding the terms of the First Mortgage Notes and
the Bank Credit Facility, see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Description of Indebtedness.' For
additional information regarding the terms of the Partnership Loan, see 'Cash
Distribution Policy -- Partnership Loan.'
On November 7, 1996, the Partnership issued and sold the 400,000 Common
Units offered hereby to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
'Selling Unitholder') pursuant to a Purchase Agreement, dated as of such date,
between the Partnership, certain of its Affiliates and the Selling Unitholder
(the 'Purchase Agreement'). Such transaction, which was exempt from the
registration requirements of the Securities Act, is referred to herein as the
'Private Placement.' The estimated net proceeds to the Partnership from the
Private Placement were approximately $7.4 million. Such net proceeds were used
by the Partnership for general partnership purposes. See 'The Selling
Unitholder.'
DISTRIBUTIONS AND PAYMENTS TO THE MANAGING GENERAL PARTNER AND ITS AFFILIATES
The following table summarizes the distributions and payments made and to
be made by the Partnership to the Managing General Partner and its Affiliates in
connection with the Transactions and the ongoing operations of the Partnership.
Such distributions and payments were determined by and among affiliated entities
and, consequently, were not the result of arm's length negotiations. See
'Conflicts of Interest and Fiduciary Responsibility.'
15
FORMATION STAGE
The consideration paid to the Managing
General Partner, the Special General
Partner, Triarc and their Affiliates for
the transfer of the propane business and
related liabilities of National Propane
to the Partnership...................... 4,533,638 Subordinated Units, an aggregate 4% unsubordinated general
partner interest in the Partnership and the Operating Partnership
on a combined basis (and the right to receive Incentive
Distributions), and the assumption by the Operating Partnership of
substantially all of the liabilities of the Managing General
Partner and the Special General Partner, (other than certain income
tax liabilities), including the First Mortgage Notes and all
indebtedness of the Managing General Partner outstanding under the
Former Credit Facility. The net proceeds of the IPO (approximately
$115.7 million) were contributed to the Operating Partnership and
used by the Operating Partnership together with cash on hand to
make the $40.7 million Partnership Loan to Triarc, to repay
approximately $12.8 million in accrued management fees and tax
sharing payments due to Triarc and to repay a portion of the
indebtedness of the Managing General Partner assumed by the
Operating Partnership in connection with the Transactions. In
addition, the Managing General Partner made a dividend to Triarc a
portion (approximately $51.4 million) of an existing intercompany
note and made a dividend of approximately $59.3 million in cash
from the net proceeds of the sale of the First Mortgage Notes to
Triarc. The remainder of the net proceeds from the sale of the
First Mortgage Notes were used to repay indebtedness of the
Managing General Partner and its subsidiaries. Accordingly,
substantially all of the net proceeds of the IPO were paid to, or
otherwise benefited, the Managing General Partner, the Special
General Partner, Triarc and their Affiliates. See 'The IPO and
Additional Transactions.'
OPERATIONAL STAGE
Distributions of Available Cash to the
General Partners........................ Available Cash will generally be distributed 96% to the Unitholders
(including to the Managing General Partner as holder of the
Subordinated Units) and 4% to the General Partners, except that if
distributions of Available Cash from Operating Surplus exceed the
Target Distribution Levels (as defined below), the General Partners
will receive a percentage of such excess distributions that will
increase to up to approximately 50% of the excess distributions
above the highest Target Distribution Level. On November 14, 1996,
in connection with the payment of the Minimum Quarterly
Distribution to the holders of Common Units in the amount of $0.525
per Common Unit, the Partnership paid a distribution to the
Managing General Partner of $0.525 per Subordinated Unit
(approximately $2.4 million in the aggregate) and a corresponding
distribution to the General Partners in the aggregate amount of
approximately $235,800. See 'Cash Distribution Policy.'
16
Payments to the Managing General Partner
and its Affiliates...................... In general, the management and employees of National Propane who
managed and operated the propane business and assets prior to the
IPO that are now owned by the Partnership continue to manage and
operate the Partnership's business as officers and employees of the
Managing General Partner and its Affiliates. The Managing General
Partner does not receive any management fee or other compensation
in connection with its management of the Partnership, but is
reimbursed at cost for all direct and indirect expenses incurred on
behalf of the Partnership, including the costs of compensation and
employee benefit plans described herein properly allocable to the
Partnership, and all other expenses necessary or appropriate to the
conduct of business of, and allocable to, the Partnership. On a pro
forma basis, an aggregate of approximately $56.8 million of
expenses would have been reimbursed by the Partnership to the
Managing General Partner in 1995 (comprising approximately $33.0
million in salary, payroll tax and other compensation paid to
employees of the Managing General Partner and approximately $23.8
million for all other operating expenses).
Affiliates of the Managing General Partner (including Triarc) may
provide certain administrative services for the Managing General
Partner on behalf of the Partnership and will be reimbursed for all
direct and indirect expenses incurred in connection therewith. In
addition, the Managing General Partner and its Affiliates may
provide additional services to the Partnership, for which the
Partnership will be charged reasonable fees as determined by the
Managing General Partner.
See 'Certain Relationships and Related Transactions' for a
description of other ongoing arrangements between the Managing
General Partner and its Affiliates and the Partnership.
Withdrawal or removal of the General
Partners................................ If the General Partners withdraw in violation of the Partnership
Agreement or are removed by the Unitholders for Cause (as defined
in the Glossary), the successor general partner will have the
option to purchase the General Partner Interests (and the right to
receive Incentive Distributions) for a cash payment equal to the
fair market value thereof; if the Managing General Partner
withdraws or is removed without Cause it will have the option to
require the successor general partner to purchase the General
Partner Interests (and the right to receive Incentive
Distributions) from the departing General Partners for such price.
If the General Partner Interests (and the right to receive
Incentive Distributions) are not so purchased by the successor
general partner, the General Partners have the right to convert
such partner interests into a number of Common Units equal in value
to the fair market value thereof as determined by an independent
investment banking firm or other independent experts or to receive
cash in exchange for such interests.
LIQUIDATION STAGE
Liquidation............................... In the event of any liquidation of the Partnership, the partners,
including the General Partners, will be entitled to receive
liquidating distributions in accordance with their respective
capital account balances. See 'Cash Distribution Policy --
Distributions of Cash Upon Liquidation.'
17
CASH AVAILABLE FOR DISTRIBUTION
Available Cash will generally be distributed 96% to the Unitholders
(including the Managing General Partner as the holder of Subordinated Units) and
4% to the General Partners, pro rata, except that if distributions of Available
Cash exceed Target Distribution Levels (as defined in the Glossary) above the
Minimum Quarterly Distribution, the General Partners will receive an additional
percentage of such excess distributions that will increase to up to 50% of the
distributions above the highest Target Distribution Level. See 'Cash
Distribution Policy -- Incentive Distributions -- Hypothetical Annualized
Yield.'
The amount of Available Cash from Operating Surplus needed to distribute
the Minimum Quarterly Distribution for four quarters on the Common Units
(including the Common Units offered hereby) and Subordinated Units outstanding
at the date of this Prospectus and on the General Partner Interests is
approximately $24.6 million (approximately $14.1 million for the Common Units,
$9.5 million for the Subordinated Units and $1.0 million for the General Partner
Interests). Pro forma Available Cash from Operating Surplus generated during
1994 and 1995 (approximately $22.7 million and $17.6 million, respectively)
would have been sufficient to cover the Minimum Quarterly Distribution on the
Common Units and the related distribution on the General Partner Interests, but
would have been insufficient by approximately $1.9 million and $7.0 million to
cover the Minimum Quarterly Distribution on the Subordinated Units and the
related distribution on the General Partner Interests in 1994 and 1995,
respectively. The decline in pro forma Available Cash from Operating Surplus
generated during 1995 was primarily due to the fact that temperatures during the
winter of 1994-95 across the markets served by the Partnership were
substantially warmer than the prior year. Pro forma Available Cash from
Operating Surplus generated during the twelve months ended September 30, 1996
(approximately $21.5 million) would have been sufficient to cover the Minimum
Quarterly Distribution on the Common Units and the related distribution on the
General Partner Interests, but would have been insufficient by approximately
$3.1 million to cover the Minimum Quarterly Distribution on the Subordinated
Units and the related distribution on the General Partner Interests.
Pro forma Available Cash from Operating Surplus generated during the nine
months ended September 30, 1996 would have been approximately $11.6 million;
however, because of the highly seasonal nature of the Partnership's business,
such amount is not necessarily indicative of the results that will be obtained
over twelve months. The Partnership's revenues and cash flows have historically
been highest in the first and fourth quarters, which are the heating season, and
the lowest in the second and third quarters, which are the non-heating season.
Although such $11.6 million generated during the nine months ended September 30,
1996 would have been deficient by approximately $6.8 million to cover Minimum
Quarterly Distributions on the Common Units, the Subordinated Units and related
distributions on the General Partners Interests during such nine months, the
Partnership would have had sufficient cash on hand or available to it from its
credit line for the payment of the Minimum Quarterly Distributions during the
seasonally low cash flow second and third quarters of 1996. During the
Partnership's normal business cycles it will establish reserves during heating
season quarters for, among other things, payment of the Minimum Quarterly
Distribution on the Common Units in subsequent quarters and future debt
payments, decreasing the Amount of Available Cash from Operating Surplus that
would have been distributed for such heating season quarters. For the
calculation of Pro Forma Operating Surplus, see 'Cash Distribution
Policy -- Cash Available for Distribution.'
Based on the Partnership's actual results of operations for the eleven
months ended November 30, 1996 and limited data about operations in December
1996, the Partnership believes that it will generate during 1996 Available Cash
from Operating Surplus of approximately $18.7 million, although there can be no
assurance it will generate such amount.
The amounts of pro forma Available Cash from Operating Surplus for 1994 and
1995 and for the twelve months and nine months ended September 30, 1996 set
forth above were derived in part from the pro forma financial statements of the
Partnership in the manner set forth in the table entitled 'Pro Forma Operating
Surplus' set forth in 'Cash Distribution Policy -- Cash Available for
Distribution.'
18
The pro forma adjustments are based upon currently available information and
certain estimates and assumptions. The pro forma financial statements do not
purport to present the results of operations of the Partnership had the
Partnership actually commenced operations as of the date indicated. Furthermore,
the pro forma financial statements are based on accrual accounting concepts
while Available Cash and Operating Surplus are defined in the Partnership
Agreement on a cash accounting basis. As a consequence, the amounts of pro forma
Available Cash from Operating Surplus shown above should only be viewed as a
general indication of the amounts of Available Cash from Operating Surplus that
may in fact have been generated by the Partnership had it been formed in earlier
periods. Available Cash is defined in the Glossary and generally means, with
respect to any fiscal quarter of the Partnership, all cash on hand at the end of
such quarter less the amount of cash reserves that is necessary or appropriate
in the discretion of the Managing General Partner to (i) provide for the proper
conduct of the Partnership's business, (ii) comply with applicable law or any
Partnership debt instrument or other agreement, or (iii) provide funds for
distributions to Unitholders and the General Partners in respect of any one or
more of the next four quarters. Operating Surplus is defined in the Glossary and
refers generally to (i) the cash balance of the Partnership on the date the
Partnership commenced operations, plus $15.4 million, plus all cash receipts of
the Partnership from its operations, less (ii) all Partnership operating
expenses, debt service payments (including reserves therefor but not including
payments required in connection with the sale of assets or any refinancing with
the proceeds of new indebtedness or any equity offering), maintenance capital
expenditures and reserves established for future Partnership operations. For a
more complete definition of Available Cash and Operating Surplus, see the
Glossary.
In addition, certain provisions in the First Mortgage Notes and the Bank
Credit Facility, under certain circumstances, restrict the Partnership's ability
to make distributions to its partners. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Description of
Indebtedness.'
Approximately $5.5 million of the Partnership's annual cash receipts are
derived from interest payments from Triarc under the Partnership Loan. On a pro
forma basis, such amount represents approximately 31% of the Partnership's
Available Cash from Operating Surplus in 1995. Consequently, the Partnership's
ability to make the Minimum Quarterly Distribution to all Unitholders will
depend in part on Triarc's ability to make interest payments under the
Partnership Loan. For a description of the Partnership Loan and certain
information regarding Triarc, see 'Cash Distribution Policy -- Partnership Loan'
and 'Certain Information Regarding Triarc,' respectively.
PARTNERSHIP STRUCTURE AND MANAGEMENT
The Partnership's activities are conducted through the Operating
Partnership and its corporate and partnership subsidiaries. The Managing General
Partner serves as the managing general partner, and National Propane SGP, Inc.
(the 'Special General Partner'), a wholly owned subsidiary of the Managing
General Partner, serves as the non-managing general partner, of the Partnership
and the Operating Partnership. The Managing General Partner and the Special
General Partner are together referred to herein as the 'General Partners.' Each
of the General Partners owns a 1.0% and 1.0101% general partner interest in each
of the Partnership and the Operating Partnership, respectively. The Partnership
owns a 97.9798% limited partner interest in the Operating Partnership. Each of
the Managing General Partner and the Special General Partner owns a 2% General
Partner Interest in the Partnership and the Operating Partnership on a combined
basis. Provided that the Managing General Partner has not merged with and into
Triarc, the Special General Partner may convert all or a portion of its General
Partner Interest into a number of Units having rights to distributions of
Available Cash from Operating Surplus equal to the distribution rights with
respect to Available Cash from Operating Surplus of the General Partner Interest
so converted. References herein to the General Partner Interests or to
distributions to the General Partners of 4% of Available Cash are references to
the amount of the General Partners' aggregate unsubordinated percentage interest
in the Partnership and the Operating Partnership on a combined basis.
19
In general, the management and employees of National Propane who managed
and operated the propane business and assets prior to the IPO that are now owned
by the Partnership continue to manage and operate the Partnership's business as
officers and employees of the Managing General Partner and its Affiliates. The
Partnership does not have any officers or employees of its own. The Managing
General Partner does not receive any management fee or other compensation in
connection with its management of the Partnership, but is reimbursed by the
Partnership at cost for all direct and indirect expenses incurred on behalf of
the Partnership, including the costs of compensation and employee benefit plans
described herein properly allocable to the Partnership, and all other expenses
necessary or appropriate to the conduct of the business of, and allocable to,
the Partnership. The Partnership Agreement provides that the Managing General
Partner will determine the expenses that are allocable to the Partnership in any
reasonable manner determined by the Managing General Partner in its sole
discretion. Affiliates of the General Partners' (including Triarc) may provide
administrative services for the General Partners on behalf of the Partnership
and will be reimbursed for all expenses incurred in connection therewith. In
addition, the General Partners and their Affiliates (including Triarc) may
provide additional services to the Partnership, for which the Partnership will
be charged reasonable fees as determined by the Managing General Partner.
UNIT OPTION PLAN
Effective upon the closing of the IPO, the Managing General Partner adopted
the National Propane Corporation 1996 Unit Option Plan (the 'Option Plan'),
which permits the issuance of options to purchase Common Units and Subordinated
Units and the grant of Unit appreciation rights ('UARs') covering up to an
aggregate of 1,250,000 Common Units and Subordinated Units (subject to
adjustment in certain circumstances) plus an additional number of Units equal to
1% of the number of Units outstanding as of each December 31 following the
Option Plan's effective date which will be added to the total number of Units
that may be issued thereafter. The number of Units available for issuance will
also be increased by the number of Units received by the Managing General
Partner as payment of the exercise price of options and by the number of Units
purchased by the Managing General Partner from an amount equal to the cash
proceeds received by the Managing General Partner on the exercise of options. As
of December 31, 1996, no options or UARs had been granted under the Option Plan.
See 'Management -- Unit Option Plan.'
20
The following chart depicts the organization and ownership of the
Partnership, the Operating Partnership and the Operating Partnership's corporate
subsidiary. The percentages reflected in the following chart represent the
approximate ownership interest in each of the Partnership and the Operating
Partnership, individually, and not on an aggregate basis. Except in the
following chart, the ownership percentages referred to in this Prospectus
(including those given below in the box entitled 'Effective Aggregate Ownership
of the Partnership and the Operating Partnership') reflect the aggregate
ownership of the Partnership and the Operating Partnership on a combined basis.
[GRAPHICAL REPRESENTATION of the ownership structure of the Partnership,
the Operating Partnership, the General Partners and relevant Affiliates. Triarc
owns the General Partner 75.7% directly and 24.3% through its wholly-owned
subsidiary SEPSCO. Each of the General Partner and the Special General Partner,
its wholly-owned subsidiary, own a 1.0% and 1.0101% unsubordinated general
partner interest in the Partnership and the Operating Partnership,
respectively. The General Partner owns 4,533,638 Subordinated Units representing
a 41.4% general partner interest in the Partnership and the Public Unitholders
own 6,190,476 Common Units representing a 56.6% limited partner interest in the
Partnership. The Partnership owns a 97.9798% limited partner interest in the
Operating Partnership. National Sales is a wholly-owned subsidiary of the
Operating Partnership.]
21
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
In connection with the Conveyance, the Partnership became the successor to
the businesses of National Propane. Because the Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership as the successor
to the continuing businesses of National Propane. For purposes only of (i) the
following table and the footnotes thereto, (ii) the 'Selected Historical and Pro
Forma Consolidated Financial and Operating Data' and the footnotes thereto,
(iii) 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' and (iv) the condensed consolidated financial statements and
notes thereto, the entity representative of both the operations of (1) National
Propane prior to the Conveyance and the Transactions and (2) the Partnership
subsequent to the Conveyance and the Transactions, is referred to as 'National.'
The following table sets forth for the periods and as of the dates
indicated summary historical consolidated financial and operating data for
National and consolidated pro forma financial and operating data for National
after giving effect to the Transactions and the Private Placement. The summary
historical consolidated financial data of National presented below are derived
from the financial statements of National and should be read in conjunction with
'Selected Historical and Pro Forma Consolidated Financial and Operating Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the consolidated financial statements of National included
elsewhere herein. National's summary consolidated pro forma financial data are
derived from the unaudited pro forma condensed consolidated financial statements
of National included elsewhere herein and should be read in conjunction
therewith. The data for all of the periods presented below have been restated to
reflect the effects of the June 1995 merger (the 'Merger') of Public Gas Company
('Public Gas') with and into National as if the Merger had occurred on May 4,
1991. This transaction is described further in Note 3 to the accompanying
consolidated financial statements.
HISTORICAL PRO FORMA (B)
-------------------------------------------------------------- -------------
FISCAL YEAR ENDED TEN MONTHS
APRIL 30, ENDED YEAR ENDED DECEMBER 31,
---------------------- DECEMBER 31, -------------------------------------
1992 1993 1993 (A) 1994 1995
-------- -------- ------------ -------- -----------------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
STATEMENT OF OPERATIONS
DATA:
Operating revenues..... $144,667 $151,931 $119,249 $151,651 $148,983 $ 148,983
Gross profit........... 35,338 34,565 26,948 41,968 39,924 39,924
Selling, general and
administrative
expenses (other than
management fees
charged by
parents)............. 16,776 19,578 16,501 18,657 22,423 23,923
Management fees charged
by parents(c)........ 3,271 2,328 3,485 4,561 3,000 --
Facilities relocation
and corporate
restructuring........ -- 7,647(d) 8,429(d) -- -- --
Operating profit
(loss)............... 15,291 5,012(d) (1,467)(d) 18,750 14,501 16,001
Interest expense....... (17,696) (16,770) (9,949) (9,726) (11,719) (11,550)
Interest income from
Triarc(e)............ 16,334 17,127 10,360 9,751 -- 5,500
Provision for (benefit
from) income taxes... 5,833 2,624 1,018 7,923 4,291 200
Income (loss) before
extraordinary charge
and cumulative effect
of change in
accounting
principles........... 9,795 2,876 (347) 12,021 (605) 10,655
Extraordinary charge... -- -- -- (2,116)(f) -- --
Cumulative effect of
change in accounting
principles........... -- 6,259(g) -- -- -- --
Net income (loss)...... 9,795 9,135 (347) 9,905 (605) 10,655
Income before
extraordinary charge
per Unit(h).......... 0.91
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit)............ $(24,469)(i) $ 13,163 $ 5,479 $ (631) $ (4,357)
Due from Triarc(e)..... 92,804 65,999 71,172 -- --
Total assets........... 234,699 218,095 191,955 137,581 139,112
Long-term debt......... 78,556 67,511 51,851 98,711 124,266
Stockholders' equity
(deficit)(e)......... 81,666 88,063 88,971 (19,502) (48,600)
Partners' capital...... -- -- -- -- --
OPERATING DATA:
EBITDA(j).............. $ 23,670 $ 13,087 $ 5,483 $ 28,774 $ 25,146 $ 26,646
Capital
expenditures(k)...... 7,039 8,290 11,260 12,593 11,013 11,013
Retail propane gallons
sold(l).............. 145,708 154,839 117,415 152,335 150,141 150,141
Operating Surplus
generated during the
period(m)............ 17,578
Reserves(n)............
Available Cash(m)......
PRO FORMA (B)
-------------
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------
1995 1996
-------- ------------------------
STATEMENT OF OPERATIONS
DATA:
Operating revenues..... $102,461 $116,018 $ 116,018
Gross profit........... 24,920 26,921 26,921
Selling, general and
administrative
expenses (other than
management fees
charged by
parents)............. 15,506 17,009 17,759
Management fees charged
by parents(c)........ 2,250 1,500 --
Facilities relocation
and corporate
restructuring........ -- -- --
Operating profit
(loss)............... 7,164 8,412 9,162
Interest expense....... (8,731) (9,067) (8,494)
Interest income from
Triarc(e)............ -- 1,370 4,120
Provision for (benefit
from) income taxes... (264) 1,922 150
Income (loss) before
extraordinary charge
and cumulative effect
of change in
accounting
principles........... (605) (545) 5,300
Extraordinary charge... -- (2,631 (f)
Cumulative effect of
change in accounting
principles........... -- --
Net income (loss)...... (605) (3,176)
Income before
extraordinary charge
per Unit(h).......... 0.45
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit)............ $ 11,883 $ 19,250
Due from Triarc(e)..... 40,700 40,700
Total assets........... 175,675 183,042
Long-term debt......... 126,968 126,968
Stockholders' equity
(deficit)(e)......... -- --
Partners' capital...... 26,542 33,909
OPERATING DATA:
EBITDA(j).............. $13,852 $ 16,711 $ 17,461
Capital
expenditures(k)...... 6,933 5,553 5,553
Retail propane gallons
sold(l).............. 101,809 110,616 110,616
Operating Surplus
generated during the
period(m)............ 11,631
Reserves(n)............ 7,445
Available Cash(m)...... 4,186
(footnotes on next page)
22
(footnotes from previous page)
(a) In October 1993 National's fiscal year ended April 30 and Public Gas'
fiscal year ended February 28 were changed to a calendar year ended
December 31. In order to conform the reporting periods of the combined
entities and to select a period deemed to meet the Securities and Exchange
Commission requirement for filing financial statements for a period of one
year, the ten-month period ended December 31, 1993 ('Transition 1993') has
been presented above and in the accompanying consolidated financial
statements. The selected consolidated financial and operating data as of
and for the fiscal years ended April 30, 1992 and 1993 ('Fiscal 1993'),
however, reflect the former year-ends of both National and Public Gas.
Accordingly, Fiscal 1993 and Transition 1993 each include the results of
National for the two-month period ended April 30, 1993 as follows:
Operating revenues -- $28,266; Operating loss -- $(5,190); Net
loss -- $(3,375) (see Note (d) below).
(b) For a description of the adjustments and assumptions used in preparing the
Unaudited Pro Forma Condensed Consolidated Financial and Operating Data,
see Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
and Statement of Operations included elsewhere herein.
(c) Management fees charged by parents include costs charged to National by
Triarc and to Public Gas by SEPSCO, its parent prior to the Merger. (See
Note 19 to the accompanying consolidated financial statements).
(d) Includes certain significant pretax charges recorded in April 1993
affecting Fiscal 1993 and Transition 1993 operating profit consisting of
(i) $8.4 million of facilities relocation and corporate restructuring
charges ($7.6 million of which affected both Fiscal 1993 and Transition
1993 due to National's April 1993 being included in both periods and $0.8
million of which affected only Transition 1993) and (ii) $0.5 million of
allocated costs of a payment to the Special Committee of Triarc's Board of
Directors ($0.4 million of which affected both Fiscal 1993 and Transition
1993). (See Note 20 to the accompanying consolidated financial statements).
(e) In November 1994, National reclassified its receivable from Triarc as a
reduction of stockholders' equity and began reserving all interest accrued
subsequent thereto. Receivables from SEPSCO are classified as a component
of stockholders' equity for all of the above periods. (See Note 13 to the
accompanying consolidated financial statements).
(f) The extraordinary charges primarily represent the write-off of unamortized
deferred financing costs and original issue discount (in the 1994 period),
net of income taxes, associated with the early extinguishment of debt.
(g) The cumulative effect of change in accounting principles resulted from
National's adoption of Statement of Financial Accounting Standards No. 109
('SFAS No. 109'), 'Accounting for Income Taxes' effective May 1, 1992.
(h) See Note (f) of Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations included elsewhere herein for details relating to
the calculation of net income per Unit.
(i) Reflects the classification of $35.0 million of long-term debt, which was
repaid in Fiscal 1993, as a current liability.
(j) EBITDA is defined as operating profit (loss) plus depreciation and
amortization (excluding amortization of deferred financing costs). EBITDA
should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure
of liquidity or ability to service debt obligations) and is not a measure
of performance or financial condition under generally accepted accounting
principles, but provides additional information for evaluating National's
ability to distribute the Minimum Quarterly Distribution. Cash flows in
accordance with generally accepted accounting principles consist of cash
flows from (i) operating, (ii) investing and (iii) financing activities.
Cash flows from operating activities reflect net income (loss) (including
charges for interest and income taxes not reflected in EBITDA), adjusted
for (i) all non-cash charges or income (including, but not limited to,
depreciation and amortization) and (ii) changes in operating assets and
liabilities (not reflected in EBITDA). Further, cash flows from investing
and financing activities are not included in EBITDA. For a discussion of
National's operating performance and cash flows provided by (used in)
operating, investing and financing activities, see 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
(footnotes continued on next page)
23
(footnotes continued from previous page)
(k) National's capital expenditures, including capital leases, fall generally
into three categories: (i) maintenance capital expenditures, which include
expenditures for replacement of property, plant and equipment, (ii) growth
capital expenditures for the expansion of existing operations and (iii)
acquisition capital expenditures, which include expenditures related to the
acquisition of retail propane operations.
An analysis by category for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 is as follows:
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
------------------- -----------------
1994 1995 1995 1996
------- ------- ------ ------
(IN THOUSANDS)
Maintenance(1)................................................... $ 4,228 $ 4,030 $3,670 $2,275
Growth........................................................... 3,672 4,936 3,104 2,722
Acquisition...................................................... 4,693 2,047(2) 159 556
------- ------- ------ ------
Total.................................................. $12,593 $11,013 $6,933 $5,553
------- ------- ------ ------
------- ------- ------ ------
--------------------
(1) Includes expenditures not expected to occur on an annual basis as
follows: 1994 -- $1,790 (primarily computer hardware and systems
installation); 1995 -- $590 (primarily the purchase of an airplane).
(2) Includes $1,864 of assets purchased and contributed by Triarc (see
Note 19 to the accompanying consolidated financial statements).
(l) Retail propane gallons sold includes sales to (i) residential customers,
(ii) commercial and industrial customers, (iii) agricultural customers, and
(iv) dealers (located primarily in the Northeast) that resell propane to
residential and commercial customers.
(m) For a more complete discussion of pro forma Available Cash and Operating
Surplus, see 'Cash Distribution Policy -- Cash Available for Distribution.'
(n) National will utilize reserves from time to time to facilitate future
funding of, among other things, maintenance capital expenditures, operating
expenditures, interest payments and distributions to partners. For example,
during the first and fourth fiscal quarters, National may reserve for
operating and capital expenditures to be made in the second and third
fiscal quarters. These reserves for operating and capital expenditures may
be at their highest at the end of the first quarter, assuming normal
weather and operating conditions, as well as National's existing
operations. By the end of the fourth quarter, these reserves would
typically be reduced. In addition, National generally must reserve at the
end of the first and third fiscal quarters 50% of the semiannual interest
on the First Mortgage Notes due at the end of the second and fourth fiscal
quarters. The approximate amount required to be reserved for this purpose
in such quarters is $2.7 million. National may, however, choose to reserve
a full interest payment or $5.4 million, at its discretion. National is
also required to make reserves for the future payment of principal and
interest on the Bank Credit Facility. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Description of
Indebtedness.' Furthermore, the Partnership Agreement allows the Managing
General Partner, in its discretion, to reserve for up to four quarters of
future distributions of the Minimum Quarterly Distribution to Unitholders.
Except as required by the terms of the National's indebtedness, the extent
and timing of these reserves, if any, are determinable solely by the
Managing General Partner and will largely depend on the actual results of
operations of the Partnership and other factors beyond the control of the
Managing General Partner. As a result, the amount of such reserves may vary
substantially from those described above and no assurance can be given as
to the actual level of reserves that will be established with respect to
any quarter.
24
THE OFFERING
Securities Offered........................ Up to 400,000 Common Units are being offered by the Selling
Unitholder. The Partnership will not receive any of the proceeds
from the sale of the Common Units offered hereby. See 'The Selling
Unitholder.'
Units to be Outstanding After
the Offering............................ 6,701,550 Common Units representing a 57.3% limited partner interest
in the Partnership and 4,533,638 Subordinated Units representing a
38.7% subordinated general partner interest in the Partnership. All
4,533,638 Subordinated Units held by the Managing General Partner
and its Affiliates are general partner interests (unless the
Managing General Partner or its Affiliates elect otherwise) and all
Common Units sold in the IPO or offered for sale in the Offering
are limited partner interests. The Subordinated Units will
automatically convert into limited partner interests upon being
converted into Common Units, and may be converted into limited
partner interests earlier upon the election of the Managing General
Partner and its Affiliates or upon a transfer to a non-Affiliate.
Distributions of Available Cash........... The Partnership will distribute all of its Available Cash within
approximately 45 days after the end of each quarter to the
Unitholders (including the Managing General Partner as a holder of
Subordinated Units) of record on the applicable record date and to
the General Partners. 'Available Cash' for any quarter will consist
generally of all cash on hand at the end of such quarter, as
adjusted for reserves. The complete definition of Available Cash is
set forth in the Glossary. The Managing General Partner has broad
discretion in making cash disbursements and establishing reserves,
thereby affecting the amount of Available Cash that will be
distributed with respect to any quarter. In addition, the terms of
the agreements governing the Partnership's indebtedness require
that certain reserves be maintained for the payment of principal
and interest. See 'Risk Factors -- Risks Inherent in an Investment
in the Partnership' for a description of the reserves on payment of
principal and interest that the Partnership will be required to
maintain. Available Cash will generally be distributed 96% to
Unitholders and 4% to the General Partners, pro rata, except that
if distributions of Available Cash from Operating Surplus within a
quarter exceed specified target levels in excess of the Minimum
Quarterly Distribution the General Partners (as holders of the
General Partner Interests and the right to receive Incentive
Distributions), will receive a percentage of such excess
distributions that will increase to up to 50% of the excess
distributions above the highest Target Distribution Level. On a pro
forma basis, quarterly distributions of Available Cash would not
have exceeded such target levels and the Partnership would not have
distributed any such excess payments to the General Partners in
fiscal 1994 and 1995. See 'Cash Distribution Policy -- Incentive
Distributions -- Hypothetical Annualized Yield.'
Distributions to Common and
Subordinated Unitholders................ The Partnership intends, to the extent there is sufficient Available
Cash from Operating Surplus, to distribute to each holder of Common
Units at least the Minimum Quarterly Distribution of $0.525 per
Common Unit per quarter. The Minimum Quarterly Distribution is not
guaranteed and is subject to adjustment as described under 'Cash
Distribution Policy -- Adjustment of Minimum Quarterly Distribution
25
and Target Distribution Levels.' The Partnership declared a
distribution on October 21, 1996, in the amount of $0.525 per
Common Unit, which was paid on November 14, 1996 to Common
Unitholders of record at the close of business on November 1, 1996
and paid a distribution of $0.525 per Subordinated Unit to the
Managing General Partner (approximately $2.4 million in the
aggregate) and a corresponding distribution to the General Partners
in the aggregate amount of approximately $235,800.
With respect to each quarter during the Subordination Period, which
will generally not end prior to June 30, 2001, the Common
Unitholders will generally have the right to receive the Minimum
Quarterly Distribution, plus Common Unit Arrearages, before any
distribution of Available Cash from Operating Surplus is made to
the Subordinated Unitholders. This subordination feature will
enhance the Partnership's ability to distribute the Minimum
Quarterly Distribution on the Common Units during the Subordination
Period. Subordinated Units will not accrue distribution arrearages.
Upon expiration of the Subordination Period, Common Units will no
longer accrue distribution arrearages. See 'Cash Distribution
Policy.'
Subordination Period...................... The Subordination Period will generally extend until the first day of
any quarter beginning after June 30, 2001 in respect of which (i)
distributions of Available Cash from Operating Surplus on the
Common Units and the Subordinated Units with respect to each of the
three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and
Subordinated Units during such periods, (ii) the Adjusted Operating
Surplus (as defined in the Glossary) generated during each of the
three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the General
Partner Interests during such periods, and (iii) there are no
outstanding Common Unit Arrearages. Upon expiration of the
Subordination Period, all remaining Subordinated Units will convert
into Common Units on a one-for-one basis and will thereafter
participate pro rata with the other Common Units in distributions
of Available Cash. The Partnership Agreement also provides that if
the Managing General Partner is removed other than for Cause (as
defined in the Glossary), the Subordination Period will end and all
outstanding Subordinated Units will convert into Common Units. See
'Cash Distribution Policy' and 'The Partnership Agreement.'
Early Conversion of Subordinated Units.... A portion of the Subordinated Units will convert into Common Units on
the first day after the record date established for the
distribution in respect of any quarter ending on or after (a) June
30, 1999 (with respect to 1,133,410 of the Subordinated Units,
subject to adjustment) and (b) June 30, 2000 (with respect to
1,133,410 Subordinated Units, subject to adjustment), in respect of
which (i) distributions of Available Cash from Operating Surplus on
the Common Units and the Subordinated Units with respect to each of
the three consecutive four-quarter periods immediately preceding
such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and
Subordinated Units during such periods, (ii) the Adjusted Operating
26
Surplus generated during each of the two consecutive four-quarter
periods immediately preceding such date equaled or exceeded the sum
of the Minimum Quarterly Distribution on all of the outstanding
Common Units and Subordinated Units and the related distribution on
the General Partner Interest during such periods, and (iii) there
are no outstanding Common Unit Arrearages; provided, however, that
the early conversion of the second tranche of Subordinated Units
may not occur until at least one year following the early
conversion of the first tranche of Subordinated Units. See 'Cash
Distribution Policy -- Quarterly Distributions from Operating
Surplus during Subordination Period.'
Incentive Distributions................... If quarterly distributions of Available Cash exceed the Target
Distribution Levels, the General Partners (as holders of the
General Partner Interests and the right to receive Incentive
Distributions and not as holders of Subordinated Units) will
receive additional distributions of Available Cash that exceed such
Target Distribution Levels as follows:
MARGINAL
PERCENTAGE
INTEREST IN
QUARTERLY DISTRIBUTIONS
DISTRIBUTION ----------------
TARGET UNIT- GENERAL
AMOUNT HOLDERS PARTNERS
------------ ------- -------
Minimum Quarterly Distribution........ $0.525 96% 4%
First Target Distribution............. $0.577 96% 4%
Second Target Distribution............ $0.665 85% 15%
Third Target Distribution............. $0.863 75% 25%
Thereafter............................ above $0.863 50% 50%
The Target Distribution Levels are based on the amounts of Available
Cash from Operating Surplus distributed that exceed distributions
made with respect to the Minimum Quarterly Distribution and Common
Unit Arrearages, if any. See 'Cash Distribution Policy -- Incentive
Distributions -- Hypothetical Annualized Yield.' The distributions
to the General Partners described above that are in excess of the
4% General Partner Interests (and not as a holder of Subordinated
Units) are referred to herein as the 'Incentive Distributions'
which are payable to the Managing General Partner. The Managing
General Partner may transfer its right to receive Incentive
Distributions to one or more Persons (as defined in the Glossary).
On a pro forma basis, quarterly distributions of Available Cash
would not have exceeded such target levels and the Partnership
would not have distributed any such excess payments to the Managing
General Partner in 1994 and 1995.
Adjustment of Minimum Quarterly
Distribution and Target Distribution
Levels.................................. The Minimum Quarterly Distribution and the Target Distribution Levels
are subject to downward adjustments in the event that the
Unitholders receive distributions of Available Cash from Capital
Surplus (as defined in the Glossary) or legislation is enacted or
existing law is modified or interpreted by the relevant
governmental authority in a manner that causes the Partnership to
be treated as an association taxable as a corporation or otherwise
taxable as an entity for federal, state or local income tax
purposes. If, as a result of distributions of Available Cash from
Capital Surplus, the Unitholders receive a full return of the
initial
27
public offering price of the Common Units and any unpaid Common
Unit Arrearages, the additional distributions of Available Cash
payable to the General Partners will increase to 50% of all amounts
distributed thereafter. See 'Cash Distribution Policy -- General'
and ' -- Distributions from Capital Surplus.'
Partnership's Ability to Issue Additional
Units................................... The Partnership Agreement generally authorizes the Partnership to
issue an unlimited number of additional limited partner interests
and other equity securities of the Partnership for such
consideration and on such terms and conditions as shall be
established by the Managing General Partner in its sole discretion
without the approval of the Unitholders. During the Subordination
Period, however, the Partnership may not issue equity securities
ranking prior or senior to the Common Units or an aggregate of more
than 3,095,238 Common Units (including the 400,000 Common Units
issued to the Selling Unitholder and offered hereby) or an
equivalent number of securities ranking on parity with the Common
Units (excluding the 111,074 Common Units issued upon exercise of
the IPO Over-Allotment Option, and Common Units issued upon
conversion of Subordinated Units, upon conversion of the Special
General Partner's combined unsubordinated general partner interest
or in connection with certain acquisitions or capital additions and
improvements, the repayment of certain indebtedness, or pursuant to
employee benefit plans), in either case without the approval of a
Unit Majority (as defined in the Glossary). See 'The Partnership
Agreement -- Issuance of Additional Securities.'
Limited Call Right........................ If at any time less than 20% of the issued and outstanding Common
Units are held by persons other than the General Partners and their
Affiliates, the General Partners (or an Affiliate designated by the
General Partners) may purchase all of the remaining Common Units at
a price generally equal to the then current market price of the
Common Units. See 'The Partnership Agreement -- Limited Call
Right.'
Limited Voting Rights..................... Unitholders have only limited voting rights on matters affecting the
Partnership's business as specified in the Partnership Agreement.
The approval of at least a majority (and in certain cases a greater
percentage) of the outstanding Units will be required in such
instances. The Managing General Partner manages and operates the
Partnership. See 'The Partnership Agreement.'
Removal and Withdrawal of the General
Partners................................ Subject to certain conditions, the Managing General Partner may be
removed upon the approval of the holders of at least 66 2/3% of the
outstanding Units (including Units held by the General Partners and
their Affiliates). A meeting of the holders of the Common Units may
be called only by the Managing General Partner or by the holders of
20% or more of the outstanding Common Units. The Managing General
Partner's current ownership interest in the Partnership precludes
any vote to remove the Managing General Partner or the Special
General Partner without the Managing General Partner's consent.
Generally, the Special General Partner shall be removed or withdraw
as general partner of the Partnership and the Operating Partnership
upon the removal or withdrawal of the Managing General Partner.
However, upon certain bankruptcy related withdrawal events of the
Managing General Partner, the
28
Special General Partner will not withdraw but will become the
managing general partner of the Partnership. The Managing General
Partner has agreed not to voluntarily withdraw as managing general
partner of the Partnership and the Operating Partnership prior to
June 30, 2006, subject to limited exceptions, without obtaining the
approval of a Unit Majority (as defined in the Glossary) and
furnishing an Opinion of Counsel (as defined in the Glossary). See
'The Partnership Agreement -- Withdrawal or Removal of the General
Partners' and ' -- Meetings; Voting.'
Change of Management Provisions........... Any person or group (other than the General Partners or their
Affiliates) that acquires beneficial ownership of 20% or more of
the outstanding Units of any class will lose its voting rights with
respect to all of its Units. In addition, if the Managing General
Partner is removed as the managing general partner of the
Partnership other than for Cause and the Units held by the General
Partners and their Affiliates are not voted in favor of such
removal, the Subordination Period will end, all Common Unit
Arrearages will terminate, all outstanding Subordinated Units will
immediately convert into Common Units on a one-for-one basis and
the General Partners will have the right to convert the General
Partner Interests into Common Units or to receive in exchange for
such interests cash payments equal to the fair market value of such
interests. See 'The Partnership Agreement -- Withdrawal or Removal
of the General Partners,' ' -- Meetings; Voting' and ' -- Change of
Management Provisions.'
Transfer Restrictions..................... All purchasers of Common Units in the Offering and purchasers of
Common Units in the open market who wish to become Unitholders of
record must deliver an executed transfer application (the 'Transfer
Application,' the form of which is included in this Prospectus as
Appendix A) before the issuance or transfer of such Common Units
will be registered and before cash distributions and federal income
tax allocations will be made to the transferee. See 'Description of
the Common Units -- Transfer of Common Units.'
Distributions Upon Liquidation............ In the event of any liquidation of the Partnership during the
Subordination Period, the outstanding Common Units will be entitled
to receive a distribution out of the net assets of the Partnership
in preference to liquidating distributions on the Subordinated
Units to the extent of their Unrecovered Capital (as defined in the
Glossary) and any unpaid Common Unit Arrearages. Under certain
circumstances, there may be insufficient gain for the holders of
Common Units to fully recover all such amounts, even though there
may be cash available for distribution to holders of Subordinated
Units. Following conversion of the Subordinated Units into Common
Units, all Units will be treated the same upon liquidation of the
Partnership. See 'Cash Distribution Policy -- Distributions of Cash
Upon Liquidation.'
Listing................................... The Common Units are listed on the NYSE. The Common Units offered
hereby have been approved for listing on the NYSE. The last
reported price of the Common Units on January 9, 1997 was $20.875
per Common Unit.
NYSE Symbol............................... 'NPL'
29
SUMMARY OF TAX CONSIDERATIONS
The tax consequences of an investment in the Partnership to a particular
investor will depend in part on the investor's own tax circumstances. Each
prospective investor should consult a tax advisor about the federal, state and
local tax consequences of an investment in Common Units. The following is a
brief summary of certain expected tax consequences of owning and disposing of
Common Units. The following discussion, insofar as it relates to federal income
tax laws, is based in part upon the opinion of Counsel described in 'Tax
Considerations.' This summary is qualified by the discussion in 'Tax
Considerations,' particularly the qualifications on the opinions of Counsel
described therein.
PARTNERSHIP STATUS
In the opinion of Counsel, the Partnership will be classified for federal
income tax purposes as a partnership, and the beneficial owners of Common Units
will generally be considered partners in the Partnership. Accordingly, the
Partnership will pay no federal income taxes, but the Partnership's income,
gains, losses and deductions will be includable in the federal income tax
returns of the Unitholders. In general, cash distributions to a Unitholder will
be taxable only if, and to the extent that, they exceed the tax basis in such
Unitholder's Common Units.
PARTNERSHIP ALLOCATIONS
In general, income and loss of the Partnership will be allocated to the
General Partners and the Unitholders for each taxable year in accordance with
their respective percentage interests in the Partnership, as determined annually
and prorated on a monthly basis and subsequently apportioned among the General
Partners and the Unitholders of record as of the opening of the first business
day of the month to which they relate, even though Unitholders may dispose of
their Units during the month in question. For purposes of determining federal
income tax liability, a Unitholder will be required to take into account income
generated by the Partnership allocable to such Unitholder for each taxable year
of the Partnership ending within or with the Unitholder's taxable year even if
cash distributions are not made to such Unitholder. As a consequence, a
Unitholder's share of taxable income of the Partnership (and possibly the income
tax payable by such Unitholder with respect to such income) may exceed the cash,
if any, actually distributed to such Unitholder.
BASIS OF COMMON UNITS
A Unitholder's initial tax basis for a Common Unit purchased in the
Offering will generally be the amount paid for the Common Units. A Unitholder's
basis is generally increased by such Unitholder's share of Partnership income
and decreased by such Unitholder's share of Partnership losses and
distributions.
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
In the case of taxpayers subject to the passive loss rules (such as
individuals and closely held corporations), any Partnership losses will be
available only to offset future income generated by the Partnership and cannot
be used to offset income from other activities, including passive activities or
investments. Any losses unused by virtue of the passive loss rules may be
deducted when the Unitholder disposes of all of his Common Units in a fully
taxable transaction with an unrelated party. In addition, a Unitholder may
deduct such Unitholder's share of Partnership losses only to the extent the
losses do not exceed such Unitholder's basis in such Unitholder's Common Units
or, in the case of taxpayers subject to the 'at risk' rules (such as
individuals), the amount the Unitholder is at risk with respect to the
Partnership's activities, if less than such tax basis.
SECTION 754 ELECTION
The Partnership intends to make the election provided for by Section 754 of
the Internal Revenue Code of 1986, as amended (the 'Code'), which will generally
result in a Unitholder being allocated
30
income and deductions calculated by reference to the portion of that
Unitholder's purchase price attributable to each asset of the Partnership.
DISPOSITION OF COMMON UNITS
A Unitholder who sells Common Units will recognize gain or loss equal to
the difference between the amount realized and the adjusted tax basis in those
Common Units. Thus, distributions of cash from the Partnership to a Unitholder
in excess of the income allocated to such Unitholder will, in effect, become
taxable income if such Unitholder sells the Common Units at or above their
original cost. A portion of the amount realized (whether or not representing
gain) may be ordinary income.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
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 are imposed by the various
jurisdictions in which a Unitholder resides or in which the Partnership does
business or owns property. Although an analysis of those various taxes is not
presented here, each prospective Unitholder should consider their potential
impact on such Unitholder's investment in the Partnership. The Partnership owns
property and conducts business in New York, Florida, Michigan and 22 other
states. A Unitholder will also be required to file state income tax returns and
to pay taxes in various states and may be subject to penalties for failure to
comply with such requirements. Based on 1995 revenues, the Managing General
Partner currently anticipates that substantially all of the Partnership's income
will be generated in Arkansas, Arizona, Colorado, Connecticut, Florida, Iowa,
Illinois, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New
Mexico, New York, and Wisconsin. Each of the states, other than Florida, in
which the Managing General Partner currently anticipates that a substantial
portion of the Partnership's income will be generated currently imposes a
personal income tax. In certain states, tax losses may not produce a tax benefit
in the year incurred (if, for example, the Partnership has 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 the Partnership, or the
Partnership may elect, to withhold a percentage of income from amounts to be
distributed to a Unitholder who is not a resident of that state. Withholding,
the amount of which may be more or less than a particular Unitholder's income
tax liability to the state, may not relieve the nonresident 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 the Partnership. Based on current law and its estimate of future Partnership
operations, the Partnership anticipates that any amounts required to be withheld
will not be material.
It is the responsibility of each prospective Unitholder to investigate the
legal and tax consequences, under the laws of pertinent states and localities,
of such Unitholder's investment in the Partnership. 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 federal, state and local tax
returns that may be required of such Unitholder. Counsel has not rendered an
opinion on the state or local tax consequences of an investment in the
Partnership.
OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER
INVESTORS
An investment in Common Units by tax-exempt organizations (including
individual retirement accounts and other retirement plans), regulated investment
companies and foreign persons raises issues unique to such persons. Virtually
all of the Partnership income allocated to a Unitholder which is a tax-exempt
organization will be unrelated business taxable income, and thus will be taxable
to such Unitholder; no significant amount of the Partnership's gross income will
be qualifying income for purposes of determining whether a Unitholder will
qualify as a regulated investment company; and a Unitholder who is a nonresident
alien, foreign corporation or other foreign person will be regarded as being
engaged in a trade or business in the United States as a result of ownership of
a Common Unit
31
and thus will be required to file federal income tax returns and to pay tax on
such Unitholder's share of Partnership taxable income. See 'Tax
Considerations -- Uniformity of Units -- Tax-Exempt Organizations and Certain
Other Investors.'
TAX SHELTER REGISTRATION
The Code generally requires that 'tax shelters' be registered with the
Secretary of the Treasury. It is arguable that the Partnership will not be
subject to this registration requirement. Nevertheless, the Partnership has been
registered as a tax shelter with the IRS. ISSUANCE OF THE REGISTRATION NUMBER
DOES NOT INDICATE THAT AN INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX
BENEFITS HAS BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. See 'Tax
Considerations -- Administrative Matters -- Registration as a Tax Shelter.'
32
RISK FACTORS
A prospective investor should carefully consider the risk factors set forth
below as well as the other information set forth in this Prospectus before
purchasing the Common Units offered in the Offering. Special Note: Certain
statements set forth below under this caption constitute 'forward-looking
statements' within the meaning of the Reform Act. See 'Special Note Regarding
Forward-Looking Statements' on page 4 for additional factors relating to such
statements.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
WEATHER CONDITIONS AFFECT THE DEMAND FOR PROPANE
Weather conditions, which can vary substantially from year to year, have a
significant impact on the demand for propane for both heating and agricultural
purposes. Many customers of the Partnership rely heavily on propane as a heating
fuel. Accordingly, the volume of propane sold is at its highest during the
six-month peak heating season of October through March and is directly affected
by the severity of the winter weather. Historically, approximately 66% of the
Partnership's retail propane volume has been sold during this peak heating
season. Actual weather conditions, therefore, may significantly affect the
Partnership's financial performance. For example, warm weather during the winter
of 1994-95 significantly decreased the overall demand for propane, and adversely
affected the Partnership's operating income. Furthermore, despite the fact that
overall weather conditions may be normal, variations in weather in one or more
regions in which the Partnership operates can significantly affect the total
volume of propane sold by the Partnership and, consequently, the Partnership's
results of operations. Variations in the weather in the Midwest, where the
majority of the Partnership's retail volume is sold, and in the Northeast, where
the Partnership has a greater concentration of higher margin residential
accounts, will generally have a greater impact on the Partnership's EBITDA and
operating income than variations in the weather in other markets. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
THE PARTNERSHIP WILL BE SUBJECT TO PRICING AND INVENTORY RISK
The retail propane business is a 'margin-based' business in which gross
profits depend on the excess of sales prices over propane supply costs.
Consequently, the Partnership's profitability is sensitive to changes in
wholesale propane prices. Propane is a commodity, and as such, its unit price is
subject to volatile changes in response to changes in supply or other market
conditions. The Partnership has no control over these market conditions.
Consequently, the unit price of propane purchased by the Partnership, as well as
other propane marketers, can change rapidly over a short period of time. 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 storage points such as Mont Belvieu, Texas, or Conway, Kansas. Since
rapid increases in the wholesale cost of propane may not be immediately passed
on to customers, such increases could reduce the Partnership's gross profits and
operating income. See ' -- The Retail Propane Business Is Highly Competitive.'
In the fourth quarter of 1996, the price of propane was significantly
higher than historical levels. Between November 1, 1996 and December 31, 1996,
the price of propane in the spot market at Mont Belvieu, Texas, the largest
storage facility in the United States, averaged $0.5953 per gallon, with a high
of $0.7050 per gallon on December 16, 1996 and a low of $0.4875 per gallon on
December 31, 1996. During the 1995-96 winter season, from November 1, 1995 to
March 31, 1996, the price of propane at Mont Belvieu averaged $0.3672 per
gallon, with a high of $0.5250 on February 15, 1996 and a low of $0.3037 on
November 15, 1995. Between November 1, 1996 and December 31, 1996, the price of
propane in the spot market at Conway, Kansas averaged $0.7494 per gallon, with a
high of $1.04 per gallon on December 16, 1996 and a low of $0.5100 per gallon on
November 7, 1996. During the 1995-96 winter season, from November 1, 1995 to
March 31, 1996, the price of propane at Conway averaged $0.3713 per gallon, with
a high of $0.4363 on February 15, 1996 and a low of $0.3237 on November 15,
1995. The Partnership has to date purchased a significant amount of its propane
in the Conway, Kansas spot market. Although the increased wholesale price of
propane has increased the Partnership's revenues for the fourth quarter of 1996,
the Partnership was unable to fully pass on the increased product cost to its
33
customers resulting in a lower per gallon profit margin. As a result, the
Partnership expects that it will have slightly lower operating income for the
fourth quarter of 1996 compared to the corresponding period of 1995.
Propane is available from numerous sources, including integrated
international oil companies, independent refiners and independent wholesalers.
The Partnership purchases propane from a variety of suppliers pursuant to supply
contracts or on the spot market. In 1995, approximately 81% of the propane
purchased by the Partnership was produced domestically and approximately 19% was
produced in Canada. To the extent that the Partnership purchases propane from
foreign (including Canadian) sources, its propane business will be subject to
risks of disruption in foreign supply. The Partnership generally attempts to
minimize inventory risk by purchasing propane on a short-term basis. However,
the Partnership has on occasion purchased, and may in the future purchase, large
volumes of propane during periods of low demand, which generally occur during
the summer months, at the then current market price, for storage both at its
service centers and in the Partnership's major storage facilities for future
resale. As of December 31, 1996, the Partnership's total storage capacity was
approximately 33.1 million gallons (including approximately one million gallons
of storage capacity currently leased to third parties). See 'Business and
Properties -- Properties.' Because of the potential volatility of propane
prices, the market price for propane could fall below the price at which the
Partnership purchased propane held in inventory, thereby adversely affecting
gross margins or sales or rendering sales from such inventory unprofitable.
Except for the occasional opportunistic buying described above, the Partnership
has not engaged in any significant hedging activities with respect to its
propane supply requirements, although it may do so in the future. See 'Business
and Properties -- Propane Supply and Storage.'
THE RETAIL PROPANE BUSINESS IS HIGHLY COMPETITIVE
The Partnership's business is highly competitive. Competition within the
propane distribution industry stems primarily from three types of participants:
larger multi-state marketers, local independent marketers and farm cooperatives.
Some of the Partnership's competitors may be larger or have greater financial
and other resources or lower operating costs than the Partnership. Generally,
warmer-than-normal weather further intensifies competition. In addition,
competitive conditions vary by region. Currently, competition is particularly
intense in the Midwest, while the Partnership faces relatively less competition
in the Northeast and Southeast.
Most of the Partnership's service centers compete with several other
marketers or distributors and certain service centers compete with a large
number of marketers or distributors. The principal factors influencing
competition with other retail marketers are price, reliability and quality of
service, responsiveness to customer needs and safety concerns. Each service
center operates in its own competitive environment, as retail marketers are
typically located in close proximity to customers to lower the cost of providing
service. Service centers located in the Midwest face particularly intense
competition in the retail market as retail customers in that region generally
use higher volumes of propane and are therefore more sensitive to price
fluctuations than customers located in other regions. Of the Partnership's 166
service centers, 73 are located in the Midwest where approximately 47.4% of the
Partnership's total retail propane volume was sold in 1995.
THE RETAIL PROPANE BUSINESS IS MATURE AND THE PARTNERSHIP'S ABILITY TO GROW
LARGELY DEPENDS UPON ACQUIRING OTHER RETAIL DISTRIBUTORS
The retail propane industry is mature, and the Partnership foresees only
limited growth in total retail demand for propane. The Partnership expects the
overall demand for propane to remain relatively constant over the next several
years, with year-to-year industry volumes being affected primarily by weather
patterns. Moreover, as a result of long-standing customer relationships that are
typical in the retail home propane industry, the inconvenience of switching
tanks and suppliers and propane's higher cost than certain other energy sources,
such as natural gas, the Partnership may experience difficulty in acquiring new
retail customers. Therefore, while the Partnership's business strategy includes
opening new locations, adding new retail customers and retaining existing
customers, the ability of the Partnership's propane business to grow will depend
in large part on its ability to
34
acquire other retail distributors. The Partnership recently entered into a
letter of intent to acquire a propane business for approximately $1.0 million;
however, consummation of this transaction is subject to customary closing
conditions and completion of definitive documentation, and no assurance can be
given that this acquisition will be completed.
In making acquisitions of other retail distributors, the Partnership will
have to compete with other companies, some of which may be larger or have
greater financial or other resources than the Partnership. In addition, there
can be no assurance that the Partnership will identify attractive acquisition
candidates in the future, will be able to acquire such candidates on acceptable
terms, or will be able to finance such acquisitions. If the Partnership is able
to make acquisitions, there can be no assurance that such acquisitions will not
dilute earnings and distributions on the Units, or that any additional debt
incurred to finance acquisitions will not affect the ability of the Partnership
to make distributions on the Units. Moreover, the Partnership is subject to
certain debt incurrence covenants in certain agreements governing its
indebtedness that might restrict the Partnership's ability to incur indebtedness
to finance acquisitions. For additional information regarding such debt
incurrence covenants and the Partnership's availability under the Working
Capital Facility and the Acquisition Facility, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources' and ' -- Description of Indebtedness.' Also, to the extent
that warm weather adversely affects the Partnership's operating and financial
results, the Partnership's access to capital and its acquisition activities may
be limited.
THE RETAIL PROPANE BUSINESS FACES COMPETITION FROM ALTERNATIVE ENERGY SOURCES
Propane is sold in competition with other sources of energy, some of which
are less costly for equivalent energy value. The Partnership competes for
customers 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. Propane is generally not
competitive with natural gas in those areas where natural gas is readily
available because natural gas is a significantly less expensive source of energy
than propane. The gradual expansion of the nation's natural gas distribution
systems has resulted in the availability of natural gas in areas that previously
depended upon propane. To a lesser extent, the Partnership also competes for
customers against suppliers of fuel oil. In addition, the development of
alternative energy sources may have an adverse effect on the operations of the
Partnership. See 'Business and Properties -- Competition.'
ENERGY EFFICIENCY AND TECHNOLOGY TRENDS MAY AFFECT DEMAND
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, and
may continue to adversely affect, demand for propane by retail customers. The
Partnership cannot predict the effect of future conservation measures or the
effect that any technological advances in heating, conservation, energy
generation or other devices might have on its operations.
THE PARTNERSHIP IS SUBJECT TO OPERATING AND LITIGATION RISKS WHICH MAY NOT BE
COVERED BY INSURANCE
The Partnership's operations are subject to the operating hazards and risks
normally associated with handling, storing and delivering combustible liquids
such as propane. As a result, the Partnership has been, and is likely to
continue to be, a defendant in various legal proceedings and litigation arising
in its ordinary course of business. The Partnership self-insures and maintains
insurance policies with insurers in such amounts and with such coverages and
deductibles as the Managing General Partner believes are reasonable and prudent.
However, there can be no assurance that such insurance will be adequate to
protect the Partnership from all material expenses related to potential future
claims or that such levels of insurance will be available in the future at
economical prices. Moreover, there can be no assurance that future claims within
the Partnership's self-insured retention will not, individually or in the
aggregate, have a material adverse effect on the business of the Partnership.
35
In connection with the IPO, the Partnership assumed the liabilities of
National Propane for certain potential environmental remediation costs,
primarily costs related to remediation of coal tar contamination at the
Partnership's Marshfield, Wisconsin facility. The Partnership believes the
contamination of such property occurred during its use as a coal gasification
plant by a previous owner. To the extent that there are any environmental
liabilities unknown to the Partnership or that known environmental liabilities
result in material costs in excess of amounts accrued or any environmental laws
are made more stringent, there can be no assurance that the Partnership's
results of operations or ability to make distributions to Unitholders will not
be materially and adversely affected. In addition, future claims or
environmental liabilities not covered by insurance or indemnification, or a
large number of claims incurred by the Partnership in the future that are within
the Partnership's self-insured retention, could have a material adverse effect
on the business, results of operations or financial position of the Partnership
and the ability of the Partnership to make the Minimum Quarterly Distribution.
See 'Business and Properties -- Government Regulation' and ' -- Litigation and
Contingent Liabilities.'
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH PARTNERSHIP
PERFORMANCE
Although the Partnership will distribute all of its Available Cash, there
can be no assurance regarding the amounts of Available Cash that the Partnership
will generate. The actual amounts of Available Cash will depend upon numerous
factors, including profitability of operations, required principal and interest
payments on the Partnership's debt, interest payments from Triarc on the
Partnership Loan, the cost of acquisitions (including related debt service
payments), restrictions contained in the Partnership's debt instruments, the
issuance of debt and equity securities by the Partnership, fluctuations in
working capital, capital expenditures, adjustments in reserves, prevailing
economic conditions and financial, business and other factors, a number of which
may be beyond the control of the Partnership. Cash distributions are dependent
primarily on cash flow and not on profitability, which is affected by non-cash
items. Therefore, cash distributions may be made during periods when the
Partnership records losses and may not be made during periods when the
Partnership records profits. The amount of Available Cash from Operating Surplus
needed to distribute the Minimum Quarterly Distribution for four quarters on the
Common Units (including the Common Units offered hereby) and Subordinated Units
outstanding as of the date of this Prospectus and on the General Partner
Interests is approximately $24.6 million (approximately $14.1 million for the
Common Units, $9.5 million for the Subordinated Units and $1.0 million for the
General Partner Interests). Pro forma Available Cash from Operating Surplus
generated during 1994 and 1995 (approximately $22.7 million and $17.6 million,
respectively ) would have been sufficient to cover the Minimum Quarterly
Distribution for the four quarters in each such year on all of the outstanding
Common Units and the related distribution on the General Partner Interests, but
would have been insufficient by approximately $1.9 million and $7.0 million to
cover the Minimum Quarterly Distribution on the Subordinated Units and the
related distribution on the General Partner Interests in 1994 and 1995,
respectively. In addition, assuming that no interest payments were made by
Triarc on the Partnership Loan, the amount of pro forma Available Cash from
Operating Surplus generated during 1994 and 1995 would have been approximately
$17.2 million and $12.1 million, respectively. The $17.2 million generated in
1994 would have been sufficient to cover the Minimum Quarterly Distribution for
the four quarters in 1994 on all of the outstanding Common Units and the related
distribution on the General Partner Interests, but the $12.1 million generated
during 1995 would have been insufficient by approximately $2.6 million to cover
the Minimum Quarterly Distribution for the four quarters in 1995 on all of the
Common Units and the related distribution on the General Partner Interests. See
' -- A Portion of the Partnership's Cash Receipts is Derived from Interest
Payments from Triarc on the Partnership Loan' and 'Cash Distribution
Policy -- Partnership Loan.' In 1994 and 1995, on a pro forma basis, quarterly
distributions of Available Cash would not have exceeded any Target Distribution
Level and the Partnership would not have made any Incentive Distributions to the
Managing General Partner. Based on the Partnership's actual results of
operations for the eleven months ended November 30, 1996 and limited data about
operations in December 1996, the Partnership believes that it will generate
Available Cash from
36
Operating Surplus of approximately $18.7 million during 1996, although there can
be no assurance it will generate such amount.
The Partnership Agreement gives the Managing General Partner discretion in
establishing reserves for the proper conduct of the Partnership's business that
will affect the amount of Available Cash. Due to the seasonal nature of the
Partnership's business, the Managing General Partner expects that it will make
additions to reserves during certain quarters in order to fund operating
expenses and distributions to partners with respect to other quarters. In
addition, the Partnership is required to make reserves for the future payment of
principal and interest on the First Mortgage Notes and in certain instances for
the future payment of principal and interest under the Bank Credit Facility. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Description of Indebtedness.' The First Mortgage Notes require
reserves for interest of $2.7 million at each March and September, although such
reserves are eliminated when interest payments are made on the First Mortgage
Notes in June and December. The $2.7 million reserved for interest is
approximately 11.0% of the amount of Available Cash needed to distribute the
Minimum Quarterly Distribution for four quarters on the Common Units (including
the Common Units offered hereby) and the Subordinated Units currently
outstanding and on the General Partner Interests. Reserves for repayment of
principal on the First Mortgage Notes are not required until September 2002 and
then will equal 25%, 50% and 75%, respectively, of the next installment of
principal at each September, December and March and the reserves will be
eliminated when principal payments are made on the First Mortgage Notes in June.
The $3.75 million reserved quarterly for principal payments would be
approximately 15.2% of the amount of Available Cash needed to distribute the
Minimum Quarterly Distribution for four quarters on the Common Units (including
the Common Units offered hereby) and the Subordinated Units currently
outstanding and on the General Partner Interests. Furthermore, the First
Mortgage Notes and the Bank Credit Facility limit the Operating Partnership's
ability to distribute cash to the Partnership. Distributions from the Operating
Partnership will be the Partnership's primary source of Available Cash.
Subsequent refinancing of the First Mortgage Notes or the Bank Credit Facility,
as well as other indebtedness incurred by the Partnership, may have similar or
even more limiting restrictions. As a result of these and other factors, there
can be no assurance regarding the actual levels of cash distributions by the
Partnership, and the Partnership's ability to distribute cash may be limited
during the existence of any events of default under any of the Partnership's
debt instruments.
A PORTION OF THE PARTNERSHIP'S CASH RECEIPTS IS DERIVED FROM INTEREST PAYMENTS
FROM TRIARC ON THE PARTNERSHIP LOAN
Approximately $5.5 million of the Partnership's annual cash receipts is
derived from interest payments from Triarc under the Partnership Loan, which
bears interest at an annual rate of 13.5%. On a pro forma basis such amount
represents approximately 31% of the Partnership's Available Cash from Operating
Surplus in 1995. Consequently, Triarc's failure to make interest payments under
the Partnership Loan would adversely affect the ability of the Partnership to
make the Minimum Quarterly Distribution to all Unitholders. Assuming that no
interest payments were made by Triarc on the Partnership Loan, the amount of pro
forma Available Cash from Operating Surplus generated during 1995 would have
been insufficient by approximately $2.6 million to cover the Minimum Quarterly
Distribution on the Common Units (including the Common Units offered hereby) and
the related distribution on the General Partner Interests.
Because Triarc is a holding company, its ability to meet its cash
requirements (including required interest and principal payments on the
Partnership Loan) is primarily dependent (in addition to its cash on hand) upon
cash flows from its subsidiaries, including loans and cash dividends and
reimbursement by subsidiaries to Triarc in connection with its providing certain
management services and payments by subsidiaries under certain tax sharing
agreements. Under the terms of various indentures and credit arrangements,
Triarc's principal subsidiaries are currently unable to pay any dividends or
make any loans or advances to Triarc. In addition, the Partnership Loan does not
restrict Triarc's ability to sell, convey, transfer or encumber the stock or
assets of any of its subsidiaries (other than the Managing General Partner and
SEPSCO), or its ability to dispose of its cash on hand or other assets. Triarc's
cash on hand and marketable securities as of November 30, 1996, was
approximately $177.0 million. The
37
Partnership believes that such amount of cash and marketable securities, plus
distributions from certain of Triarc's subsidiaries, will enable Triarc to have
adequate cash resources to meet its short term cash requirements, including
required interest payments on the Partnership Loan. See 'Cash Distribution
Policy -- Partnership Loan' and 'Certain Information Regarding Triarc.' However,
there can be no assurance that Triarc will continue to have cash on hand or that
in the future it will receive sufficient distributions from its subsidiaries in
order to enable it to satisfy its obligations under the Partnership Loan. On
October 29, 1996, Triarc announced that its Board of Directors approved a plan
to undertake the Spinoff Transactions. It is expected that the Triarc Merger may
occur in connection with the Spinoff Transactions. See 'Certain Information
Regarding Triarc.'
The Partnership Loan does not limit Triarc's ability to, and there can be
no assurances that Triarc will not in the future, incur indebtedness and other
obligations that will rank pari passu with Triarc's obligations under the
Partnership Loan or be secured by assets of Triarc that do not secure the
Partnership Loan. The failure of Triarc to make payments of principal and
interest on the Partnership Loan when due would have an adverse effect on the
ability of the Partnership to make distributions to Unitholders. In addition,
Triarc is permitted to prepay the Partnership Loan under certain circumstances.
The prepayment by Triarc of all or a portion of the Partnership Loan and the
failure by the Partnership to reinvest such funds in a manner that generates an
equivalent amount of cash flow could have an adverse effect on the Partnership's
ability to make distributions to Unitholders. The Partnership Loan is recourse
to Triarc and is secured by a pledge by Triarc of all of the shares of capital
stock of the Managing General Partner owned by Triarc (approximately 75.7% of
the Managing General Partner's outstanding capital stock as of the date of this
Prospectus). See 'Cash Distribution Policy -- Partnership Loan' and 'Certain
Information Regarding Triarc.'
THE PARTNERSHIP'S INDEBTEDNESS MAY LIMIT THE PARTNERSHIP'S ABILITY TO MAKE
DISTRIBUTIONS AND MAY AFFECT ITS OPERATIONS
The Partnership is significantly leveraged and has indebtedness that is
substantial in relation to its partners' capital. On September 30, 1996, the
Partnership had approximately $127.3 million in total consolidated indebtedness
and the amount of such indebtedness as a percentage of the pro forma total
capitalization would have been approximately 79.0%. Furthermore, the Managing
General Partner may cause the Partnership to incur additional indebtedness,
including borrowings that have the purpose or effect of enabling the Managing
General Partner to receive distributions or hastening the conversion of
Subordinated Units into Common Units. The ability of the Partnership to make
principal and interest payments will depend on future performance, which is
subject to many factors, some of which will be outside the Partnership's
control. Certain of the Partnership's indebtedness contain provisions relating
to change of control. If such provisions are triggered, such outstanding
indebtedness may become immediately due. In such event, there is no assurance
that the Partnership would be able to pay such indebtedness. In addition, the
First Mortgage Notes and the Bank Credit Facility are secured by substantially
all of the assets of the Operating Partnership and contain restrictive covenants
that limit the ability of the Operating Partnership to distribute cash and to
incur additional indebtedness. In the case of a continuing default by the
Operating Partnership under such indebtedness, the lenders would have the right
to foreclose on the Operating Partnership's assets, which would have a material
adverse effect on the Partnership. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Description of Indebtedness.'
Payment of principal and interest on such indebtedness, as well as compliance
with the requirements and covenants of such indebtedness, may limit the
Partnership's ability to make distributions to Unitholders. The Partnership's
leverage may also adversely affect the ability of the Partnership to finance its
future operations and capital needs, may limit its ability to pursue other
business opportunities and may make its results of operations more susceptible
to adverse economic conditions. See 'Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Description of Indebtedness.'
PARTNERSHIP ASSUMPTIONS CONCERNING FUTURE OPERATIONS AND WEATHER MAY NOT BE
REALIZED
In establishing the terms of the IPO, including the number and initial
offering price of Common Units, the number of Subordinated Units and the amount
of the Minimum Quarterly Distribution, the
38
Partnership relied on certain assumptions concerning its operations through the
quarter ending December 31, 1997, including the assumptions that normal weather
conditions will prevail in the Partnership's operating areas, that the
Partnership's operating margins will remain constant, that all required interest
payments on the Partnership Loan will be made by Triarc, and that market and
overall economic conditions will not change substantially. Although the
Partnership believes its assumptions are reasonable, whether the assumptions are
realized is not, in a number of cases, within the control of the Partnership and
cannot be predicted with any degree of certainty. See 'Cash Distribution
Policy -- Cash Available for Distribution.'
Because a substantial portion of the Partnership's propane is used in the
heating-sensitive residential and commercial markets, weather conditions have a
particularly significant effect on the financial performance of the Partnership.
See ' -- Risks Inherent in the Partnership's Business -- Weather Conditions
Affect the Demand for Propane.' In preparing its forecasts of future operations,
management of the Partnership requested each regional and service center manager
to provide a forecast of propane sales volumes based upon the assumption that
normal weather conditions will prevail in such region or locality. Accordingly,
the Partnership's assumptions concerning its future operations are based in
significant part on an aggregate of forecasted regional propane volumes which,
in turn, are based on the assumption that normal weather conditions will prevail
in the Partnership's operating areas.
There is a substantial risk that the Partnership's assumptions concerning
the weather will not prove to be correct in any year or series of years. Actual
weather conditions can vary substantially from historical averages, and there
can be no assurance that weather conditions in the future will not be warmer
than weather conditions in the past. For example, the Partnership believes that
during the 10 years and the five years ended June 30, 1995, nationwide weather
averaged 3.0% and 3.3% warmer than normal, respectively, compared to the number
of average Degree Days (as defined in the Glossary) on a nationwide basis during
the 30-year period ended June 30, 1991, as determined by the U.S. Department of
Commerce's National Climatic Data Center. During such 10-year period, eight of
such years were warmer than normal (by as much as 10.3% for the year ended June
30, 1991), while two were colder than normal (by as much as 3.6% for the year
ended June 30, 1994).
The Partnership believes that the information from the National Climatic
Data Center shown above regarding nationwide weather is useful in evaluating the
general extent of weather variations in the Partnership's areas of operations.
However, weather conditions in the Partnership's areas of operation may vary
from normal on a year-to-year basis to a greater extent than weather conditions
on a nationwide basis. Should weather conditions in the Partnership's operating
areas be warmer than normal, particularly during the October through March peak
heating season, the Partnership's results of operations would be adversely
affected.
THE MANAGING GENERAL PARTNER MANAGES AND OPERATES THE PARTNERSHIP; HOLDERS OF
COMMON UNITS HAVE LIMITED VOTING RIGHTS
The Managing General Partner manages and operates the Partnership. Unlike
the holders of common stock in a corporation, holders of outstanding Common
Units have only limited voting rights on matters affecting the Partnership's
business. Holders of Common Units have no right to elect the Managing General
Partner on an annual or other continuing basis, and the Managing General Partner
generally may not be removed except pursuant to the vote of the holders of not
less than 66 2/3% of the outstanding Units (including Units owned by the General
Partners and their Affiliates). The Managing General Partner's current ownership
interest in the Partnership precludes any vote to remove the Managing General
Partner without its consent. In addition, if at any time any person or group
other than the General Partners and their Affiliates beneficially owns more than
20% of the Units of any class then outstanding, such person or group will lose
voting rights with respect to all of its Units. As a result, holders of Common
Units have limited influence on matters affecting the operation of the
Partnership, and third parties may find it difficult to attempt to gain control
or influence the activities of the Partnership. See 'The Partnership Agreement.'
39
COST REIMBURSEMENTS AND FEES DUE TO THE MANAGING GENERAL PARTNER MAY BE
SUBSTANTIAL AND COULD ADVERSELY AFFECT THE PARTNERSHIP'S ABILITY TO MAKE
DISTRIBUTIONS.
Prior to making any distribution on the Common Units, the Partnership will
reimburse the Managing General Partner and its Affiliates (including Triarc) at
cost for all expenses incurred on behalf of the Partnership. On a pro forma
basis, approximately $56.8 million of expenses would have been reimbursed by the
Partnership to the Managing General Partner in 1995 (comprising approximately
$33.0 million in salary, payroll tax and other compensation paid to employees of
the Managing General Partner and approximately $23.8 million for all other
operating expenses). Affiliates of the Managing General Partner (including
Triarc) may perform certain administrative services for the Managing General
Partner on behalf of the Partnership and will be reimbursed for all expenses
incurred in connection therewith. In addition, the Managing General Partner and
its Affiliates may provide additional services to the Partnership, for which the
Partnership will be charged reasonable fees as determined by the Managing
General Partner. Such cost reimbursements and fees may be substantial and could
adversely affect the ability of the Partnership to make distributions to
Unitholders.
THE PARTNERSHIP MAY ISSUE ADDITIONAL UNITS THEREBY DILUTING EXISTING
UNITHOLDERS' INTERESTS
After the end of the Subordination Period, the Partnership has the
authority to issue an unlimited number of additional Common Units or other
equity securities of the Partnership for such consideration and on such terms as
shall be established by the Managing General Partner in its sole discretion
without the approval of the Unitholders. During the Subordination Period,
however, the Partnership may not issue equity securities ranking senior to the
Common Units or an aggregate of more than 3,095,238 additional Common Units
(including the 400,000 Common Units issued in the Private Placement and offered
hereby) or an equivalent number of securities ranking on a parity with the
Common Units (excluding the 111,074 Common Units issued upon exercise of the IPO
Over-Allotment Option and Common Units, or in some instances, equity securities
ranking on parity with Common Units, issued upon conversion of Subordinated
Units, upon conversion of the Special General Partner's combined unsubordinated
general partner interest or in connection with Acquisitions (as defined in the
Glossary) or Capital Improvements (as defined in the Glossary) or the repayment
of certain indebtedness or pursuant to employee benefit plans) without the
approval of a Unit Majority. The Partnership Agreement does not give the holders
of Common Units the right to approve the issuance by the Partnership of equity
securities ranking junior to the Common Units at any time. See 'The Partnership
Agreement -- Issuance of Additional Securities.' The effect of any such issuance
may be to dilute the interests of the then existing holders of Units in the
Partnership. In addition, the conversion of Subordinated Units into Common Units
during the Subordination Period will increase the Partnership's Minimum
Quarterly Distribution obligation with respect to the Common Units while
simultaneously reducing the Minimum Quarterly Distribution with respect to the
Subordinated Units.
THE MANAGING GENERAL PARTNER HAS A LIMITED CALL RIGHT WITH RESPECT TO THE
PARTNER INTERESTS
If at any time not more than 20% of the issued and outstanding partner
interests of any class are held by persons other than the General Partners and
their Affiliates, the Managing General Partner has the right, which it may
assign to any of its Affiliates or the Partnership, to acquire all, but not less
than all, of the remaining partner interests of such class held by such
unaffiliated Persons at a price generally equal to the then current market price
of such partner interests. As a consequence of the Managing General Partner's
right to purchase outstanding partner interests, a holder of partner interests
may have its partner interests purchased from it even though such holder may not
desire to sell them, and the price paid may be less than the amount such holder
would desire to receive upon the sale of such partner interests. See 'The
Partnership Agreement -- Limited Call Right.'
CHANGE OF MANAGEMENT PROVISIONS
The Managing General Partner owns approximately 40.4% of the outstanding
Units, and as a result the Unitholders will not have the required 66 2/3% of the
Units necessary to remove the Managing General Partner. Even if the percentage
of outstanding Units held by the Managing General Partner
40
and its Affiliates were significantly reduced, the Partnership Agreement
contains certain provisions that may have the effect of discouraging a person or
group from attempting to remove the Managing General Partner. If the Managing
General Partner is removed as a general partner of the Partnership other than
for Cause and the Units held by the General Partners and their Affiliates are
not voted in favor of such removal (i) the Subordination Period will end and all
outstanding Subordinated Units will immediately convert into Common Units on a
one-for-one basis, (ii) any existing Common Unit Arrearages will be
extinguished, and (iii) the General Partners will have the right to convert
their General Partner Interests (and the right to receive Incentive
Distributions) into Common Units or to receive in exchange for such interests a
cash payment equal to the fair market value of such interests. Also, the Special
General Partner will withdraw as a general partner of the Partnership and the
Operating Partnership upon the removal of the Managing General Partner. Further,
if any person or group other than the General Partners and their Affiliates
acquires beneficial ownership of 20% or more of the Units of any class then
outstanding, such person or group will lose voting rights with respect to all of
its Units. In addition, the Partnership has substantial latitude in issuing
equity securities without Unitholder approval. The Partnership Agreement also
contains provisions limiting the ability of Unitholders to call meetings of
Unitholders or to acquire information about the Partnership, the disclosure of
which the Partnership believes is not in the best interests of the Partnership
or which the Partnership is required by law or by agreements with third parties
to keep confidential. Further, the Bank Credit Facility and the First Mortgage
Notes contain provisions that could result in acceleration of the repayment of
such indebtedness upon a change in control of the Partnership. The effect of
these provisions may be to diminish the price at which the Common Units will
trade under certain circumstances. See 'The Partnership Agreement -- Withdrawal
or Removal of the General Partners,' ' -- Meetings; Voting,' ' -- Right to
Inspect Partnership Books and Records' and ' -- Change of Management
Provisions.'
UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IN CERTAIN CIRCUMSTANCES; LIABILITY
FOR THE RETURN OF CERTAIN DISTRIBUTIONS
The limitations on the liability of holders of Common Units for the
obligations of a limited partnership have not been clearly established in some
states. If it were determined that the Partnership 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 holders of Common Units as
a group to remove or replace the Managing General Partner, to make certain
amendments to the Partnership Agreement or to take other action pursuant to the
Partnership Agreement constituted participation in the 'control' of the
Partnership's business, then a holder of Common Units could be held liable under
certain circumstances for the Partnership's obligations to the same extent as a
general partner. In addition, under certain circumstances a Unitholder may be
liable to the Partnership for the amount of a distribution for a period of three
years from the date of the distribution. See 'The Partnership
Agreement -- Limited Liability' for a discussion of the limitations on liability
and the implications thereof to a holder of Common Units.
COMMON UNITHOLDERS HAVE NOT BEEN REPRESENTED BY COUNSEL
The holders of the Common Units were not represented by counsel in
connection with the preparation of the Partnership Agreement or the other
agreements referred to herein.
THE PARTNERSHIP MAY ENGAGE IN ACQUISITIONS, DISPOSITIONS AND COMBINATIONS WITH
OTHER RETAIL MARKETERS
The propane industry consists of a small number of national retail
marketers and a larger number of regional companies. From time to time, these
national and regional retail marketers, including the Partnership, engage in
discussions concerning acquisitions, dispositions and combinations of
operations. While the Partnership is not currently engaged in negotiations with
any national or regional marketer concerning any such acquisition, disposition
or combination, there can be no assurance that in the future the Partnership
will not engage in any such negotiations or pursue opportunities to engage in
any such transaction. In addition, although any merger, consolidation or
combination involving the Partnership,
41
and any sale, exchange or disposition of all or substantially all of its assets,
would require the approval of a Unit Majority under the terms of the Partnership
Agreement, the Partnership and the General Partners are not restricted under the
Partnership Agreement from engaging in other transactions that may not require
the prior consent or vote of the Unitholders and that could result in a change
of control of the Partnership. If any of such transactions were deemed to be a
change of control under the First Mortgage Notes or the Bank Credit Facility,
the Partnership would be required to offer to redeem all of the outstanding
First Mortgage Notes at a premium and to repay all indebtedness under the Bank
Credit Facility. As a result, the occurrence of a change of control could have a
material adverse effect on the Partnership and its ability to pay the Minimum
Quarterly Distribution to the Unitholders.
DEPENDENCE ON KEY PERSONNEL
The Partnership believes that its success has been and will continue to be
dependent to a significant extent upon the efforts and abilities of its senior
management team. The failure by the Managing General Partner to retain members
of its senior management team could adversely affect the Partnership's ability
to build on the efforts undertaken by its current management to increase the
efficiency and profitability of the Partnership. Mr. Paliughi, the President and
Chief Executive Officer of the Managing General Partner, is employed pursuant to
an employment contract that expires on January 2, 1998. See
'Management -- Employment Arrangements with Executive Officers.' The loss of Mr.
Paliughi or other members of senior management could adversely affect the
Partnership.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY
Conflicts of interest could arise as a result of the relationships between
the Partnership, on the one hand, and the Managing General Partner and its
Affiliates, on the other. The directors and officers of the Managing General
Partner have fiduciary duties to manage the Managing General Partner in a manner
beneficial to its stockholders. At the same time, the Managing General Partner,
as general partner, has fiduciary duties to manage the Partnership in a manner
beneficial to the Partnership and the Unitholders. The duties of the Managing
General Partner, as general partner, to the Partnership and the Unitholders,
therefore, may come into conflict with the duties of the directors and officers
of the Managing General Partner to its stockholders.
Such conflicts of interest might arise in the following situations, among
others:
(i) Decisions of the Managing General Partner with respect to the
amount and timing of cash expenditures, borrowings, issuances of additional
Units and reserves in any quarter will affect whether or the extent to
which there is sufficient Available Cash from Operating Surplus to meet the
Minimum Quarterly Distribution and Target Distribution Levels on all Units
in a given quarter. In addition, actions by the Managing General Partner
may have the effect of enabling the Managing General Partner to receive
Incentive Distributions or accelerating the expiration of the Subordination
Period or the conversion of Subordinated Units into Common Units.
(ii) The Partnership will not have any employees and will rely solely
on employees of its subsidiaries, the Managing General Partner and other
Affiliates.
(iii) Under the terms of the Partnership Agreement, the Partnership
will reimburse the Managing General Partner and its Affiliates (including
Triarc) at cost for all expenses incurred on behalf of the Partnership,
including costs incurred in rendering corporate staff and support services
to the Partnership. On a pro forma basis, approximately $56.8 million of
expenses would have been reimbursed by the Partnership to the Managing
General Partner in 1995 (comprising approximately $33.0 million in salary,
payroll tax and other compensation paid to employees of the Managing
General Partner and approximately $23.8 million for all other operating
expenses). In addition, Affiliates of the Managing General Partner
(including Triarc) may provide certain administrative services for the
Managing General Partner on behalf of the Partnership and will be
reimbursed for all expenses incurred in connection therewith. Furthermore,
the Managing General Partner and its Affiliates may provide additional
services to the Partnership for which the Partnership will be charged
reasonable fees as determined by the Managing General Partner.
42
(iv) Whenever possible, the Managing General Partner intends to limit
the Partnership's liability under contractual arrangements to all or
particular assets of the Partnership, with the other party thereto to have
no recourse against the Managing General Partner, the Special General
Partner, or their respective assets.
(v) Any agreements between the Partnership and the Managing General
Partner and its Affiliates will not grant to the holders of Common Units,
separate and apart from the Partnership, the right to enforce the
obligations of the Managing General Partner and such Affiliates in favor of
the Partnership. Therefore, the Managing General Partner, in its capacity
as a general partner of the Partnership, will be primarily responsible for
enforcing such obligations.
(vi) Under the terms of the Partnership Agreement, the Managing
General Partner is not restricted from causing the Partnership to pay
itself or its Affiliates for any services rendered on terms that are fair
and reasonable to the Partnership or entering into additional contractual
arrangements with any of such entities on behalf of the Partnership.
Neither the Partnership Agreement nor any of the other agreements,
contracts and arrangements between the Partnership, on the one hand, and
the Managing General Partner and its Affiliates, on the other, are or will
be the result of arms'-length negotiations.
(vii) The Managing General Partner may exercise its right to call for
and purchase Units as provided in the Partnership Agreement or assign such
right to one of its Affiliates or to the Partnership.
(viii) The Partnership Agreement does not prohibit the Partnership
from engaging in roll-up transactions. Although the Managing General
Partner has no present intention of causing the Partnership to engage in
any such transaction, it is possible it will do so in the future. There can
be no assurance that a roll-up transaction would not have a material
adverse effect on a Unitholder's investment in the Partnership.
(ix) The Managing General Partner (unless the Triarc Merger occurs)
and the Special General Partner are prohibited from conducting any business
or having any operations other than those incidental to serving as general
partners of the Partnership and the Operating Partnership so long as they
are general partners of the Partnership. The Partnership Agreement provides
that it will not constitute a breach of the Managing General Partner's
fiduciary duties to the Partnership or the Unitholders for Affiliates of
the General Partners (other than the Special General Partner) to engage in
certain activities of the type conducted by the Partnership, other than
retail propane sales to end users in the continental United States, even if
in direct competition with the Partnership. However, in the event of the
Triarc Merger, the ability of the Managing General Partner to engage in
activities other than those incidental to serving as a general partner of
the Operating Partnership and the Partnership and to compete with the
Partnership in certain propane related activities, such as trading,
transportation, storage and wholesale distribution, will not be restricted.
Furthermore, the General Partners and their Affiliates have no obligation
to present business opportunities to the Partnership.
Unless provided for otherwise in the 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 duties of
good faith, fairness and loyalty and which generally prohibit such general
partner from taking any action or engaging in any transaction as to which it has
a conflict of interest. The Partnership Agreement expressly permits the Managing
General Partner to resolve conflicts of interest between itself or its
Affiliates, on the one hand, and the Partnership or the Unitholders, on the
other, and to consider, in resolving such conflicts of interest, the interests
of other parties in addition to the interests of the Unitholders. In addition,
the Partnership Agreement provides that a purchaser of Common Units is deemed to
have consented to certain conflicts of interest and actions of the General
Partners and their Affiliates that might otherwise be prohibited, including
those described in paragraphs (i)-(ix) above, and to have agreed that such
conflicts of interest and actions do not constitute a breach by the General
Partners of any duty stated or implied by law or equity. The General Partners
will not be in breach of their obligations under the Partnership Agreement or
their duties to the Partnership or the Unitholders if the resolution of such
conflict is fair and reasonable to the Partnership. The latitude given in the
Partnership Agreement to the Managing General Partner in
43
resolving conflicts of interest may significantly limit the ability of a
Unitholder to challenge what might otherwise be a breach of fiduciary duty. The
Managing General Partner believes however, that such latitude is necessary and
appropriate to enable it and the Special General Partner to serve as general
partners of the Partnership without undue risk of liability.
The Partnership Agreement expressly limits the liability of the General
Partners by providing that the General Partners, their Affiliates and their
respective officers and directors will not be liable for monetary damages to the
Partnership, the limited partners or assignees for errors of judgment or for any
actual omissions if such General Partner and other persons acted in good faith.
In addition, the Partnership is required to indemnify the General Partners,
their Affiliates and their respective officers, directors, employees and agents
to the fullest extent permitted by law, against liabilities, costs and expenses
incurred by such General Partner or such other persons, if the General Partners
or such persons acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of the Partnership and, with
respect to any criminal proceedings, had no reasonable cause to believe the
conduct was unlawful.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be waived or modified by a partnership agreement have
not been resolved in a court of law, and the Managing General Partner has not
obtained an opinion of counsel covering the provisions set forth in the
Partnership Agreement that purport to waive or restrict the fiduciary duties of
the General Partners that would be in effect under common law were it not for
the Partnership Agreement. See 'Conflicts of Interest and Fiduciary
Responsibility -- Fiduciary Duties of the General Partners.'
TAX RISKS
For a general discussion of the expected federal income tax consequences of
owning and disposing of Common Units, see 'Tax Considerations.'
TAX TREATMENT IS DEPENDENT ON PARTNERSHIP STATUS
The availability to a holder of Common Units of the federal income tax
benefits of an investment in the Partnership depends, in large part, on the
classification of the Partnership as a partnership for federal income tax
purposes. Moreover, in order for the Partnership to continue to be classified as
a partnership for federal income tax purposes, at least 90% of the Partnership's
gross income for each taxable year must consist of 'qualifying income.' Based on
certain representations made by the General Partners and the Partnership,
Counsel is of the opinion that, under current law, the Partnership will be
classified as a partnership for federal income tax purposes. However, no ruling
from the IRS as to such issues has been or will be requested, and the opinion of
Counsel is not binding on the IRS. See 'Tax Considerations -- Partnership
Status.'
If the Partnership were classified as an association taxable as a
corporation for federal or state income tax purposes, the Partnership would pay
tax on its income at corporate rates (currently at a 35% federal rate),
distributions would generally be taxed again to the Unitholders as corporate
distributions, and no income, gains, losses or deductions would flow through to
the Unitholders. Because a tax would be imposed upon the Partnership as an
entity, the cash available for distribution to the holders of Common Units would
be substantially reduced. Treatment of the Partnership as an association taxable
as a corporation or otherwise as a taxable entity would result in a material
reduction in the anticipated cash flow and after-tax return to the holders of
Common Units and, thus, would likely result in a substantial reduction in the
value of the Common Units. See 'Tax Considerations -- Partnership Status.'
There can be no assurance that the law will not be changed so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level taxation.
The Partnership Agreement provides that, if a law is enacted or existing law is
modified or interpreted in a manner that subjects the Partnership to taxation as
a corporation or otherwise subjects the Partnership to entity level taxation for
federal, state or local income tax purposes, certain provisions of the
Partnership Agreement relating to the subordination of distributions on
Subordinated Units will be subject to change, including a decrease in the
Minimum Quarterly Distribution and the Target Distribution Levels to reflect the
impact of such law on the Partnership. See
44
'Cash Distribution Policy -- Adjustment of Minimum Quarterly Distribution and
Target Distribution Levels.'
NO IRS RULING WITH RESPECT TO TAX CONSEQUENCES
No ruling has been requested from the IRS with respect to classification of
the Partnership as a partnership for federal income tax purposes, whether the
Partnership's propane operations generate 'qualifying income' under SS7704 of
the Code or any other matter affecting the Partnership. Accordingly, the IRS may
adopt positions that differ from Counsel's conclusions expressed herein. It may
be necessary to resort to administrative or court proceedings in an effort to
sustain some or all of Counsel's conclusions, and some or all of such
conclusions ultimately may not be sustained. Any such contest with the IRS may
materially and adversely impact the market for the Common Units and the prices
at which Common Units trade. In addition, the costs of any contest with the IRS
will be borne directly or indirectly by some or all of the Unitholders and the
General Partners.
TAX LIABILITY EXCEEDING CASH DISTRIBUTIONS
A holder of Common Units will be required to pay federal income taxes and,
in certain cases, state and local income taxes on his allocable share of the
Partnership's income, even if he does not receive cash distributions from the
Partnership. There is no assurance that a Unitholder will receive cash
distributions equal to his allocable share of taxable income from the
Partnership or even the tax liability to him resulting from that income.
Further, a holder of Common Units may incur a tax liability, in excess of the
amount of cash received, upon the sale of his Common Units. See 'Tax
Considerations -- State, Local and Other Tax Considerations' for a discussion of
certain state and local tax considerations that may be relevant to prospective
Unitholders.
OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER
INVESTORS
Investment in Common Units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to such persons.
For example, virtually all of the taxable income derived by most organizations
exempt from federal income tax (including individual retirement accounts and
other retirement plans) from the ownership of a Unit will be unrelated business
taxable income and thus will be taxable to such a Unitholder. See 'Tax
Considerations -- Uniformity of Units -- Tax-Exempt Organizations and Certain
Other Investors.'
DEDUCTIBILITY OF LOSSES
In the case of taxpayers subject to the passive loss rules (generally
individuals and closely held corporations), any losses generated by the
Partnership will only be available to offset future income generated by the
Partnership and cannot be used to offset income from other activities, including
passive activities or investments. Unused passive losses may be deducted when
the Unitholder disposes of all of his Units in a fully taxable transaction with
an unrelated party. Net passive income from the Partnership may be offset by
unused Partnership losses carried over from prior years, but not by losses from
other passive activities, including losses from other publicly traded
partnerships. See 'Tax Considerations -- Tax Consequences of Unit
Ownership -- Limitations on Deductibility of Partnership Losses.'
TAX SHELTER REGISTRATION; POTENTIAL IRS AUDIT
The Partnership has registered with the IRS as a 'tax shelter.' There is no
assurance that the Partnership will not be audited by the IRS or that tax
adjustments will not be made. The rights of a Unitholder owning less than a 1%
profits interest in the Partnership to participate in the income tax audit
process are very limited. Further, any adjustments in the Partnership's returns
will lead to adjustments in the Unitholders' returns and may lead to audits of
Unitholders' returns and adjustments of items unrelated to the Partnership. Each
Unitholder would bear the cost of any expenses incurred in connection with an
examination of such Unitholder's personal tax return.
45
PROPOSED CHANGES IN FEDERAL INCOME TAX LAWS
Legislation passed by Congress in November 1995 (the '1995 Proposed
Legislation') would alter the tax reporting procedures and the deficiency
collection procedures applicable to large partnerships such as the Partnership
(generally defined as electing partnerships with more than 100 partners) and
would make certain additional changes to the treatment of large partnerships.
That legislation was generally intended to simplify the administration of the
tax reporting and deficiency collection rules governing large partnerships.
On March 19, 1996, President Clinton introduced tax legislation, known as
the Revenue Reconciliation Act of 1996, that would impact the taxation of
certain financial products, including partnership interests. One proposal would
treat a taxpayer as having sold an 'appreciated' partnership interest (one in
which gain would be recognized if such interest were sold) if the taxpayer or
related persons enters into one or more positions with respect to the same or
substantially identical property which, for some period, substantially
eliminates both the risk of loss and opportunity for gain on the appreciated
financial position (including selling 'short against the box' transactions).
The 1995 Proposed Legislation was vetoed by President Clinton on December
6, 1995. As of the date of this Prospectus, it is not possible to predict
whether any of the changes which were set forth in the 1995 Proposed
Legislation, the Revenue Reconciliation Act of 1996 or any other changes in the
federal income tax laws that would impact the Partnership and the holders of
Common Units will ultimately be enacted or, if enacted, what form they will
take, what the effective dates will be and what, if any, transition rules will
be provided.
UNIFORMITY OF COMMON UNITS AND NONCONFORMING DEPRECIATION CONVENTIONS
Because the Partnership cannot match transferors and transferees of Common
Units, uniformity of the economic and tax characteristics of the Common Units to
a purchaser of Common Units must be maintained. To maintain uniformity and for
other reasons, the Partnership will adopt certain depreciation and amortization
conventions that do not conform with all aspects of certain proposed and final
Treasury Regulations which may, or may not, be applicable. The IRS may challenge
those conventions and, if such a challenge were sustained, the uniformity of
Common Units could be affected. Non-uniformity could adversely affect the amount
of tax depreciation available to a purchaser of Common Units and could have a
negative impact on the value of the Common Units. See 'Tax
Considerations -- Uniformity of Units.'
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders will be subject to other
taxes, such as state and local taxes, unincorporated business taxes, and estate,
inheritance or intangible taxes that may be imposed by the various jurisdictions
in which the Partnership does business or owns property. A Unitholder will be
required to file state income tax returns and to pay state income taxes in some
or perhaps all of such states and may be subject to penalties for failure to
comply with those requirements. It is the responsibility of each Unitholder to
file all state and local, as well as federal, tax returns that may be required
of such Unitholder. Counsel has not rendered an opinion on the state or local
tax consequences of an investment in the Partnership. See 'Tax
Considerations -- State, Local and Other Tax Considerations.'
PARTNERSHIP TAX INFORMATION AND AUDITS
The Partnership will furnish each holder of Common Units with a Schedule
K-1 that sets forth such holder's allocable share of income, gains, losses and
deductions. In preparing these schedules, the Partnership will use various
accounting and reporting conventions and adopt various depreciation and
amortization methods. There is no assurance that these schedules will yield a
result that conforms to statutory or regulatory requirements or to
administrative pronouncements of the IRS. Further, the Partnership's tax return
may be audited, and any such audit could result in an audit of a partner's
individual tax return as well as increased liabilities for taxes because of
adjustments resulting from the audit.
46
THE IPO AND ADDITIONAL TRANSACTIONS
On July 2, 1996, the Partnership consummated the IPO and received therefrom
net proceeds aggregating approximately $115.7 million. On July 22, 1996, the IPO
Over-Allotment Option was exercised in part with respect to 111,074 Common
Units, and the Partnership received net proceeds therefrom aggregating
approximately $2.2 million, which the Partnership used for general partnership
purposes.
Concurrently with the closing of the IPO, the Managing General Partner and
the Special General Partner contributed substantially all of their assets (which
assets did not include an existing intercompany note from Triarc, approximately
$59.3 million of the net proceeds from the issuance of the First Mortgage Notes
and certain other assets of the Managing General Partner) to the Operating
Partnership as a capital contribution and the Operating Partnership assumed
substantially all of the liabilities of the Managing General Partner and the
Special General Partner (other than certain income tax liabilities), including
the First Mortgage Notes and all indebtedness of the Managing General Partner
outstanding under the Former Credit Facility and the Other Former Indebtedness.
Immediately thereafter, the Managing General Partner and the Special General
Partner conveyed their limited partner interests in the Operating Partnership to
the Partnership. As a result of such contributions, each of the Managing General
Partner and the Special General Partner have a 1.0% general partner interest in
the Partnership and a 1.0101% general partner interest in the Operating
Partnership. In addition, the Managing General Partner received in exchange for
its contribution to the Partnership 4,533,638 Subordinated Units and the right
to receive the Incentive Distributions.
Also, immediately prior to the closing of the IPO, the Managing General
Partner issued $125 million aggregate principal amount of First Mortgage Notes
to certain institutional investors in a private placement. Approximately $59.3
million of the net proceeds from the sale of the First Mortgage Notes (the
entire net proceeds of which were approximately $118.4 million) were used by the
Managing General Partner to pay a dividend to Triarc. The remainder of the net
proceeds from the sale of the First Mortgage Notes (approximately $59.1 million)
were contributed by the Managing General Partner to the Operating Partnership in
connection with the Conveyance and were used by the Operating Partnership to
repay (in the manner described below) a portion of the Managing General
Partner's indebtedness outstanding under the Former Credit Facility and the
Other Former Indebtedness, all of which indebtedness was assumed by the
Operating Partnership in connection with the Conveyance. First, approximately
$30.0 million of such net proceeds was used by the Operating Partnership to
repay indebtedness evidenced by the Refunding Notes, and then the remainder of
such net proceeds (approximately $29.1 million) together with cash on hand was
used to repay other indebtedness outstanding under the Former Credit Facility
and Other Former Indebtedness.
After the repayment of the Refunding Notes and such other indebtedness as
described above, the net proceeds of the sale of the Common Units issued in the
IPO (approximately $115.7 million) were contributed to the Operating Partnership
which used such proceeds to repay all remaining indebtedness under the Former
Credit Facility, to make the Partnership Loan to Triarc and to pay certain
accrued management fees and tax sharing payments due to Triarc from the Managing
General Partner.
Concurrently with the closing of the IPO, the Operating Partnership also
entered into the Bank Credit Facility, which consists of the $15 million Working
Capital Facility and the $40 million Acquisition Facility. At December 31, 1996,
$7.9 million was outstanding under the Bank Credit Facility.
In addition, the Managing General Partner made a dividend to Triarc
consisting of a portion (approximately $51.4 million aggregate principal amount)
of an existing intercompany note of Triarc.
For additional information regarding the terms of the First Mortgage Notes
and the Bank Credit Facility, see 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Description of Indebtedness.'
For additional information regarding the terms of the Partnership Loan, see
'Cash Distribution Policy -- Partnership Loan.'
On November 7, 1996, the Partnership issued and sold the 400,000 Common
Units offered hereby to the Selling Unitholder pursuant to the Purchase
Agreement at a price of $21.00 per Unit, and the Partnership paid the Selling
Unitholder a fee of $588,000 in connection therewith. The estimated net
47
proceeds to the Partnership from the Private Placement were approximately $7.4
million. Such net proceeds were used by the Partnership for general partnership
purposes. See 'The Selling Unitholder.'
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the
Partnership as of September 30 1996 and, (ii) the pro forma capitalization of
the Partnership as of September 30, 1996, as adjusted to give effect to the sale
in the Private Placement of the Common Units offered hereby and the application
of the net proceeds therefrom as described in 'The IPO and Additional
Transactions'. This table should be read in conjunction with the historical
consolidated financial statements and related notes and the unaudited pro forma
condensed consolidated financial statements and related notes appearing
elsewhere herein.
SEPTEMBER 30, 1996
----------------------------
HISTORICAL AS ADJUSTED(A)
---------- --------------
(IN THOUSANDS)
Total current maturities of Other Existing Indebtedness............................. $ 315 $ 315
---------- --------------
Long-term debt:
Bank Credit Facility........................................................... 800 800
First Mortgage Notes........................................................... 125,000 125,000
Other Existing Indebtedness.................................................... 1,168 1,168
---------- --------------
Total long-term debt...................................................... 126,968 126,968
---------- --------------
Total partners' capital............................................................. 26,542 33,909
---------- --------------
Total capitalization................................................................ $ 153,825 $161,192
---------- --------------
---------- --------------
- ------------
(a) Reflects the sale of Common Units in the Private Placement as described in
'The IPO and Additional Transactions'.
PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS
The Common Units began trading on the NYSE on June 27, 1996 under the
trading symbol 'NPL.' Closing trading price data as reported by the NYSE for
each of the quarters indicated are as follows:
HIGH LOW
------- -------
1996
Third Quarter (from June 27, 1996)................................. $21.000 $18.625
Fourth Quarter..................................................... $20.000 $19.250
1997
First Quarter (through January 9, 1996)............................ $20.875 $20.125
For a recent sale price of the Common Units, see the cover page of this
Prospectus. The Common Units were held by approximately 10,000 holders of record
as of January 9, 1997.
The Partnership made an initial distribution of $0.525 Per Unit on all
Common Units and Subordinated Units and a related distribution on the General
Partner Interests on November 14, 1996 to the holders of record at the close of
business on November 1, 1996. The distribution related to the Partnership's
third fiscal quarter.
48
CASH DISTRIBUTION POLICY
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT.
SEE 'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 4 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
GENERAL
The Partnership will distribute to its partners, on a quarterly basis, all
of its Available Cash in the manner described herein. Available Cash is defined
in the Glossary and generally means, with respect to any fiscal quarter of the
Partnership, all cash on hand at the end of such quarter less the amount of cash
reserves that is necessary or appropriate in the discretion of the Managing
General Partner to (i) provide for the proper conduct of the Partnership's
business, (ii) comply with applicable law or any Partnership debt instrument or
other agreement, or (iii) provide funds for distributions to Unitholders and the
General Partners in respect of any one or more of the next four quarters.
Cash distributions will be characterized as distributions from either
Operating Surplus or Capital Surplus. This distinction affects the amounts
distributed to Unitholders relative to the General Partners, and under certain
circumstances it determines whether holders of Subordinated Units receive any
distributions. See ' -- Quarterly Distributions of Available Cash.'
Operating Surplus is defined in the Glossary and refers generally to (i)
the cash balance of the Partnership on the date the Partnership commenced
operations (approximately $4.6 million), plus $15.4 million, plus all cash
receipts of the Partnership from its operations, less (ii) all Partnership
operating expenses, debt service payments (including reserves therefor but not
including payments required in connection with the sale of assets or any
refinancing with the proceeds of new indebtedness or any equity offering),
maintenance capital expenditures and reserves established for future Partnership
operations.
Capital Surplus is also defined in the Glossary and generally will be
generated only by borrowings (other than for working capital purposes), sales of
debt and equity securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other current assets and assets
disposed of in the ordinary course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Partnership is from Operating Surplus or from Capital
Surplus, all Available Cash distributed by the Partnership from any source will
be treated as distributed from Operating Surplus until the sum of all Available
Cash distributed since the commencement of the Partnership equals the Operating
Surplus as of the end of the quarter prior to such distribution. Any Available
Cash in excess of such amount (irrespective of its source) will be deemed to be
from Capital Surplus and distributed accordingly.
If Available Cash from Capital Surplus is distributed in respect of each
Common Unit in an aggregate amount per Common Unit equal to the initial public
offering price of the Common Units of $21.00 per Common Unit (the 'Initial Unit
Price'), plus any Common Unit Arrearages, the distinction between Operating
Surplus and Capital Surplus will cease, and all distributions of Available Cash
will be treated as if they were from Operating Surplus. The Partnership does not
anticipate that there will be significant distributions from Capital Surplus.
The Subordinated Units are a separate class of interests in the
Partnership, and the rights of holders of such interests to participate in
distributions to partners differ from the rights of the holders of Common Units.
For any given quarter, any Available Cash will be distributed to the General
Partners (as holders of the General Partner Interests) and to the holders of
Common Units, and may also be distributed to the holders of Subordinated Units
depending upon the amount of Available Cash for the quarter, the amount of
Common Unit Arrearages, if any, whether the Subordination Period has ended and
other factors discussed below.
The Incentive Distributions are a separate class of interests in the
Partnership that represent the right to receive an increasing percentage of
quarterly distributions of Available Cash from Operating Surplus and of
liquidating distributions after the Target Distribution Levels have been
achieved. The Target Distribution Levels are based on the amounts of Available
Cash from Operating Surplus or
49
liquidating distributions distributed in excess of payments made with respect to
the Minimum Quarterly Distributions and Common Unit Arrearages.
Subject to the limitations described under 'The Partnership
Agreement -- Issuance of Additional Securities,' the Partnership has the
authority to issue additional Common Units or other equity securities of the
Partnership for such consideration and on such terms and conditions as are
established by the Managing General Partner, in its discretion without the
approval of the Unitholders. It is possible that the Partnership will fund
acquisitions of other propane businesses through the issuance of additional
Common Units or other equity securities of the Partnership. Holders of any
additional Common Units issued by the Partnership will be entitled to share
equally with the then-existing holders of Common Units in distributions of
Available Cash by the Partnership. In addition, the issuance of additional
partnership interests may dilute the value of the interests of the then-existing
holders of Common Units in the net assets of the Partnership.
The discussion below indicates the percentages of cash distributions
required to be made to the General Partners and the holders of Common Units and
the circumstances under which holders of Subordinated Units are entitled to cash
distributions and the amounts thereof. For a discussion of Available Cash from
Operating Surplus available for distributions with respect to the Common Units
on a pro forma basis, see ' -- Cash Available for Distribution.'
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to
each quarter of the Partnership prior to its liquidation in an amount equal to
100% of its Available Cash for such quarter. The Partnership expects to make
distributions of all Available Cash within approximately 45 days after the end
of each fiscal quarter to holders of record on the applicable record date. The
Minimum Quarterly Distribution and the Target Distribution Levels are subject to
certain adjustments as described below under ' -- Distributions from Capital
Surplus' and ' -- Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.'
With respect to each quarter during the Subordination Period, to the extent
there is sufficient Available Cash, the holders of Common Units will have the
right to receive the Minimum Quarterly Distribution, plus any Common Unit
Arrearages, prior to any distribution of Available Cash to the holders of
Subordinated Units. This subordination feature will enhance the Partnership's
ability to distribute the Minimum Quarterly Distribution on the Common Units
during the Subordination Period. There is no guarantee, however, that the
Minimum Quarterly Distribution will be made on the Common Units. Upon expiration
of the Subordination Period, all Subordinated Units will convert on a
one-for-one basis into Common Units and will participate pro rata with all other
Common Units in future distributions of Available Cash. Under certain
circumstances, up to 2,266,820 of the Subordinated Units issued to the Managing
General Partner may convert into Common Units prior to the expiration of the
Subordination Period. Such number of Subordinated Units eligible for early
conversion may be increased by any Subordinated Units issued upon conversion of
all or a portion of the Special General Partner's 2% General Partner Interest.
Further, additional capital contributions by the Special General Partner upon
other issuances of additional Partnership securities will increase the number of
Units into which such combined interest may be exchanged. Common Units will not
accrue arrearages with respect to distributions for any quarter after the
Subordination Period and Subordinated Units will not accrue any arrearages with
respect to distributions for any quarter.
The Partnership declared a distribution on October 21, 1996, in the amount
of $0.525 per Common Unit, which was paid on November 14, 1996 to Common
Unitholders of record at the close of business on November 1, 1996 and paid a
distribution to the Managing General Partner of $0.525 per Subordinated Unit
(approximately $2.4 million in the aggregate) and a corresponding distribution
to the General Partners in the aggregate of approximately $235,800.
DISTRIBUTIONS FROM OPERATING SURPLUS DURING SUBORDINATION PERIOD
The Subordination Period will generally extend until the first day of any
quarter beginning after June 30, 2001 in respect of which (i) distributions of
Available Cash from Operating Surplus on the
50
Common Units and the Subordinated Units with respect to each of the three
consecutive four-quarter periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the outstanding
Common Units and Subordinated Units during such periods, (ii) the Adjusted
Operating Surplus generated during each of the three consecutive four-quarter
periods immediately preceding such date equaled or exceeded the sum of the
Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the General Partner Interests
during such periods and (iii) there are no outstanding Common Unit Arrearages.
Prior to the end of the Subordination Period, a portion of the Subordinated
Units will convert into Common Units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any quarter
ending on or after (a) June 30, 1999 (with respect to 1,133,410 Subordinated
Units, subject to adjustment as discussed below) and (b) June 30, 2000 (with
respect to 1,133,410 Subordinated Units, subject to adjustment as discussed
below) in respect of which (i) distributions of Available Cash from Operating
Surplus on the Common Units and the Subordinated Units with respect to each of
the three consecutive four-quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the
outstanding Common Units and Subordinated Units during such periods, (ii) the
Adjusted Operating Surplus generated during each of the two consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the General Partner Interests
during such periods, and (iii) there are no outstanding Common Unit Arrearages;
provided, however, that the early conversion of the second tranche of
Subordinated Units may not occur until at least one year following the early
conversion of the first tranche of Subordinated Units. Such number of units
eligible for early conversion on June 30, 1999 and June 30, 2000 shall be
subject to increase in each case by a number of Subordinated Units equal to 25%
of the total Units issued upon conversion of the Special General Partner's 2%
General Partner Interest.
Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will thereafter
participate, pro rata, with the other Common Units in distributions of Available
Cash. In addition, if the Managing General Partner is removed as a general
partner of the Partnership other than for Cause (i) the Subordination Period
will end and all outstanding Subordinated Units will immediately convert into
Common Units on a one-for-one basis, (ii) any existing Common Unit Arrearages
will be extinguished and (iii) the General Partners will have the right to
convert their remaining General Partner Interests (and the right to receive
Incentive Distributions) into Common Units or to receive cash in exchange for
such interests.
'Adjusted Operating Surplus' is defined in the Glossary and, for any
period, generally means Operating Surplus generated during such period, less (a)
any net increase in working capital borrowings during such period and (b) any
net reduction in cash reserves for Operating Expenditures that otherwise
increased the Operating Surplus generated during such period, plus (x) any net
decrease in working capital borrowings during such period and (y) any net
increase in cash reserves for Operating Expenditures during such period required
by any debt instrument for the repayment of principal, interest or premium.
Distributions by the Partnership of Available Cash from Operating Surplus
with respect to any quarter during the Subordination Period will be made in the
following manner:
first, 96% to the Common Unitholders, pro rata, and 4% to the General
Partners, pro rata, until there has been distributed in respect of each
outstanding Common Unit an amount equal to the Minimum Quarterly
Distribution for such quarter;
second, 96% to the Common Unitholders, pro rata, and 4% to the General
Partners, pro rata, until there has been distributed in respect of each
outstanding Common Unit an amount equal to any Common Unit Arrearages
accrued and unpaid with respect to any prior quarters during the
Subordination Period;
51
third, 96% to the Subordinated Unitholders, pro rata, and 4% to the
General Partners, pro rata, until there has been distributed in respect of
each outstanding Subordinated Unit an amount equal to the Minimum Quarterly
Distribution for such quarter;
thereafter, in the manner described in ' -- Incentive
Distributions -- Hypothetical Annualized Yield' below.
The above references to the 4% of Available Cash from Operating Surplus
distributed to the General Partners constitute references to the amount of the
Managing General Partner's and Special General Partner's aggregate percentage
interest in distributions from the Partnership and the Operating Partnership on
a combined basis, exclusive of their rights as holder of Subordinated Units,
Common Units or rights to receive Incentive Distributions. Each of the Managing
General Partner and the Special General Partner own a 1.0% unsubordinated
general partner interest in the Partnership and a 1.0101% unsubordinated general
partner interest in the Operating Partnership. Other references in this
Prospectus to the General Partner Interests or to distributions of 4% of
Available Cash also constitute references to the amount of the General Partners'
aggregate percentage interest in the Partnership and the Operating Partnership
on a combined basis exclusive of their rights as holder of the Subordinated
Units, Common Units or rights to receive Incentive Distributions. In the event
all or a portion of the Special General Partner's 2% General Partner Interest is
converted into Units, the Managing General Partner will be required to amend the
Partnership Agreement and the Operating Partnership Agreement to decrease the
percentage of profits, losses and distributions previously allocated to the
Special General Partner in respect of its General Partner Interest to reflect
such conversion and increase the percentage of profits, losses and distributions
that are allocated to the Unitholders by the same amount. With respect to any
Common Unit, the term 'Common Unit Arrearages' refers to the amount by which the
Minimum Quarterly Distribution in any quarter during the Subordination Period
exceeds the distribution of Available Cash from Operating Surplus actually made
for such quarter on a Common Unit cumulative for such quarter and all prior
quarters during the Subordination Period. Common Unit Arrearages will not accrue
interest.
DISTRIBUTIONS FROM OPERATING SURPLUS AFTER SUBORDINATION PERIOD
Distributions by the Partnership of Available Cash from Operating Surplus
with respect to any quarter after the Subordination Period will be made in the
following manner:
first, 96% to all Unitholders, pro rata, and 4% to the General
Partners, pro rata until there has been distributed in respect of each Unit
an amount equal to the Minimum Quarterly Distribution for such quarter;
thereafter, in the manner described in ' -- Incentive
Distributions -- Hypothetical Annualized Yield' below.
INCENTIVE DISTRIBUTIONS -- HYPOTHETICAL ANNUALIZED YIELD
For any quarter for which Available Cash from Operating Surplus is
distributed to the Common and Subordinated Unitholders in an amount equal to the
Minimum Quarterly Distribution on all Units and to the Common Unitholders in an
amount equal to any unpaid Common Unit Arrearages, then any additional Available
Cash from Operating Surplus in respect of such quarter will be distributed among
the Unitholders and the General Partners in the following manner:
first, 96% to all Unitholders, pro rata, and 4% to the General
Partners, pro rata, until the Unitholders have received (in addition to any
distributions to Common Unitholders to eliminate Common Unit Arrearages) a
total of $0.577 for such quarter in respect of each outstanding Unit (the
'First Target Distribution');
second, 85% to all Unitholders, pro rata, and 15% to the General
Partners, until the Unitholders have received (in addition to any
distributions to Common Unitholders to eliminate Common Unit Arrearages) a
total of $0.665 for such quarter in respect of each outstanding Unit (the
'Second Target Distribution');
52
third, 75% to all Unitholders, pro rata, and 25% to the General
Partners, until the Unitholders have received (in addition to any
distributions to Common Unitholders to eliminate Common Unit Arrearages) a
total of $0.863 for such quarter in respect of each outstanding Unit (the
'Third Target Distribution'); and
thereafter, 50% to all Unitholders, pro rata, and 50% to the General
Partners.
The distributions to the General Partners set forth above (other than in
the Managing General Partner's capacity as a holder of Subordinated Units) that
are in excess of the General Partner Interests represent the Incentive
Distributions which are paid to the Managing General Partner. The Managing
General Partner may transfer its right to receive Incentive Distributions to one
or more Persons.
The following table illustrates the percentage allocation of the additional
Available Cash from Operating Surplus between the Unitholders and the General
Partners up to the various Target Distribution Levels and a hypothetical
annualized percentage yield to be realized by a Unitholder at each different
level of allocation among the Unitholders and the General Partners. For purposes
of the following table, the annualized percentage yield is calculated on a
pretax basis assuming that (i) the Common Unit was purchased at an amount equal
to the initial public offering price of $21.00 per Common Unit and (ii) the
Partnership distributed each quarter during the first year following the
investment the amount set forth under the column 'Quarterly Distribution Target
Amount.' The calculations are also based on the assumption that the quarterly
distribution amounts shown do not include any Common Unit Arrearages. The
amounts set forth under 'Marginal Percentage Interest in Distributions' are the
percentage interests of the General Partners and the Unitholders in any
Available Cash from Operating Surplus distributed up to and including the
corresponding amount in the column 'Quarterly Distribution Target Amount,' until
Available Cash distributed reaches the next Target Distribution Level, if any.
The percentage interests shown for the Unitholders and the General Partners for
the Minimum Quarterly Distribution are also applicable to quarterly distribution
amounts that are less than the Minimum Quarterly Distribution. The table is
presented for illustrative purposes only; there can be no assurance that the
Partnership will have Available Cash from Operating Surplus in order to make
such distributions.
MARGINAL PERCENTAGE
INTEREST IN
QUARTERLY DISTRIBUTIONS
DISTRIBUTION HYPOTHETICAL -----------------------
TARGET ANNUALIZED GENERAL
AMOUNT YIELD UNITHOLDERS PARTNERS
------------ ------------ ----------- --------
Minimum Quarterly Distribution.................. $0.525 10.000% 96% 4%
First Target Distribution....................... $0.577 10.990% 96% 4%
Second Target Distribution...................... $0.665 12.667% 85% 15%
Third Target Distribution....................... $0.863 16.438% 75% 25%
Thereafter...................................... above $0.863 above 16.438% 50% 50%
DISTRIBUTIONS FROM CAPITAL SURPLUS
Distributions by the Partnership of Available Cash from Capital Surplus
will be made in the following manner:
first, 96% to all Unitholders, pro rata, and 4% to the General
Partners, pro rata, until the Partnership has distributed, in respect of
each outstanding Unit issued in the IPO, Available Cash from Capital
Surplus in an aggregate amount per Unit equal to the Initial Unit Price;
second, 96% to the Common Unitholders, pro rata, and 4% to the General
Partners, pro rata, until the Partnership has distributed, in respect of
each outstanding Common Unit, Available Cash from Capital Surplus in an
aggregate amount equal to any unpaid Common Unit Arrearages with respect to
such Common Unit; and
thereafter, all distributions of Available Cash from Capital Surplus
will be distributed as if they were from Operating Surplus.
As a distribution of Available Cash from Capital Surplus is made, it is
treated as if it were a repayment of the Initial Unit Price. To reflect such
repayment, the Minimum Quarterly Distribution and the Target Distribution Levels
will be adjusted downward by multiplying each such amount by a
53
fraction, the numerator of which is the Unrecovered Capital of the Common Units
(as defined in the Glossary) immediately after giving effect to such repayment
and the denominator of which is the Unrecovered Capital of the Common Units
immediately prior to such repayment. This adjustment to the Minimum Quarterly
Distribution may accelerate the termination of the Subordination Period, thereby
increasing the likelihood of the conversion of Subordinated Units into Common
Units.
When 'payback' of the Initial Unit Price has occurred, i.e., when the
Unrecovered Capital of the Common Units is zero (and any accrued Common Unit
Arrearages have been paid), then in effect the Minimum Quarterly Distribution
and each of the Target Distribution Levels will have been reduced to zero for
subsequent quarters. Thereafter, all distributions of Available Cash from all
sources will be treated as if they were from Operating Surplus. Because the
Minimum Quarterly Distribution and the Target Distribution Levels will have been
reduced to zero, the General Partners will be entitled thereafter to receive 50%
of all distributions of Available Cash.
Distributions of Available Cash from Capital Surplus will not reduce the
Minimum Quarterly Distribution or Target Distribution Levels for the quarter
with respect to which they are distributed.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
In addition to reductions of the Minimum Quarterly Distribution and Target
Distribution Levels made upon a distribution of Available Cash from Capital
Surplus, the Minimum Quarterly Distribution, the Target Distribution Levels, the
Unrecovered Capital, the number of additional Common Units issuable during the
Subordination Period without a Unitholder vote, the number of Common Units
issuable upon conversion of the Subordinated Units and other amounts calculated
on a per Unit basis will be proportionately adjusted upward or downward, as
appropriate, in the event of any combination or subdivision of Common Units
(whether effected by a distribution payable in Common Units or otherwise), but
not by reason of the issuance of additional Common Units for cash or property.
For example, in the event of a two-for-one split of the Common Units (assuming
no prior adjustments), the Minimum Quarterly Distribution, each of the Target
Distribution Levels and the Unrecovered Capital of the Common Units would each
be reduced to 50% of its initial level.
The Minimum Quarterly Distribution and the Target Distribution Levels may
also be adjusted if legislation is enacted or if existing law is modified or
interpreted by the relevant governmental authority in a manner that causes the
Partnership to become taxable as a corporation or otherwise subjects the
Partnership to taxation as an entity for federal, state or local income tax
purposes. In such event, the Minimum Quarterly Distribution and the Target
Distribution Levels would be reduced to an amount equal to the product of (i)
the Minimum Quarterly Distribution and each of the Target Distribution Levels,
respectively, multiplied by (ii) one minus the sum of (x) the maximum effective
federal income tax rate to which the Partnership is then subject as an entity
plus (y) any increase that results from such legislation in the effective
overall state and local income tax rate to which the Partnership is subject as
an entity for the taxable year in which such event occurs (after taking into
account the benefit of any deduction allowable for federal income tax purposes
with respect to the payment of state and local income taxes). For example,
assuming the Partnership was not previously subject to state and local income
tax, if the Partnership were to become taxable as an entity for federal income
tax purposes and the Partnership became subject to a maximum marginal federal,
and effective state and local, income tax rate of 38%, then the Minimum
Quarterly Distribution and the Target Distribution Levels would each be reduced
to 62% of the amount thereof immediately prior to such adjustment.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
Following the commencement of the dissolution and liquidation of the
Partnership, assets will be sold or otherwise disposed of from time to time and
the partners' capital account balances will be adjusted to reflect any resulting
gain or loss. The proceeds of such liquidation will, first, be applied to the
payment of creditors of the Partnership in the order of priority provided in the
Partnership Agreement and by law and, thereafter, be distributed to the
Unitholders and the General Partners in accordance with their respective capital
account balances as so adjusted. Partners are entitled to liquidating
distributions in accordance with capital account balances. Although operating
losses are
54
allocated to all Unitholders, the allocations of gains and losses upon
liquidation are intended, to the extent possible, to entitle the holders of
outstanding Common Units to a preference over the holders of outstanding
Subordinated Units upon the liquidation of the Partnership, to the extent
required to permit Common Unitholders to receive their Unrecovered Capital plus
any unpaid Common Unit Arrearages. Thus net losses recognized upon liquidation
of the Partnership will be allocated to the Subordinated Units to the extent of
their capital account balances before any loss is allocated to the Common Units,
and net gains recognized upon liquidation will be allocated first to restore
negative balances in the capital accounts of the General Partners and other
Unitholders and then to the Common Unitholders until their capital account
balances equal their Unrecovered Capital plus unpaid Common Unit Arrearages.
However, no assurance can be given that there will be sufficient gain upon
liquidation of the Partnership to enable the Common Unitholders to fully recover
all of such amounts, even though there may be cash available for distribution to
the Subordinated Unitholders.
The manner of such adjustment is as provided in the Partnership Agreement,
which is an exhibit to the Registration Statement of which this Propectus is a
part. If the liquidation of the Partnership occurs before the end of the
Subordination Period, any net gain (or unrealized gain attributable to assets
distributed in kind) will be allocated to the partners as follows:
first, to the General Partners and the Unitholders having negative
balances in their capital accounts to the extent of and in proportion to
such negative balances;
second, 96% to the Common Unitholders, pro rata, and 4% to the General
Partners, pro rata, until the capital account for each Common Unit is equal
to the sum of (i) the Unrecovered Capital in respect of such Common Unit,
(ii) the amount of the Minimum Quarterly Distribution for the fiscal
quarter during which liquidation of the Partnership occurs and (iii) any
unpaid Common Unit Arrearages in respect of such Common Unit;
third, 96% to the Subordinated Unitholders, pro rata, and 4% to the
General Partners, pro rata, until the capital account for each Subordinated
Unit is equal to the sum of (i) the Unrecovered Capital in respect of such
Subordinated Unit and (ii) the amount of the Minimum Quarterly Distribution
for the fiscal quarter during which the liquidation of the Partnership
occurs;
fourth, 96% to all Unitholders, pro rata, and 4% to the General
Partners, pro rata, until there has been allocated under this clause fourth
an amount per Common Unit equal to (a) the sum of the excess of the First
Target Distribution per Unit over the Minimum Quarterly Distribution per
Unit for each quarter of the Partnership's existence, less (b) the
cumulative amount per Unit of any distributions of Available Cash from
Operating Surplus in excess of the Minimum Quarterly Distribution per Unit
that were distributed 96% to the Unitholders, pro rata, and 4% to the
General Partners, pro rata for each quarter of the Partnership's existence;
fifth, 85% to all Unitholders, pro rata, and 15% to the General
Partners, until there has been allocated under this clause fifth an amount
per Unit equal to (a) the sum of the excess of the Second Target
Distribution per Unit over the First Target Distribution per Unit for each
quarter of the Partnership's existence, less (b) the cumulative amount per
Unit of any distributions of Available Cash from Operating Surplus in
excess of the First Target Distribution per Unit that were distributed 85%
to the Unitholders, pro rata, and 15% to the General Partners for each
quarter of the Partnership's existence;
sixth, 75% to all Unitholders, pro rata, and 25% to the General
Partners, until there has been allocated under this clause sixth an amount
per Common Unit equal to (a) the sum of the excess of the Third Target
Distribution per Unit over the Second Target Distribution per Unit for each
quarter of the Partnership's existence, less (b) the cumulative amount per
Unit of any distributions of Available Cash from Operating Surplus in
excess of the Second Target Distribution per Unit that were distributed 75%
to the Unitholders, pro rata, and 25% to the General Partners for each
quarter of the Partnership's existence; and
thereafter, 50% to all Unitholders, pro rata, and 50% to the General
Partners.
If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that clauses (ii)
and (iii) of paragraph second above and all of paragraph third above will no
longer be applicable.
55
Upon liquidation of the Partnership, any loss will generally be allocated
to the General Partners and the Unitholders as follows:
first, 96% to the Subordinated Unitholders in proportion to the
positive balances in their respective capital accounts and 4% to the
General Partners, pro rata, until the capital accounts of the holders of
the Subordinated Units have been reduced to zero;
second, 96% to the Common Unitholders, in proportion to the positive
balances in their respective capital accounts and 4% to the General
Partners, pro rata, until the capital accounts of the Common Unitholders
have been reduced to zero; and
thereafter, to the General Partners, pro rata.
If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that all of
paragraph first above will no longer be applicable.
Interim adjustments to capital accounts will be made at the time the
Partnership issues additional interests in the Partnership or makes
distributions of property. Such adjustments will be based on the fair market
value of the interests or the property distributed and any gain or loss
resulting therefrom will be allocated to the Unitholders and the General
Partners in the same manner as gain or loss is allocated upon liquidation. In
the event that positive interim adjustments are made to the capital accounts,
any subsequent negative adjustments to the capital accounts resulting from the
issuance of additional interests in the Partnership, distributions of property
by the Partnership, or upon liquidation of the Partnership, will be allocated in
a manner which results, to the extent possible, in the capital account balances
of the General Partners equaling the amount which would have been the General
Partners' capital accounts if no prior positive adjustments to the capital
accounts had been made.
CASH AVAILABLE FOR DISTRIBUTION
The amount of Available Cash from Operating Surplus needed to distribute
the Minimum Quarterly Distribution for four quarters on the Common Units
(including the Common Units offered hereby) and Subordinated Units outstanding
as of the date of this Prospectus and on the General Partner Interests is
approximately $24.6 million (approximately $14.1 million for the Common Units,
$9.5 million for the Subordinated Units and $1.0 million for the General Partner
Interests).
Pro forma Available Cash from Operating Surplus generated during 1994 and
1995 (approximately $22.7 million and $17.6 million, respectively) would have
been sufficient to cover the Minimum Quarterly Distribution on the Common Units
and the related distribution on the General Partner Interests, but would have
been insufficient by approximately $1.9 million and $7.0 million to cover the
Minimum Quarterly Distribution on the Subordinated Units and the related
distribution on the General Partner Interests in 1994 and 1995, respectively.
The decline in pro forma Available Cash from Operating Surplus generated during
1995 was primarily due to the fact that temperatures during the winter of
1994-95 across the markets served by the Partnership were substantially warmer
than the prior year. Pro forma Available Cash from Operating Surplus generated
during the twelve months ended September 30, 1996 (approximately $21.5 million),
would have been sufficient to cover the Minimum Quarterly Distribution on the
Common Units (including the Common Units offered hereby) and the related
distribution on the General Partner Interests, but would have been insufficient
by approximately $3.1 million to cover the Minimum Quarterly Distribution on the
Subordinated Units and the related distribution on the General Partner
Interests.
Pro forma Available Cash from Operating Surplus generated during the nine
months ended September 30, 1996 would have been approximately $11.6 million;
however, because of the highly seasonal nature of the Partnership's business,
such amount is not necessarily indicative of the results that will be obtained
over twelve months. The Partnership's revenues and cash flows have historically
been highest in the first and fourth quarters, which are the heating season, and
the lowest in the second and third quarters, which are the non-heating season.
Although such $11.6 million generated during the nine months ended September 30,
1996 would have been deficient by approximately $6.8 million to cover Minimum
Quarterly Distributions on the Common Units, the Subordinated Units and related
distributions on the General Partners Interests during such nine months, the
Partnership would have had sufficient cash on hand or available to it from its
credit line for the payment of the Minimum
56
Quarterly Distributions during the seasonally low cash flow second and third
quarters of 1996. During the Partnership's normal business cycles it will
establish reserves during heating season quarters for, among other things,
payment of the Minimum Quarterly Distribution on the Common Units in subsequent
quarters and future debt payments, decreasing the Amount of Available Cash from
Operating Surplus that would have been distributed for such heating season
quarters. For the calculation of Pro Forma Operating Surplus, see the table
below.
PRO FORMA OPERATING SURPLUS
(UNAUDITED)
YEAR ENDED TWELVE MONTHS NINE MONTHS
DECEMBER 31, ENDED ENDED
------------------ SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------- ------- ------------- -------------
(IN THOUSANDS)
Operating profit as reported................................. $18,750 $14,501 $15,765 $ 8,412
Add management fees(a)....................................... 4,561 3,000 2,250 1,500
Less standalone costs(b)..................................... (1,500) (1,500) (1,125) (750)
------- ------- ------------- -------------
Pro forma operating profit................................... 21,811 16,001 16,890 9,162
Add pro forma depreciation and amortization.................. 10,024 10,645 12,256 8,299
------- ------- ------------- -------------
Pro forma EBITDA(c).......................................... 31,835 26,646 29,146 17,461
Add: Interest on $40.7 million Partnership Loan.............. 5,500 5,500 5,500 4,120
Other income(d)........................................ 697 652 705 549
Less: Pro forma interest expense(e).......................... (10,905) (10,990) (10,990) (8,074)
Pro forma capital expenditures -- maintenance(f)....... (4,228) (4,030) (2,635) (2,275)
Pro forma provision for income taxes................... (200) (200) (200) (150)
------- ------- ------------- -------------
Pro forma operating surplus.................................. $22,699 $17,578 $21,526 $11,631
------- ------- ------------- -------------
------- ------- ------------- -------------
- ------------
(a) To reflect the elimination of the management services fee allocated by
Triarc for the period prior to July 2, 1996, the date the Partnership
commenced operations.
(b) To reflect the estimated stand-alone general and administrative costs
associated with the Partnership for the period prior to July 2, 1996, the
date the Partnership commenced operations, as costs incurred after July 2,
1996 are reflected in the operations of the Partnership.
(c) EBITDA is defined as operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity
or ability to service debt obligations) and is not a measure of performance
or financial condition under generally accepted accounting principles, but
provides additional information for evaluating the Partnership's ability to
distribute the Minimum Quarterly Distribution. Cash flows in accordance
with generally accepted accounting principles consist of cash flows from
(i) operating, (ii) investing and (iii) financing activities. Cash flows
from operating activities reflect net income (loss) (including charges for
interest and income taxes not reflected in EBITDA), adjusted for (i) all
non-cash charges or income (including, but not limited to, depreciation and
amortization) and (ii) changes in operating assets and liabilities (not
reflected in EBITDA). Further, cash flows from investing and financing
activities are not included in EBITDA. For a discussion of the
Partnership's operating performance and cash flows provided by (used in)
operating, investing and financing activities, see 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
(d) Other income consists of finance fees and rental income.
(e) Excludes non-cash amortization of deferred financing costs of $560 per
annum and $420 for the nine months ended September 30, 1996.
(f) Includes expenditures not expected to occur on an annual basis as follows:
1994 -- $1,790 (primarily computer hardware and systems installation);
1995 -- $590 (primarily the purchase of an airplane).
57
Based on the Partnership's actual results of operations for the eleven
months ended November 30, 1996 and limited data about operations in December
1996, the Partnership believes that it will generate Available Cash from
Operating Surplus of approximately $18.7 million during 1996, although there can
be no assurance it will generate such amount.
The amounts of pro forma Available Cash from Operating Surplus for 1994 and
1995 and for the nine months and twelve months ended September 30, 1996 set
forth above were derived in part from the pro forma financial statements of the
Partnership. The pro forma adjustments are based upon currently available
information and certain estimates and assumptions. The pro forma financial
statements do not purport to present the results of operations of the
Partnership had the Partnership actually commenced operations as of the date
indicated. Furthermore, the pro forma financial statements are based on accrual
accounting concepts while Available Cash and Operating Surplus are defined in
the Partnership Agreement on a cash accounting basis. As a consequence, the
amounts of pro forma Available Cash from Operating Surplus shown above should
only be viewed as a general indication of the amounts of Available Cash from
Operating Surplus that may in fact have been generated by the Partnership had it
been formed in earlier periods. Available Cash is defined in the Glossary and
generally means, with respect to any fiscal quarter of the Partnership, all cash
on hand at the end of such quarter less the amount of cash reserves that is
necessary or appropriate in the discretion of the Managing General Partner to
(i) provide for the proper conduct of the Partnership's business, (ii) comply
with applicable law or any Partnership debt instrument or other agreement, or
(iii) provide funds for distributions to Unitholders and the General Partners in
respect of any one or more of the next four quarters. Operating Surplus is
defined in the Glossary and refers generally to (i) the cash balance of the
Partnership on the date the Partnership commenced operations (approximately $4.6
million), plus $15.4 million, plus all cash receipts of the Partnership from its
operations, less (ii) all Partnership operating expenses, debt service payments
(including reserves therefor but not including payments required in connection
with the sale of assets or any refinancing with the proceeds of new indebtedness
or any equity offering), maintenance capital expenditures and reserves
established for future Partnership operations. For a more complete definition of
Available Cash and Operating Surplus, see the Glossary.
In addition, there are provisions in the First Mortgage Notes and the Bank
Credit Facility which, under certain circumstances, restrict the Partnership's
ability to make distributions to its partners. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Description of
Indebtedness.'
PARTNERSHIP LOAN
A portion of the Partnership's annual cash receipts is derived from
interest payments from Triarc under the Partnership Loan. On a pro forma basis,
$5.5 million of the Partnership's Available Cash from Operating Surplus in 1995
of approximately $17.6 million would have been derived from interest payments on
the Partnership Loan. Consequently, the Partnership's ability to make
distributions to Unitholders will depend in part on Triarc's ability to make
interest payments under the Partnership Loan.
The Partnership Loan is a senior obligation of Triarc evidenced by a note
issued by Triarc to the Operating Partnership (the 'Partnership Note') and
secured by a pledge by Triarc of all of the shares of capital stock (the
'Pledged Stock') of the Managing General Partner that are owned by Triarc
(approximately 75.7% of the Managing General Partner's outstanding capital stock
as of the date of this Prospectus). The following is a summary of the material
terms of the Partnership Note, which is an exhibit to the Registration Statement
of which this Prospectus is a part. This summary is qualified in its entirety by
reference to the Partnership Note.
The Partnership Note bears interest at a rate of 13.5% per annum, payable
semi-annually in arrears on each June 30 and December 30. The Partnership Note
has a 14-year maturity, with required semi-annual prepayments, without premium,
of one-eighth the principal thereof beginning seven years from the date of
issuance. The Partnership Note generally may not be prepaid in whole or in part
prior to the fifth anniversary of the date of issuance; provided that Triarc
shall have the right, but not the obligation, to prepay the Partnership Note
without penalty or premium (i) by an amount equal to all or a portion of the sum
of (x) the total amount of any indebtedness (including refinancing indebtedness)
incurred by the Operating Partnership or the Partnership in connection with an
acquisition consummated by either
58
that is repaid using the proceeds of such prepayment and (y) the total amount of
other cash (not resulting from proceeds of the indebtedness referred to in
clause (x)) paid by the Operating Partnership or the Partnership in connection
with such acquisition; or (ii) in whole, but not in part, in connection with a
transaction (x) that results in either (A) the Managing General Partner no
longer being an Affiliate of Triarc or (B) the Managing General Partner no
longer being an Affiliate of the Operating Partnership and (y) where the total
consideration received in connection therewith indicates a value for each
Subordinated Unit (or Common Unit issued upon conversion thereof) of not less
than the Initial Unit Price, as adjusted for splits, reclassifications,
distributions of Capital Surplus and the like. During the sixth and seventh
years after the date of issuance, the Partnership Note may be prepaid in whole
or in part at redemption prices equal to 103.0% and 101.5%, respectively, of the
principal amount prepaid, together with accrued interest on the portion prepaid.
At any time on and after the seventh anniversary of the date of issuance, the
Partnership Note may be prepaid in whole or in part without premium or penalty.
The Partnership Note ranks pari passu to Triarc's obligations to its other
senior creditors, if any (whose debt may be secured with other assets of Triarc)
and is structurally subordinated to all creditors of Triarc's subsidiaries.
The Partnership Note contains various affirmative covenants applicable to
Triarc, including a requirement that Triarc (i) use its best efforts to prevent
the Managing General Partner from issuing any additional shares of capital stock
to any Person other than Triarc, a permitted assignee of the Partnership Note
from Triarc or any other Person that pledges such shares to secure the
Partnership Note; (ii) use its best efforts to prevent SEPSCO, an indirect
wholly owned subsidiary of Triarc and, at the closing of the Offering, the sole
other shareholder of the Managing General Partner, from transferring any of its
shares in the Managing General Partner to any Person other than to Triarc, any
of its wholly owned subsidiaries, a permitted assignee of the Partnership Note
from Triarc, any other Person that pledges such shares to secure the Partnership
Note or in connection with a Permitted Third Party Sale (as defined in the
Partnership Note) that results in the Pledged Stock no longer constituting
security for the Partnership Note; (iii) use its best efforts to prevent any
shares of the capital stock of SEPSCO from being acquired by any Person other
than Triarc, any of its wholly owned subsidiaries, or a permitted assignee of
the Partnership Note from Triarc, at any time when SEPSCO owns any shares of
capital stock of the General Partner; (iv) comply in all material respects with
all applicable laws; (v) pay its material obligations when due; (vi) provide the
Operating Partnership with certain audited and unaudited financial statements,
proxy statements and other reports and (vii) notify the Operating Partnership of
any Event of Default (as defined in the Partnership Note) or event which with
notice or lapse of time would become an Event of Default.
In addition, Triarc covenanted in the Partnership Note to prevent the
Managing General Partner from (a) incurring any indebtedness for borrowed money
at any time that the Operating Partnership does not have a security interest in
Retained Assets and/or cash or Cash Equivalents (each as defined in the
Partnership Note) having an aggregate 'Value' (as defined below) equal to the
then outstanding principal amount on the Partnership Note or (b) selling,
assigning, transferring, hypothecating or pledging any of its Retained Assets
unless immediately after giving effect thereto the Managing General Partner will
hold Units and/or cash or Cash Equivalents or Qualified Marketable Securities or
Qualified Public Company Securities (each as defined in the Partnership Note)
received on the sale thereof plus any other cash or Cash Equivalents designated
as Retained Assets (collectively, the 'Retained Assets') with a Value equal to
or greater than the then outstanding principal amount of the Partnership Note;
provided that, the Managing General Partner will be permitted to (i) sell,
assign, transfer, hypothecate or pledge Retained Assets in one or more
transactions in exchange for aggregate net after tax proceeds of not more than
$5 million and (ii) consummate the Triarc Merger (as defined below) without
complying with the foregoing restriction. For purposes of the foregoing, the
'Value' of the Common Units and the Qualified Public Company Securities shall be
deemed to be equal to one-half of the Current Trading Price (as defined in the
Partnership Note) therefor, the 'Value' of any Subordinated Units shall be
deemed to be equal to one-half of the value of the consideration received by the
Managing General Partner in connection with the most recent sale, assignment or
transfer of a Subordinated Unit, or if the Managing General Partner has not so
sold, assigned or transferred any Subordinated Units, one-half of the Current
Trading Price of the Common Units, the 'Value' of any cash or Cash Equivalents
shall be 100% of the face value therefor and the 'Value' of any Qualified
59
Marketable Security shall be 50% of the Current Trading Price therefor, as
determined immediately after each transaction or each repayment of the principal
amount of the Partnership Note. If at any time of determination the Value of
such Retained Assets pledged or so subject to restriction exceeds the
outstanding principal amount of the Partnership Note, such excess Retained
Assets shall be released from the foregoing restriction. The Managing General
Partner may select which of such assets will be released. Assets other than
Retained Assets may be distributed or sold by the Managing General Partner at
any time. The Pledged Stock may be sold by Triarc at any time in an arms-length
transaction to an unrelated independent third party provided that (i) the
consideration received therefor is at least equal to the fair market value of
the interest so transferred, is in the form of Permitted Consideration (as
defined in the Partnership Note) and is pledged to secure the Partnership Note
(to the extent the Value of such consideration does not exceed the then
principal amount of the Partnership Note), (ii) if such sale is of less than all
of the Pledged Stock, the remaining Pledged Stock constitutes at least a
majority of the voting common stock of the Managing General Partner then
outstanding or the Operating Partnership then has a security interest in any
combination of cash or Cash Equivalents with a Value equal to or greater than
the then outstanding principal amount of the Partnership Note and (iii) if an
Event of Default shall have occurred and be continuing, the Value of the net
after tax proceeds received upon such sale is at least equal to the outstanding
principal amount of the Partnership Note. The Partnership Note contains a
covenant of Triarc that, in the event of the merger or consolidation of the
Managing General Partner with and into Triarc (the 'Triarc Merger'), Triarc will
concurrently therewith pledge as security for the Partnership Loan a similar
amount of Retained Assets. In connection with the Spinoff Transactions it is
expected that the Managing General Partner may be merged with and into Triarc.
See 'Certain Information Regarding Triarc.'
If an Event of Default exists with respect to the Partnership Note, the
Partnership may accelerate the maturity of the Partnership Note and exercise
other rights and remedies. In the case of an Event of Default referred to in (k)
below, the acceleration of the maturity of the Partnership Note will occur
automatically. Events of Default include (a) failure to pay any principal or
premium when due, or interest within five business days of when due, on the
Partnership Note; (b) payment default under (after giving effect to any
applicable grace periods or any extension of any maturity date), or the
acceleration of the maturity of, any indebtedness of Triarc or any guarantee by
Triarc of any indebtedness of any subsidiary, if the principal amount of such
indebtedness or guarantee, together with the principal amount of all other such
indebtedness and guarantees with respect to which a payment default (after the
expiration of any applicable grace period or any extension of the maturity date)
has occurred, or the maturity of which has been so accelerated, exceeds $20
million in the aggregate; (c) failure by Triarc to comply in any material
respect with any of its covenants or agreements contained in the Partnership
Note for a period of 30 days after notice thereof; (d) certain unsatisfied final
judgments in excess of $5 million; (e) the failure of the pledge by Triarc of
its shares in the Managing General Partner to be in full force and effect; (f)
the issuance by the Managing General Partner of any shares of its capital stock
except as permitted above; (g) the transfer by SEPSCO of any of its shares in
the Managing General Partner except as permitted above; (h) the incurrence by
the Managing General Partner of any indebtedness for borrowed money at any time
that the Partnership does not have a security interest in the requisite Retained
Assets; (i) the sale by the Managing General Partner of any of its Subordinated
Units (or Common Units issued upon conversion thereof) unless immediately after
giving effect thereto the Managing General Partner will hold the requisite
amount of Retained Assets; (j) the failure of Triarc to pledge concurrently with
the Triarc Merger as security for the Partnership Note the requisite amount of
the Retained Assets, except as permitted above; and (k) various bankruptcy or
insolvency events involving Triarc. If an Event of Default were to occur under
the Partnership Note and the Partnership accelerated the maturity of the
Partnership Note (or such acceleration occurred automatically in the case of an
Event of Default referred to in clause (k) above), all amounts outstanding
thereunder would become due. In such event, there could be no assurance that
Triarc would be able to satisfy its obligations under the Partnership Note or
that the Operating Partnership would be able to recover any amounts owed by
Triarc by foreclosing on, or otherwise exercising its remedies with respect to,
the capital stock of the Managing General Partner or any other assets of Triarc
securing the Partnership Loan. The Operating Partnership is prohibited from
foreclosing on and owning the capital stock of the Managing General Partner at
any time that the Managing
60
General Partner continues to own its General Partner Interest but its permitted
assignee may do so. Triarc shall, if requested by the Operating Partnership, use
its best efforts to cause the Managing General Partner to transfer its General
Partner Interest to a third party immediately prior to any foreclosure by the
Operating Partnership. The failure by Triarc to repay the Partnership Loan would
have a material adverse effect on the financial condition of the Partnership and
on the ability the Partnership to make any distributions to Unitholders.
Triarc's obligations under the Partnership Note may, under certain
circumstances, be assigned to and assumed by any Qualified Transferee (as
defined in the Partnership Note) that has a consolidated net worth at least
equal to the greater of (i) Triarc's consolidated net worth at such time and
(ii) $43 million and that acquires the Managing General Partner, the Partnership
or the Operating Partnership (whether by merger, consolidation, acquisition of
stock or assets or otherwise). The Partnership Note may not be assigned by the
Operating Partnership without Triarc's consent, except that the Partnership Note
has been assigned by the Operating Partnership as security for its obligations
under the First Mortgage Notes and the Bank Credit Facility. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Description of Indebtedness.'
CERTAIN INFORMATION REGARDING TRIARC
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT.
SEE 'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 4 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
Triarc is a holding company which, through its subsidiaries, is engaged in
four businesses: beverages, restaurants, specialty chemicals and dyes and
propane distribution. The beverage operations are conducted through Royal Crown
Company, Inc. ('Royal Crown') and Mistic Brands, Inc. ('Mistic'); the restaurant
operations are conducted through Arby's, Inc. ('Arby's'); the specialty
chemicals and dyes business is conducted through C.H. Patrick & Co., Inc. ('C.H.
Patrick'); and the propane distribution operations are conducted through
National Propane.
On October 29, 1996, Triarc announced that its Board of Directors approved
a plan to offer up to approximately 20% of the shares of its beverage and
restaurant businesses to the public through an initial public offering and to
spinoff the remainder of the shares of such businesses to Triarc's stockholders
(collectively, the 'Spinoff Transactions'). In connection with the Spinoff
Transactions, it is expected that the Managing General Partner may be merged
with and into Triarc, with Triarc becoming the managing general partner and the
Special General Partner remaining the special general partner of the Partnership
and the Operating Partnership. For additional information regarding certain of
the effects of such merger, see 'Cash Distribution Policy -- Partnership Loan',
'The Partnership Agreement -- Special General Partner', and ' -- Transfer of
General Partners' Interests and Right to Receive Incentive Distributions and
Conversion of Units Held by the Managing General Partner into Limited Partner
Interests.' Consummation of the Spinoff Transactions will be subject to, among
other things, receipt of a favorable ruling from the IRS that the Spinoff
Transactions will be tax-free to Triarc and its stockholders. The request for
the ruling from the IRS contains several complex issues and there can be no
assurance that Triarc will receive the ruling or that Triarc will consummate the
Spinoff Transactions. The Spinoff Transactions are not expected to occur prior
to the end of the second quarter of 1997.
A registration statement has not been filed with the Securities and
Exchange Commission with respect to the proposed offering of common stock of
Triarc's restaurant and beverage businesses. The offering of common stock will
be made only by means of a prospectus. The common stock may not be sold, nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. The registration statement of which this Prospectus is a part does
not constitute an offer to sell or the solicitation of an offer to buy such
common stock, nor will there be any sale of the common stock in any state in
which such an offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
The following are the historical unaudited parent company only (i)
condensed balance sheet of Triarc as of September 30, 1996 and (ii) condensed
statements of operations and cash flows of Triarc for the three years ended
April 30, 1991, 1992 and 1993, the eight months ended December 31, 1993, the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996. Such statements reflect only the assets and liabilities, results of
operations and cash flows of Triarc and do not reflect the individual assets and
liabilities, results of operations and cash flows of its subsidiaries which are
shown on the equity method.
61
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
ASSETS
Cash and cash equivalents............................................................................. $140,692
Marketable securities................................................................................. 39,738
Due from subsidiaries................................................................................. 27,098
Prepaid expenses and other current assets............................................................. 8,213
--------
Total current assets............................................................................. 215,741
Notes receivable from subsidiaries.................................................................... 21,967
Investments and other assets.......................................................................... 11,656
--------
$249,364
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand promissory note................................................................................ $ 3,000
Due to subsidiaries................................................................................... 13,605
Accounts payable and accrued expenses................................................................. 45,561
--------
Total current liabilities........................................................................ 62,166
Triarc loan payable to the Partnership................................................................ 40,700
Triarc note payable to the Managing General Partner................................................... 30,000
Other note payable to subsidiary...................................................................... 1,650
Deferred income taxes................................................................................. 19,225
Accumulated reductions in stockholders' equity of subsidiaries in excess of investment(a)............. 33,262
Other non-current liabilities......................................................................... 637
Stockholders' equity.................................................................................. 61,724
--------
$249,364
--------
--------
- ------------
(a) The 'Accumulated reductions in stockholders' equity of subsidiaries in
excess of investment' includes all of Triarc's direct and indirect owned
subsidiaries. As such, it includes investments in numerous holding
companies, inactive companies and smaller operating companies, as well as
its principal operating subsidiaries, Royal Crown, Mistic, Arby's, National
Propane and C.H. Patrick as detailed above. The investment in subsidiaries
has a negative balance as a result of aggregate distributions from
subsidiaries and forgiveness of Triarc debt to subsidiaries in excess of
the investment in the subsidiaries.
62
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, EIGHT MONTHS
-------------------------------- ENDED DECEMBER
1991 1992 1993 31, 1993
-------- -------- -------- ---------------
(IN THOUSANDS)
Income and (expenses):
Equity in (losses) income from continuing operations
of subsidiaries..................................... $ (129) $ 12,196 $(15,634) $ 465
Gain on sale of partnership units in the propane
business............................................ -- -- -- --
Interest expense...................................... (22,973) (22,751) (24,858) (18,992)
Unallocated general and administrative expenses....... (2,540) (2,961) (4,050) (8,622)
Facilities relocation and corporate restructuring..... -- -- (7,200) --
Recovery of (provision for) doubtful accounts from
affiliates and former affiliates.................... (9,554) (9,221) (3,311) --
Cost of a proposed acquisition not consummated........ -- -- -- --
Shareholder litigation and other expenses............. 2,165 (2,004) (7,025) (6,424)
Settlements with former affiliates.................... 2,871 -- 8,900 --
Other income (expense)................................ 1,248 813 517 (650)
-------- -------- -------- ---------------
Income (loss) from continuing operations before
income taxes.................................... (28,912) (23,928) (52,661) (34,223)
Benefit from (provision for) income taxes................. 11,411 13,721 8,112 3,784
-------- -------- -------- ---------------
Income (loss) from continuing operations.......... (17,501) (10,207) (44,549) (30,439)
Equity in losses of discontinued operations of
subsidiaries............................................ (55) 2,705 (2,430) (8,591)
Extraordinary gain (charge) from:
Triarc Companies, Inc................................. -- -- -- --
Equity in subsidiaries................................ 703 -- (6,611) (448)
-------- -------- -------- ---------------
703 -- (6,611) (448)
-------- -------- -------- ---------------
Cumulative effect of changes in accounting principles
from:
Triarc Companies, Inc................................. -- -- (3,488) --
Equity in subsidiaries................................ -- -- (2,900) --
-------- -------- -------- ---------------
-- -- (6,338) --
-------- -------- -------- ---------------
Net income (loss)................................. (16,853) (7,502) (59,978) (39,478)
Preferred stock dividend requirements..................... (11) (11) (121) (3,889)
-------- -------- -------- ---------------
Net income (loss) applicable to common
stockholders.................................... $(16,864) $ (7,513) $(60,099) $ (43,367)
-------- -------- -------- ---------------
-------- -------- -------- ---------------
Income (loss) per share:
Continuing operations................................. $ (.68) $ (.39) $ (1.73) $ (1.62)
Discontinued operations............................... -- .10 (.09) (.40)
Extraordinary charges, net............................ .03 -- (.26) (.02)
Cumulative effect of changes in accounting
principles.......................................... -- -- (.25) --
-------- -------- -------- ---------------
Net income (loss)................................. $ (.65) $ (.29) $ (2.33) $ (2.04)
-------- -------- -------- ---------------
-------- -------- -------- ---------------
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- -------- -------------
Income and (expenses):
Equity in (losses) income from continuing operations
of subsidiaries..................................... $ 29,610 $(26,078) $ (3,301)
Gain on sale of partnership units in the propane
business............................................ -- -- 83,448
Interest expense...................................... (28,807) (15,794) (6,120)
Unallocated general and administrative expenses....... (6,660) (2,072) (843)
Facilities relocation and corporate restructuring..... (8,800) (2,700) --
Recovery of (provision for) doubtful accounts from
affiliates and former affiliates.................... -- 3,049 --
Cost of a proposed acquisition not consummated........ (5,480) -- --
Shareholder litigation and other expenses............. (500) (24) --
Settlements with former affiliates.................... -- -- --
Other income (expense)................................ 508 3,102 827
--------- -------- -------------
Income (loss) from continuing operations before
income taxes.................................... (20,129) (40,517) 74,011
Benefit from (provision for) income taxes................. 18,036 3,523 (28,477)
--------- -------- -------------
Income (loss) from continuing operations.......... (2,093) (36,994) 45,534
Equity in losses of discontinued operations of
subsidiaries............................................ (3,900) -- --
Extraordinary gain (charge) from:
Triarc Companies, Inc................................. -- -- 5,752
Equity in subsidiaries................................ (2,116) -- (11,168)
--------- -------- -------------
(2,116) -- (5,416)
--------- -------- -------------
Cumulative effect of changes in accounting principles
from:
Triarc Companies, Inc................................. -- -- --
Equity in subsidiaries................................ -- -- --
--------- -------- -------------
-- -- --
--------- -------- -------------
Net income (loss)................................. (8,109) (36,994) 40,118
Preferred stock dividend requirements..................... (5,833) -- --
--------- -------- -------------
Net income (loss) applicable to common
stockholders.................................... $ (13,942) $(36,994) $ 40,118
--------- -------- -------------
--------- -------- -------------
Income (loss) per share:
Continuing operations................................. $ (.34) $ (1.24) $ 1.52
Discontinued operations............................... (.17) -- --
Extraordinary charges, net............................ (.09) -- (.18)
Cumulative effect of changes in accounting
principles.......................................... -- -- --
--------- -------- -------------
Net income (loss)................................. $ (.60) $ (1.24) $ 1.34
--------- -------- -------------
--------- -------- -------------
63
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, EIGHT MONTHS
-------------------------------- ENDED DECEMBER
1991 1992 1993 31, 1993
-------- -------- -------- ---------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)..................................... $(16,853) $ (7,502) $(59,978) $ (39,478)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in net losses (income) of subsidiaries..... (519) (14,901) 27,575 8,574
Gain on sale of partnership units in the propane
business........................................ -- -- -- --
Discount from principal on early extinguishment of
debt............................................ -- -- -- --
Dividends from subsidiaries....................... 4,763 1,080 3,127 --
Depreciation and amortization..................... 1,246 1,248 1,248 1,371
Provision for facilities relocation and corporate
restructuring................................... -- -- 7,200 --
Payments of facilities relocation and corporate
restructuring................................... -- -- (258) (2,970)
Provision for cost of a proposed acquisition not
consummated in excess of payments............... -- -- -- --
Interest capitalized and not paid................. -- -- -- --
Reduction in commuted insurance liabilities
credited against notes payable.................. -- -- -- --
Change in due from/to subsidiaries and other
affiliates including capitalized interest
($21,017 in 1994 and $9,569 in 1995)............ 4,157 3,674 (15,214) 18,121
Deferred income tax provision (benefit)........... 603 (5,130) (2,199) 5,591
Provision for doubtful accounts from former
affiliates...................................... 9,554 9,221 3,311 --
Cumulative effect of change in accounting
principle....................................... -- -- 3,488 --
Other, net........................................ 737 424 6,848 449
Decrease (increase) in receivables(a)............. -- -- -- --
Decrease (increase) in restricted cash(a)......... -- -- -- (2,422)
Decrease (increase) in prepaid expenses and other
current assets.................................. (1,288) 9,197 (1,156) 598
Increase (decrease) in accounts payable and
accrued expenses................................ (1,909) 2,182 5,824 (376)
-------- -------- -------- ---------------
Net cash provided by (used in) operating
activities.................................. 491 (507) (20,184) (10,542)
-------- -------- -------- ---------------
Cash flows from investing activities:
Business acquisitions................................. -- -- -- --
Loans to subsidiaries................................. -- -- -- --
Purchase of marketable securities..................... -- -- -- --
Investment in an affiliate............................ -- -- -- --
Capital contributed to a subsidiary................... -- -- -- --
Purchase of minority interests........................ -- -- (21,100) --
Other................................................. (18) (4) 2,079 (3,047)
-------- -------- -------- ---------------
Net cash used in investing activities......... (18) (4) (19,021) (3,047)
-------- -------- -------- ---------------
Cash flows from financing activities:
Issuance (repurchase) of Class A common stock......... -- -- 9,650 --
Payment of preferred dividends........................ (11) (11) (9) (2,557)
Repayment of long-term debt........................... -- (52) (20,907) --
Borrowings from subsidiaries.......................... -- -- 141,600 --
Repayment of notes and loans payable to
subsidiaries........................................ -- -- (57,115) --
Other................................................. -- -- (4,620) (1,056)
-------- -------- -------- ---------------
Net cash provided by (used in) financing
activities.................................. (11) (63) 68,599 (3,613)
-------- -------- -------- ---------------
Net increase (decrease) in cash and cash equivalents...... 462 (574) 29,394 (17,202)
Cash and cash equivalents at beginning of period.......... 238 700 126 29,520
-------- -------- -------- ---------------
Cash and cash equivalents at end of period................ $ 700 $ 126 $ 29,520 $ 12,318
-------- -------- -------- ---------------
-------- -------- -------- ---------------
YEAR ENDED DECEMBER NINE MONTHS
31, ENDED
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- -------- -------------
Cash flows from operating activities:
Net income (loss)..................................... $ (8,109) $(36,994) $ 40,118
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in net losses (income) of subsidiaries..... (23,594) 26,078 14,469
Gain on sale of partnership units in the propane
business........................................ -- -- (83,447)
Discount from principal on early extinguishment of
debt............................................ -- -- (9,237)
Dividends from subsidiaries....................... 40,000 22,721 126,059
Depreciation and amortization..................... 2,573 3,626 --
Provision for facilities relocation and corporate
restructuring................................... 8,800 2,700 --
Payments of facilities relocation and corporate
restructuring................................... (5,136) (3,278) (2,502)
Provision for cost of a proposed acquisition not
consummated in excess of payments............... 1,475 -- --
Interest capitalized and not paid................. 3,247 3,271 --
Reduction in commuted insurance liabilities
credited against notes payable.................. -- (3,000) (3,000)
Change in due from/to subsidiaries and other
affiliates including capitalized interest
($21,017 in 1994 and $9,569 in 1995)............ 33,034 1,332 5,317
Deferred income tax provision (benefit)........... (2,899) (382) 32,689
Provision for doubtful accounts from former,
affiliates...................................... -- -- --
Cumulative effect of change in accounting
principle....................................... -- -- --
Other, net........................................ (1,968) 489 726
Decrease (increase) in receivables(a)............. (649) (4,715) 4,234
Decrease (increase) in restricted cash(a)......... (498) (22,887) 22,926
Decrease (increase) in prepaid expenses and other
current assets.................................. 2,399 (214) 62
Increase (decrease) in accounts payable and
accrued expenses................................ (18,249) 4,522 20,502
--------- -------- -------------
Net cash provided by (used in) operating
activities.................................. 30,426 (6,731) 168,916
--------- -------- -------------
Cash flows from investing activities:
Business acquisitions................................. -- (29,240) --
Loans to subsidiaries................................. -- (18,375) (3,590)
Purchase of marketable securities..................... -- -- (38,301)
Investment in an affiliate............................ -- (5,340) --
Capital contributed to a subsidiary................... -- (8,865) --
Purchase of minority interests........................ -- -- --
Other................................................. (83) (57) (1,695)
--------- -------- -------------
Net cash used in investing activities......... (83) (61,877) (43,586)
--------- -------- -------------
Cash flows from financing activities:
Issuance (repurchase) of Class A common stock......... (344) (1,170) --
Payment of preferred dividends........................ (5,833) -- --
Repayment of long-term debt........................... -- -- (27,250)
Borrowings from subsidiaries.......................... -- 45,900 40,700
Repayment of notes and loans payable to
subsidiaries........................................ -- -- (10,100)
Other................................................. -- (56) (538)
--------- -------- -------------
Net cash provided by (used in) financing
activities.................................. (6,177) 44,674 2,812
--------- -------- -------------
Net increase (decrease) in cash and cash equivalents...... 24,166 (23,934) 128,142
Cash and cash equivalents at beginning of period.......... 12,318 36,484 12,550
--------- -------- -------------
Cash and cash equivalents at end of period................ $ 36,484 $ 12,550 $ 140,692
--------- -------- -------------
--------- -------- -------------
- ------------
(a) Included in 'Prepaid expenses and other current assets' on the accompanying
parent company only condensed balance sheet as of September 30, 1996.
64
Because Triarc is a holding company, its ability to meet its cash
requirements (including required interest and principal payments on the
Partnership Loan) is primarily dependent upon its cash on hand and marketable
securities (approximately $177.0 million as of November 30, 1996) and cash flows
from its subsidiaries including loans and cash dividends and reimbursement by
subsidiaries to Triarc in connection with its providing certain management
services and payments by subsidiaries under certain tax sharing agreements. In
connection with the Spinoff Transactions it is expected that Triarc will retain
all or substantially all of its cash on hand and marketable securities. Upon
completion of the Spinoff Transactions, however, it is expected that Triarc will
no longer be entitled to receive cash dividends or tax sharing payments
(relating to the period subsequent to the Spinoff Transactions) from its
restaurant and beverage businesses. It is anticipated that Triarc may enter
into a management and administrative services agreement with the businesses that
are spun-off.
Under the terms of various indentures and credit arrangements, Triarc's
principal subsidiaries are currently unable to pay any dividends or make any
loans or advances to Triarc. While there are no restrictions applicable to the
Managing General Partner, the Managing General Partner is dependent upon cash
flows from the Partnership to pay dividends. Such cash flows are principally
quarterly distributions (approximately $2.6 million was paid to the General
Partners on November 14, 1996) from the Partnership on the Subordinated Units
and the unsubordinated General Partner Interests. The stock of Triarc's
principal subsidiaries and substantially all of the assets of such subsidiaries
are pledged as security for indebtedness under the various debt agreements of
Triarc's subsidiaries. As of September 30, 1996, Triarc had outstanding external
indebtedness consisting of a $3.0 million note payable on demand (which bears
interest at 1%) (the 'Demand Note') and guarantees of external indebtedness of
its subsidiaries in the aggregate principal amount of $128.1 million. Triarc
expects to be required to repay the $3.0 million under the Demand Note during
1997. In addition, at September 30, 1996, Triarc owed intercompany indebtedness
of $72.4 million consisting of the $40.7 million Partnership Loan (which bears
interest at 13.5%), a $30.0 million demand note payable to the Managing General
Partner (which bears interest at 13.5%) and a $1.7 million demand note to a
subsidiary of RC/Arby's Corporation ('RCAC') (which bears interest at 11.875%).
Such intercompany indebtedness, absent any requirements for payment on the
aforementioned demand notes, requires no principal payments during the remainder
of 1997. In connection with the Spinoff Transactions, it is expected that the
$1.7 million note would be repaid or forgiven. In addition, of the $128.1
million of guarantees of debt of Triarc's subsidiaries, $92.6 million relates to
businesses to be spun-off. In connection with the Spinoff Transactions, Triarc
expects that it would be relieved of its obligations under such guarantees or be
indemnified by such businesses for amounts paid by it thereunder.
As of September 30, 1996 Triarc had notes receivable from RCAC and its
subsidiaries in the aggregate amount of $22.0 million of which $15.3 million is
due on demand and $6.7 million is due in 1998 and which bear interest at a rate
of 11 7/8%. It is expected that this indebtedness would be repaid or forgiven in
connection with the Spinoff Transactions.
Triarc's significant cash requirements for the fourth quarter of 1996 and
1997, in addition to interest payments on the Partnership Loan, are expected to
be limited to (i) general corporate expenses including cash used in operations,
(ii) principal payments required on the Demand Note and on intercompany
indebtedness (if any) as discussed above, (iii) capital expenditures estimated
to be approximately $3.0 million, (iv) up to $3.8 million of advances to
affiliates under loan agreements and (v) loans to RCAC as necessary. There can
be no assurances, however, that Triarc will not have significant additional cash
requirements in the future that could have a material adverse effect on its
ability to make required payments of principal and interest on the Partnership
Loan.
Triarc anticipates meeting its significant cash requirements through its
cash on hand and marketable securities (approximately $177.0 million as of
November 30, 1996), dividends or advances from the Managing General Partner and
the Special General Partner (whose ability to pay is dependent upon cash flows
from the Partnership), reimbursement of general corporate expenses from
subsidiaries in connection with management services agreements to the extent
such subsidiaries are able to pay and net payments received under tax sharing
agreements with certain subsidiaries which Triarc may not have to fully remit to
the IRS. However, there can be no assurances that Triarc's sources of cash will
be
65
sufficient to enable Triarc to meet its cash requirements, including its
obligations to make payments of principal and interest on the Partnership Loan.
As a result of the consummation of the Transactions, payments received
under tax sharing agreements and the reimbursement of general corporate expenses
by National Propane have been limited. See 'The Partnership
Agreement -- Reimbursement for Services.' As a result of the April 1996 sale of
the textile business portion of its textile segment (the 'Graniteville Sale'),
Triarc's textile business no longer makes any payments under the tax sharing
agreement with Triarc or reimburses Triarc for general corporate expenses.
Triarc expects to compensate for such lower cash availability from its
subsidiaries through additional cash on hand and marketable securities of
approximately $177.0 million as of November 30, 1996.
The Federal income tax returns of Triarc and its subsidiaries have been
examined by the IRS for the tax years 1985 through 1988. Triarc and its
subsidiaries have resolved all issues related to such audit and in connection
therewith paid approximately $1.0 million through December 1996 and expects to
pay approximately $2.5 million in the first quarter of 1997 in final settlement
of such examination. The IRS is currently finalizing its examination of the
Federal income tax returns of Triarc and its subsidiaries for the tax years from
1989 through 1992 and has issued notices of proposed adjustments increasing
Triarc's taxable income by approximately $140.0 million, the tax effect of which
has not yet been determined. Triarc is contesting the majority of the proposed
adjustments and, accordingly, the amount and timing of any payments required as
a result thereof cannot presently be determined. No tax payments with respect to
such years were required in 1996.
As a result of payments to Triarc in connection with the consummation of
the Transactions and certain other transactions, Triarc's liquidity has improved
significantly since November 1994, when National Propane reclassified an
existing intercompany note from Triarc as a component of stockholders' equity
because it determined, based upon circumstances at such time, that Triarc's
liquidity position was insufficient to enable Triarc to repay the note. The
factors present that resulted in that determination included (i) the reduction
of Triarc's consolidated cash to approximately $47.0 million at September 30,
1994 from approximately $119.0 million at December 31, 1993 and (ii) a pending
acquisition transaction which, if completed, would have required the utilization
of a significant amount of Triarc's available cash.
There can be no assurance that Triarc will continue to have cash on hand or
will in the future receive sufficient distributions from its subsidiaries in
order to enable it to satisfy its obligations under the Partnership Loan. The
failure of Triarc to make payments of principal and interest on the Partnership
Loan when due would have an adverse effect on the ability of the Partnership to
make any distributions to Unitholders. Furthermore, as a result of the holding
company structure of Triarc, creditors of Triarc, including the Partnership as
the holder of the Partnership Note, will effectively rank junior to all
creditors of Triarc's other subsidiaries. In the event of the dissolution,
bankruptcy, liquidation or reorganization of such subsidiaries, the Partnership
as the holder of the Partnership Note would not receive any amounts in respect
thereof until after the payment in full of the creditors of such subsidiaries.
As of September 30, 1996, the aggregate amount of indebtedness of Triarc and its
subsidiaries to which the Partnership as the holder of the Partnership Note
would be effectively subordinated would have been approximately $585.8 million.
The failure by Triarc to repay the Partnership Loan would have a material
adverse effect on the financial condition of the Partnership.
Triarc is a public company and its Class A Common Stock is listed on the
New York Stock Exchange under the symbol 'TRY.' Triarc's principal executive
offices are located at 280 Park Avenue, New York, New York 10017 and its
telephone number is (212) 451-3000. Certain reports, proxy statements and other
information filed by Triarc with the Commission can be obtained from Triarc upon
request at no cost and can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such documents can also be
inspected at the office of the NYSE, 20 Broad Street, New York, New York 10005.
66
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
In connection with the Conveyance, the Partnership became the successor to
the businesses of National Propane. Because the Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership as the successor
to the continuing businesses of National Propane. For purposes only of (i) the
'Summary Historical and Pro Forma Consolidated Financial and Operating Data',
(ii) the following table and the footnotes thereto, (iii) 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
(iv) the condensed consolidated financial statements and notes thereto, the
entity representative of both the operations of (1) National Propane prior to
the Conveyance and the Transactions and (2) the Partnership subsequent to the
Conveyance and the Transactions, is referred to as 'National'.
The following table presents selected consolidated financial data of
National for each of the years in the two-year period ended April 30, 1993, the
ten-month transition period ended December 31, 1993, each of the years in the
two-year period ended December 31, 1995 and the nine-month periods ended
September 30, 1995 and 1996. The selected consolidated statement of operations
data for the ten-month transition period ended December 31, 1993 and for the two
years ended December 31, 1994 and 1995 and the selected consolidated balance
sheet data as of December 31, 1994 and 1995 have been derived from the financial
statements included elsewhere herein, which financial statements have been
audited by Deloitte & Touche LLP, independent auditors (whose report makes
reference to the report of other auditors), contained elsewhere herein. The
selected consolidated statement of operations data for each of the years in the
two-year period ended April 30, 1993 and the nine-month periods ended September
30, 1995 and 1996 and the selected consolidated balance sheet data as of April
30, 1992 and 1993, December 31, 1993 and September 30, 1996 have been derived
from National's unaudited consolidated financial statements which reflect, in
the opinion of National's management, all adjustments necessary to present
fairly the data for such periods. Due to the seasonal nature of the National's
business, the interim results of operations are not indicative of results to be
expected for full years. The following table also presents unaudited selected
pro forma consolidated financial data of National for the year ended December
31, 1995 and as of and for the nine months ended September 30, 1996 reflecting
the IPO, additional Transactions and the Private Placement as if they had been
consummated as of January 1, 1995 with respect to statement of operations data
and as of September 30, 1996 with respect to balance sheet data. The unaudited
selected pro forma consolidated financial data is not necessarily indicative of
the financial position or the results of operations of National had the IPO,
additional Transactions and the Private Placement been consummated on the dates
indicated or of the future results of operations of National. The data for all
of the periods presented below have been restated to reflect the effects of the
June 1995 merger of Public Gas with and into National which is further described
in Note 3 to the accompanying consolidated financial statements. National's
selected historical and pro forma consolidated financial and operating data
should be read in conjunction with the consolidated financial statements and
notes thereto, the pro forma consolidated financial statements and notes thereto
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere herein.
67
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA--(CONTINUED)
HISTORICAL PRO FORMA(B)
------------------------------------------------------------- ------------
FISCAL YEAR ENDED TEN MONTHS
APRIL 30, ENDED YEAR ENDED DECEMBER 31,
--------------------- DECEMBER 31, -------------------------------------
1992 1993 1993(A) 1994 1995
-------- -------- ------------ -------- -----------------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues....................... $144,667 $151,931 $119,249 $151,651 $148,983 $148,983
Cost of sales............................ 109,329 117,366 92,301 109,683 109,059 109,059
-------- -------- ------------ -------- -------- ------------
Gross profit............................. 35,338 34,565 26,948 41,968 39,924 39,924
Selling, general and administrative
expenses (other than management fees
charged by parents).................... 16,776 19,578 16,501 18,657 22,423 23,923
Management fees charged by parents(c).... 3,271 2,328 3,485 4,561 3,000 --
Facilities relocation and corporate
restructuring.......................... -- 7,647(d) 8,429(d) -- -- --
-------- -------- ------------ -------- -------- ------------
Operating profit (loss).................. 15,291 5,012(d) (1,467)(d) 18,750 14,501 16,001
-------- -------- ------------ -------- -------- ------------
Interest expense......................... (17,696) (16,770) (9,949) (9,726) (11,719) (11,550)
Interest income from Triarc(e)........... 16,334 17,127 10,360 9,751 -- 5,500
Other income, net........................ 1,699 131 1,727 1,169 904 904
-------- -------- ------------ -------- -------- ------------
337 488 2,138 1,194 (10,815) (5,146)
-------- -------- ------------ -------- -------- ------------
Income before income taxes, extraordinary
charge and cumulative effect of change
in accounting principles............... 15,628 5,500 671 19,944 3,686 10,855
Provision for (benefit from) income
taxes.................................. 5,833 2,624 1,018 7,923 4,291 200
-------- -------- ------------ -------- -------- ------------
Income (loss) before extraordinary charge
and cumulative effect of change in
accounting principles.................. 9,795 2,876 (347) 12,021 (605) 10,655
Extraordinary charge..................... -- -- -- (2,116)(f) -- --
Cumulative effect of change in accounting
principles............................. -- 6,259(g) -- -- -- --
-------- -------- ------------ -------- -------- ------------
Net income (loss)........................ $ 9,795 $ 9,135 $ (347) $ 9,905 $ (605) $ 10,655
-------- -------- ------------ -------- -------- ------------
-------- -------- ------------ -------- -------- ------------
Income before extraordinary charge per
Unit(h)................................ $0.91
------------
------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)................ $(24,469)(i) $ 13,163 $ 5,479 $ (631) $ (4,357)
Due from Triarc(e)....................... 92,804 65,999 71,172 -- --
Total assets............................. 234,699 218,095 191,955 137,581 139,112
Long-term debt........................... 78,556 67,511 51,851 98,711 124,266
Stockholders' equity (deficit)(e)........ 81,666 88,063 88,971 (19,502) (48,600)
Partners' capital........................ -- -- -- -- --
OPERATING DATA:
EBITDA(j)................................ $ 23,670 $ 13,087 $ 5,483 $ 28,774 $ 25,146 $ 26,646
Capital expenditures(k).................. 7,039 8,290 11,260 12,593 11,013 11,013
Retail propane gallons sold(l)........... 145,708 154,839 117,415 152,335 150,141 150,141
PRO FORMA(B)
------------
NINE MONTHS
ENDED SEPTEMBER
------------------------------------
1995 1996
--------- ------------------------
STATEMENT OF OPERATIONS DATA:
Operating revenues....................... $102,461 $116,018 $116,018
Cost of sales............................ 77,541 89,097 89,097
--------- --------- ------------
Gross profit............................. 24,920 26,921 26,921
Selling, general and administrative
expenses (other than management fees
charged by parents).................... 15,506 17,009 17,759
Management fees charged by parents(c).... 2,250 1,500 --
Facilities relocation and corporate
restructuring.......................... -- -- --
--------- --------- ------------
Operating profit (loss).................. 7,164 8,412 9,162
--------- --------- ------------
Interest expense......................... (8,731 ) (9,067 ) (8,494)
Interest income from Triarc(e)........... -- 1,370 4,120
Other income, net........................ 698 662 662
--------- --------- ------------
(8,033 ) (7,035 ) (3,712)
--------- --------- ------------
Income before income taxes, extraordinary
charge and cumulative effect of change
in accounting principles............... (869 ) 1,377 5,450
Provision for (benefit from) income
taxes.................................. (264 ) 1,922 150
--------- --------- ------------
Income (loss) before extraordinary charge
and cumulative effect of change in
accounting principles.................. (605 ) (545 ) $ 5,300
------------
------------
Extraordinary charge..................... -- (2,631 )(f)
Cumulative effect of change in accounting
principles............................. -- --
--------- ---------
Net income (loss)........................ $ (605 ) $ (3,176 )
--------- ---------
--------- ---------
Income before extraordinary charge per
Unit(h)................................ $0.45
------------
------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)................ $ 11,883 $ 19,250
Due from Triarc(e)....................... 40,700 40,700
Total assets............................. 175,675 183,042
Long-term debt........................... 126,968 126,968
Stockholders' equity (deficit)(e)........ -- --
Partners' capital........................ 26,542 33,909
OPERATING DATA:
EBITDA(j)................................ $ 13,852 16,711 $ 17,461
Capital expenditures(k).................. 6,933 5,553 5,553
Retail propane gallons sold(l)........... 101,809 110,616 110,616
- ------------
(a) In October 1993 National's fiscal year ended April 30 and Public Gas'
fiscal year ended February 28 were changed to a calendar year ended
December 31. In order to conform the reporting periods of the combined
entities and to select a period deemed to meet the Securities and Exchange
Commission requirement for filing financial statements for a period of one
year, the ten-month period ended December 31, 1993 ('Transition 1993') has
been presented above and in the accompanying consolidated financial
statements. The selected consolidated financial and operating data as of
and for the fiscal years ended April 30, 1992 and 1993 ('Fiscal 1993'),
however, reflect the former year-ends of both National and Public Gas.
Accordingly, Fiscal 1993 and Transition 1993 each include the results of
National for the two-month period ended April 30, 1993 as follows:
Operating revenues -- $28,266; Operating loss -- $(5,190); Net
loss -- $(3,375) (see Note (d) below).
(b) For a description of the adjustments and assumptions used in preparing the
Unaudited Pro Forma Condensed Consolidated Financial and Operating Data,
see Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
and Statement of Operations included elsewhere herein.
(c) Management fees charged by parents include costs charged to National by
Triarc and to Public Gas by SEPSCO, its parent prior to the Merger. (See
Note 19 to the accompanying consolidated financial statements for further
discussion).
(d) Includes certain significant pretax charges recorded in April 1993
affecting Fiscal 1993 and Transition 1993 operating profit consisting of
(i) $8.4 million of facilities relocation and corporate restructuring
charges ($7.6 million of which affected both Fiscal 1993 and Transition
1993 due to National's April 1993 being included in both periods and $0.8
million of which affected only Transition 1993) and (ii) $0.5 million of
allocated costs of a payment to the Special Committee of Triarc's Board of
Directors ($0.4 million of which affected both Fiscal 1993 and Transition
1993). (See Note 20 to the accompanying consolidated financial statements).
(e) In November, 1994, National reclassified its receivable from Triarc as a
component of stockholders' equity and began reserving all interest accrued
subsequent thereto. Receivables from SEPSCO are classified as a component
of
(see footnotes on next page)
68
(footnotes from preceding page)
stockholders' equity for all of the above periods. (See Note 13 to the
accompanying consolidated financial statements).
(f) The extraordinary charges primarily represent the write-off of unamortized
deferred financing costs and original issue discount (in the 1994 period),
net of income taxes, associated with the early extinguishment of debt.
(g) The cumulative effect of change in accounting principles resulted from
National's adoption of SFAS No. 109 effective May 1, 1992.
(h) See Note (f) of Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations included elsewhere herein for details relating to
the calculation of net income per Unit.
(i) Reflects the classification of $35.0 million of long-term debt, which was
repaid in Fiscal 1993, as a current liability.
(j) EBITDA is defined as operating profit (loss) plus depreciation and
amortization (excluding amortization of deferred financing costs). EBITDA
should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure
of liquidity or ability to service debt obligations) and is not a measure
of performance or financial condition under generally accepted accounting
principles, but provides additional information for evaluating National's
ability to distribute the Minimum Quarterly Distribution. Cash flows in
accordance with generally accepted accounting principles consist of cash
flows from (i) operating, (ii) investing and (iii) financing activities.
Cash flows from operating activities reflect net income (loss) (including
charges for interest and income taxes not reflected in EBITDA), adjusted
for (i) all non-cash charges or income (including, but not limited to,
depreciation and amortization) and (ii) changes in operating assets and
liabilities (not reflected in EBITDA). Further, cash flows from investing
and financing activities are not included in EBITDA. For a discussion of
National's operating performance and cash flows provided by (used in)
operating, investing and financing activities, see 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
(k) National's capital expenditures, including capital leases, fall generally
into three categories: (i) maintenance capital expenditures, which include
expenditures for replacement of property, plant and equipment, (ii) growth
capital expenditures for the expansion of existing operations, and (iii)
acquisition capital expenditures, which include expenditures related to the
acquisition of retail propane operations.
An analysis by category for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 is as follows:
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
------------------ ----------------
1994 1995 1995 1996
------- ------- ------ ------
(IN THOUSANDS)
Maintenance(1)........................................................... $ 4,228 $ 4,030 $3,670 $2,275
Growth................................................................... 3,672 4,936 3,104 2,722
Acquisition.............................................................. 4,693 2,047(2) 159 556
------- ------- ------ ------
Total............................................................... $12,593 $11,013 $6,933 $5,553
------- ------- ------ ------
------- ------- ------ ------
--------------------
(1) Includes expenditures not expected to occur on an annual basis as
follows: 1994 -- $1,790 (primarily computer hardware and systems
installation); 1995 -- $590 (primarily the purchase of an airplane).
(2) Includes $1,864 of assets purchased and contributed by Triarc (see
Note 19 to the accompanying consolidated financial statements).
(l) Retail propane gallons sold includes sales to (i) residential customers,
(ii) commercial and industrial customers, (iii) agricultural customers, and
(iv) dealers (located primarily in the Northeast) that resell propane to
residential and commercial customers.
69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT.
SEE 'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 4 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
In connection with the Conveyance, the Partnership became the successor to
the business of National Propane. Because the Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership as the successor
to the continuing businesses of National Propane. For purposes only of (i) the
'Summary Historical and Pro Forma Consolidated Financial and Operating Data,'
(ii) the 'Selected Historical and Pro Forma Consolidated Financial and Operating
Data,' (iii) this section and (iv) the condensed consolidated financial
statements and notes thereto, the entity representative of both the operation of
(1) National Propane prior to the Conveyance and the Transactions and (2) the
Partnership subsequent to the Conveyance and the Transactions, is referred to as
'National.'
GENERAL
National (referred to as the 'Company' in the audited consolidated
financial statements set forth elsewhere herein) is primarily engaged in (i) the
retail marketing of propane to residential customers, commercial and industrial
customers, agricultural customers and to dealers (located primarily in the
Northeast) that resell propane to residential and commercial customers, and (ii)
the retail marketing of propane-related supplies and equipment, including home
and commercial appliances. National believes it is the sixth largest retail
marketer of propane in terms of retail volume in the United States, supplying
approximately 250,000 active retail and wholesale customers in 25 states through
its 166 service centers. National's operations are concentrated in the Midwest,
Northeast, Southeast and Southwest regions of the United States.
National residential and commercial customers use propane primarily for
space heating, water heating, clothes drying and cooking. In the industrial
market propane is used as a motor fuel for over-the-road vehicles, forklifts and
stationary engines, to fire furnaces, as a cutting gas and in other process
applications. Agricultural customers use propane for tobacco curing, crop
drying, poultry brooding and weed control. Dealers re-market propane in small
quantities, primarily in cylinders, for residential and commercial uses.
The retail propane sales volumes are very dependent on weather conditions.
National sells approximately 66% of its retail volume during the first and
fourth quarters, which are the winter heating season. As a result, cash flow is
greatest during the first and fourth quarters as customers pay for their
purchases. Propane sales are also dependent on climatic conditions which may
affect agricultural regions. National believes that its exposure to regional
weather patterns is lessened because of the geographic diversity of its areas of
operations and through sales to commercial and industrial markets, which are not
as sensitive to variations in weather conditions.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. In addition, gross profit margins vary by geographical
region. Accordingly, profit margins could vary significantly from year to year
in a period of identical sales volumes.
National reports on a calendar year basis; accordingly its results are
affected by two different winter heating seasons: the end of the first year's
heating season, National's first fiscal quarter, and the beginning of the second
heating season, National's fourth fiscal quarter.
Profitability is also affected by the price and availability of propane.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets. National does not believe it is overly dependent on any one
supplier. National primarily buys propane on both one year contracts and the
spot market and generally does not enter into any fixed price take-or-pay
contracts. Furthermore, National purchases propane from a wide variety of
sources. In 1995 and in the first three quarters of 1996, no provider supplied
over 15% of National's propane needs.
70
Based on demand and weather conditions the price of propane can change
quickly over a short period of time; in most cases the increased cost of propane
is passed on to the customer. However, in cases where increases cannot be passed
on or when the price of propane escalates faster than the Partnership's ability
to raise customer prices, margins will be negatively affected. In the fourth
quarter of 1996, the price of propane was significantly higher than historical
levels. Between November 1, 1996 and December 31, 1996, the price of propane in
the spot market at Mont Belvieu, Texas, the largest storage facility in the
United States, averaged $0.5953 per gallon, with a high of $0.7050 per gallon on
December 16, 1996 and a low of $0.4875 per gallon on December 31, 1996. During
the 1995-96 winter season, from November 1, 1995 to March 31, 1996, the price of
propane at Mont Belvieu averaged $0.3672 per gallon, with a high of $0.5250 on
February 15, 1996 and a low $0.3037 on November 15, 1995. Between November 1,
1996 and December 31, 1996, the price of propane in the spot market at Conway,
Kansas averaged $0.7494 per gallon, with a high of $1.04 per gallon on December
16, 1996 and a low of $0.5100 per gallon on November 7, 1996. During the 1995-96
winter season, from November 1, 1995 to March 31, 1996, the price of propane at
Conway averaged $0.3713 per gallon, with a high of $0.4363 on February 15, 1996
and a low $0.3237 on November 15, 1995. The Partnership has to date purchased a
significant amount of its propane in the Conway, Kansas spot market. Although
the increased wholesale price of propane has increased the Partnership's
revenues for the fourth quarter of 1996, the Partnership was unable to fully
pass on the increased product cost to its customers resulting in a lower per
gallon profit margin. As a result, the Partnership expects that it will have
slightly lower operating income for the fourth quarter of 1996 compared to the
corresponding period of 1995.
The propane industry is very competitive. National competes against other
major propane companies as well as local marketers in most of its markets, with
the most competition in the Midwest United States. Propane also competes against
other energy sources, primarily natural gas, oil and electricity.
The following discussion compares the results of operations for the nine
months ended September 30, 1996 with the nine months ended September 30, 1995,
the year ended December 31, 1995 with the year ended December 31, 1994 and the
year ended December 31, 1994 with the twelve months ended December 31, 1993. All
of such periods reflect the effects of the June 1995 merger (the 'Merger') of
Public Gas Company with and into National. Because the Merger was a transfer of
assets and liabilities in exchange for shares among a controlled group of
companies, it has been accounted for in a manner similar to a pooling of
interests and, accordingly, all prior periods have been restated to reflect the
Merger.
RESULTS OF OPERATIONS
In connection with National's change in fiscal year end during 1993, as
described in Note 4 to the consolidated financial statements for the year ended
December 31, 1995 appearing elsewhere herein, National's audited financial
statements include the ten-month transition period ended December 31, 1993.
Solely for purposes of comparing the results of operations of National for 1994
with those of the comparable twelve-month period, the statement of operations
for the ten-month transition period ended December 31, 1993 has been combined
with the results of operations for the two-month period ended February 28, 1993
to form the combined unaudited twelve months ended December 31, 1993 which is
presented below along with the comparable amounts for the years ended December
31, 1994 and 1995 and the nine months ended September 30, 1995 and 1996:
71
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS YEAR ENDED NINE MONTHS
ENDED DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1993 1994 1995 1995 1996
------------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues........................................ $ 154,841 $151,651 $148,983 $102,461 $116,018
Costs and expenses:
Cost of sales.............................. 117,950 109,683 109,059 77,541 89,097
Selling, general and administrative
expenses................................. 18,881 18,657 22,423 15,506 17,009
Management fees charged by parents......... 4,242 4,561 3,000 2,250 1,500
Facilities relocation and corporate
restructuring............................ 8,429 -- -- -- --
------------- -------- -------- -------- --------
149,502 132,901 134,482 95,297 107,606
------------- -------- -------- -------- --------
Operating profit...................... 5,339 18,750 14,501 7,164 8,412
Other income (expense):
Interest expense........................... (12,737) (9,726) (11,719) (8,731) (9,067)
Interest income from Triarc................ 13,342 9,751 -- -- 1,370
Other income, net.......................... 1,408 1,169 904 698 662
------------- -------- -------- -------- --------
2,013 1,194 (10,815) (8,033) (7,035)
------------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary charge..................... 7,352 19,944 3,686 (869) 1,377
Provision for (benefit from) income taxes....... 3,671 7,923 4,291 (264) 1,922
------------- -------- -------- -------- --------
Income (loss) before extraordinary
charge................................... 3,681 12,021 (605) (605) (545)
Extraordinary charge............................ -- (2,116) -- -- (2,631)
------------- -------- -------- -------- --------
Net income (loss)..................... $ 3,681 $ 9,905 $ (605) $ (605) $ (3,176)
------------- -------- -------- -------- --------
------------- -------- -------- -------- --------
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Revenues. Revenues increased $13.6 million, or 13.2%, to $116.0 million in
the nine months ended September 30, 1996 as compared to $102.5 million for the
nine months ended September 30, 1995 with propane revenues increasing $13.9
million, or 14.9% to $107.8 million in 1996 compared with $93.9 million in 1995.
The increase is principally due to increased propane sales volume as retail
gallons sold for 1996 increased 8.8 million gallons, or 8.7%, to 110.6 million
gallons in 1996 compared to 101.8 million gallons in 1995. Based on Degree Days
data (the 'Degree Days Data'), published by the National Climatic Data Center,
as applied to the geographical regions of National's operations, the nine month
period ended September 30, 1996 was 8.7% colder than the nine months ended
September 30, 1995. The $14.0 million increased propane revenue is due to volume
increases ($8.1 million) and increased selling price due to increased costs
($7.7 million), partially offset by a decrease due to a shift in customer mix
toward lower-priced commercial accounts ($1.8 million). National's other lines
of revenue, primarily appliance sales and tank and equipment rental income, did
not change significantly from period to period.
Gross Profit. Gross profit increased $2.0 million, or 8.0%, to $26.9
million in 1996 compared with $24.9 million in 1995 due principally to higher
propane sales volume ($4.5 million) in 1996 compared with 1995 offset by lower
margins due to (i) increased product costs which could not be fully passed on to
certain customers in the form of higher selling prices, (ii) a shift in the
customer mix toward lower-margin commercial accounts ($1.8 million), (iii)
slightly higher operating expenses included in cost of sales ($0.3 million) and
(iv) lower margins on other product lines ($0.4 million). The increase in
operating expenses is due to National beginning operations at five new propane
plants during the last quarter of 1995 and the first half of 1996. These plants
have not yet achieved sales volumes to make a positive contribution to gross
profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.5 million, or 9.7%, to $17.0 million in
1996 compared with $15.5 million in 1995 due principally to increases in bad
debt expense, insurance costs, rent expense and business taxes, as well as
stand-alone costs associated with the Partnership effective July 2, 1996.
72
Management Fees Charged By Parents. Management fees decreased $0.8 million
to $1.5 million in 1996 compared to $2.3 million in 1995 due to management fees
being eliminated upon the commencement of the operations of the Partnership.
Interest Expense. Interest expense increased $0.3 million, or 3.9%, to $9.0
million in 1996 compared to $8.7 million in 1995. This increase was due to
higher average borrowings partially offset by lower average interest rates.
Interest Income from Triarc. Interest income from Triarc in 1996 is due to
interest on the Partnership Loan to Triarc.
Other Income, Net. Other income, net remained constant in 1996 and 1995.
Provision for Income Taxes. The provision for income taxes in 1996 and 1995
is related to National's operations prior to the IPO. The Partnership and the
Operating Partnership are not tax paying entities except for NSSI, the
wholly-owned corporate subsidiary. As such, the 1996 period does not include a
tax benefit on the third quarter loss, a seasonally weak quarter.
Extraordinary Charge. The extraordinary charge in 1996 is a result of the
early extinguishment of $128.5 million of existing indebtedness and consists
primarily of the write-off of deferred financing costs of $2.6 million, net of
income tax benefit of $1.7 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues declined $2.7 million, or 1.8%, to $149.0 million in
1995 compared with $151.7 million in 1994 with propane revenues decreasing $2.3
million, or 1.6%, to $136.3 million in 1995 (compared with $138.6 million in
1994). This decrease is principally due to reduced propane sales volume as
retail gallons sold for 1995 decreased 2.2 million, or 1.4%, to 150.1 million in
1995 compared with 152.3 million in 1994. This decrease in propane sales volume
is primarily the net effect of an unusually warm winter season in the first
quarter of 1995 partially offset by (i) the impact of acquisitions which were
made in the second half of 1994 and the second half of 1995, and (ii) a slightly
colder fourth quarter in 1995. Based on Degree Days Data, as applied to the
geographical regions of National's operations, the first quarter of 1995 was
14.4% warmer than the first quarter of 1994. During the first quarter of 1995,
excluding the positive impact of increased volumes due to acquisitions, National
sold 8.6 million fewer gallons than during the same quarter in 1994. Partially
offsetting the impact of the warmer temperatures was (i) an increase of 5.9
million gallons from businesses acquired during the second half of 1994 and the
first quarter of 1995, and (ii) higher volume resulting from slightly colder
temperatures in the fourth quarter of 1995. A slight decrease in National's
other lines of revenue, primarily appliance sales, accounted for the remainder
of the decrease in revenues.
Gross Profit. Gross profit declined $2.0 million, or 4.8%, to $39.9 million
in 1995 compared with $41.9 million in 1994 due principally to (i) the lower
propane sales volume in 1995 compared with 1994, and (ii) lower profit margins
(26.8% in 1995 compared with 27.7% in 1994) reflecting higher product costs.
These higher product costs could be passed along only in part to customers in
the form of higher selling prices and were partially offset by lower overhead
costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.8 million, or 20.2%, to $22.4 million in
1995 compared with $18.6 million in 1994. This increase reflects higher costs
for (i) medical benefits, (ii) costs relating to new marketing programs
initiated in 1995 and (iii) increased amortization of Goodwill and other
intangibles. The increased amortization of Goodwill and other intangibles
reflects (i) the full year effects of acquisitions in 1994 as well as Goodwill
'pushed down' to Public Gas in April 1994 in connection with the SEPSCO Merger
discussed in Note 14 to the consolidated financial statements included elsewhere
herein and (ii) the effect of acquisitions in 1995.
Management Fees Charged by Parents. Management fees decreased $1.6 million
to $3.0 million in 1995 compared with $4.6 million in 1994. This decrease
resulted from $1.6 million of management fees charged in 1994 by SEPSCO for
services provided to Public Gas Company ('Public Gas'). No such fees were
charged in 1995 since the management services to Public Gas were provided by the
management of National.
73
Operating Profit. Operating profit declined by $4.2 million, or 22.7%, to
$14.5 million in 1995 compared with $18.7 million in 1994 due to the factors
noted above.
Interest Expense. Interest expense increased $2.0 million, or 20.5%, to
$11.7 million in 1995 compared with $9.7 million in 1994. This increase was due
to higher borrowings under National's revolving credit and term loan agreement,
including the full year 1995 effect of borrowings in October 1994 to finance a
$40.0 million dividend to Triarc, and was only partially offset by lower
interest rates.
Interest Income from Triarc. The interest income from Triarc of $9.8
million in 1994 did not recur in 1995 due to National's reclassification of its
receivable from Triarc as a component of stockholders' equity in November 1994.
This reclassification occurred because Triarc's liquidity position was no longer
sufficient to enable it to repay the receivable and, therefore, the receivable
was no longer expected to be repaid except through an equity transaction.
Concurrent with the reclassification, National ceased accruing interest on the
receivable.
Other Income, Net. Other income, net decreased $0.3 million to $0.9 million
in 1995 compared with $1.2 million in 1994 principally due to lower interest
income from finance charges on appliance sales.
Provision for Income Taxes. The provision for income taxes in 1995 and 1994
reflect effective rates of 116% and 40%, respectively. The higher 1995 rate
reflects a $2.5 million provision for income tax contingencies in 1995 relating
to proposed adjustments raised by the Internal Revenue Service for the tax years
1989 through 1992 (see Note 11 of notes to consolidated financial statements).
Extraordinary Charge. In 1994, National recognized an extraordinary charge
of $2.1 million in connection with the early extinguishment of its 13 1/8%
senior subordinated debentures due 1999 (the '13 1/8% Debentures') consisting of
the write-off of previously unamortized deferred financing costs of $0.9 million
and previously unamortized original issue discount of $2.6 million, net of
income tax benefit of $1.4 million.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1993
(UNAUDITED)
Revenues. Revenues decreased $3.1 million, or 2.1%, to $151.7 million in
1994 compared with $154.8 million in 1993 with propane revenues decreasing $1.2
million, or 0.8%, to $138.5 million in 1994 compared with $139.7 million in
1993. The decrease is principally due to reduced propane sales volume as gallons
sold for 1994 decreased 1.3 million, or 0.8%, to 152.3 million in 1994 compared
with 153.6 million in 1993. Based on Degree Days Data applicable to the
geographic regions in which National operates, 1994 was 6.2% warmer than 1993.
During the fourth quarter of 1994, reflecting the warm winter season and
excluding the positive impact of increased volumes from acquisitions, National
sold 8.3 million fewer gallons than in the same quarter in 1993. Also,
reflecting the warmer 1994 weather, National sold 2.5 million fewer gallons
during the second and third quarters of 1994 compared to the year ago period,
exclusive of the effect of acquisitions. During the first quarter of 1994, which
was colder than in the same quarter in 1993, National sold 3.4 million more
gallons than during the same quarter in 1993, excluding the positive impact of
acquisitions. Partially offsetting the impact of the warm temperatures was an
increase in 1994 over 1993 of 6.1 million gallons from businesses acquired in
1994. Revenues from leasing vehicles and other equipment to affiliates and
former affiliates of National decreased to $0.1 million in 1994 from $2.4
million in 1993. Such leasing business was significantly curtailed after SEPSCO
disposed of certain operations which were the principal customers of the leasing
operations.
Gross Profit. Gross profit increased $5.1 million, or 13.8%, to $42.0
million in 1994 despite the decrease in sales volume and leasing activity
revenues noted above. This improvement resulted from (i) lower costs of propane
reflecting economies gained through centralized purchasing (only a small
percentage of which was passed on to customers in the form of lower selling
prices), (ii) lower delivery costs associated with efficiency initiatives
commenced in August 1993 and (iii) increased tank and cylinder rental income
with no significant related costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were relatively unchanged amounting to $18.7 million for
1994 compared with $18.9 million in 1993.
74
Management Fees Charged by Parents. Management fees increased $0.3 million
to $4.6 million in 1994 compared with $4.3 million in 1993. This increase
reflects a slightly higher relative allocation of costs to National for
management services compared with Triarc's other affiliates.
Facilities Relocation and Corporate Restructuring. The $8.4 million of
facilities relocation and corporate restructuring costs in 1993 relate to the
change in control of National and Triarc that occurred in April 1993. Included
in this charge are (a) National's allocated share of the estimated costs of (i)
terminating the lease on Triarc's then existing corporate facility and (ii)
entering into a consulting agreement with the former Vice Chairman of Triarc for
which no substantial services are required and for which Triarc has not received
and does not expect to receive any services that will have substantial value to
Triarc and its subsidiaries and (b) the estimated costs of (i) conforming
subsidiary identifications to National, (ii) training employees to use the new
management information system necessitated by National's new centralized
operating strategy, (iii) terminating employees and related severance payments
and (iv) relocating and reorganizing National's corporate headquarters. Such
costs are further described in Note 20 to National's financial statements
appearing elsewhere herein. No similar charges were incurred in 1994.
Operating Profit. Operating profit increased by $13.4 million to $18.7
million in 1994 compared with $5.3 million in 1993 due to the factors noted
above.
Interest Expense. Interest expense decreased by $3.0 million to $9.7
million in 1994 compared with $12.7 million in 1993. This decrease reflects
lower average borrowing levels and, to a lesser extent, the lower interest rates
of a new revolving credit and term loan agreement entered into by National in
1994.
Interest Income from Triarc. Interest income from Triarc decreased $3.5
million to $9.8 million in 1994 compared with $13.3 million in 1993 principally
reflecting the $40.0 million collection on the receivable from Triarc in April
1993 and, to a lesser extent, lower interest income in 1994 due to the
aforementioned November 1994 reclassification of the receivable from Triarc as a
component of stockholders' equity compared with a full year of such income in
1993.
Provision for Income Taxes. The provision for income taxes in 1994 and 1993
reflects effective rates of 40% and 50%, respectively. The decrease is
principally due to the effects in 1993 of (i) the nondeductible costs allocated
to National of a consulting agreement between Triarc and its former Vice
Chairman referred to above and (ii) the effect on net deferred income tax
liabilities of the 1% increase in the Federal income statutory tax rate to 35%
effective in 1993.
Extraordinary Charge. In 1994 National recognized the previously discussed
extraordinary charge in connection with the early extinguishment of the 13 1/8%
Debentures.
LIQUIDITY AND CAPITAL RESOURCES
National's cash balances increased $1.8 million during the nine-month
period ended September 30, 1996 to $4.7 million and decreased $1.2 million
during the full year 1995 to $2.8 million as of December 31, 1995 from $4.0
million as of December 31, 1994. The increase during the 1996 nine-month period
reflected cash provided by operating activities of $13.2 million offset by cash
used in investing activities of $5.8 million and cash used in financing
activities of $5.6 million. The decrease in 1995 resulted from cash provided by
operating activities of $15.9 million more than offset by cash used in investing
and financing activities of $9.5 million and $7.6 million, respectively.
The cash flows from operating activities of $13.2 million in the 1996
period consisted of a net loss of $3.2 million offset by non-cash charges of
$11.7 million, principally depreciation and amortization and write-off of
deferred financing costs, and a $4.7 million decrease in working capital. The
change in working capital is primarily made up of a seasonal decrease in
receivables ($5.2 million) offset by a seasonal increase in inventories ($3.6
million) and an increase in accounts payable and accrued expenses ($3.1
million). The increase in accounts payable and accrued expenses is primarily due
to accrued interest on the First Mortgage Notes and an increase in accrued
casualty insurance reserves as a result of National's periodic examination of
its reserves. The cash provided by operating activities during the full year
1995 of $15.9 million resulted from a net loss of $0.6 million more than offset
by noncash charges of $14.8 million and a $1.7 million reduction in working
capital.
75
Cash used in investing activities during the nine-month period ended
September 30, 1996 and the year ended December 31, 1995 included capital
expenditures, excluding capital leases and acquisitions, amounting to $5.0
million and $8.1 million, respectively. Of the amount for the nine-month period
ended September 30, 1996, $2.3 million was for recurring maintenance and $2.7
million was to support growth of operations. Of the 1995 amount, $2.6 million
was for recurring maintenance needed to sustain National's operations at current
levels, $0.6 million was for projects of a non-recurring nature and $4.9 million
was to support growth of operations. Recurring maintenance expenditures
consisted primarily of expenditures for maintenance of equipment to support
current business levels. National budgeted maintenance capital expenditures and
growth capital expenditures for the fourth quarter of 1996 of approximately $1.0
million and $0.8 million, respectively, and had outstanding commitments
amounting to $1.2 million for such capital expenditures as of September 30,
1996.
Cash paid for business acquisitions in 1995 amounted to $0.4 million for
three acquisitions. In addition, Triarc acquired a propane distribution business
for approximately $4.2 million in 1995 which it contributed to National. During
1996, National Propane acquired four unaffiliated propane distributors for an
aggregate of $1.0 million.
In December 1995, National borrowed $30.0 million under the Former Credit
Facility, and dividended such amount to subsidiaries of Triarc ($22.7 million)
and SEPSCO ($7.3 million) in proportion to their respective percentage ownership
in National. On February 22, 1996, the 11 7/8% senior subordinated debentures of
SEPSCO were redeemed. The cash for such redemption came from the proceeds of the
$30.0 million of borrowings (which were restricted, under the Former Credit
Facility, to the redemption of the 11 7/8% Debentures), liquidation of
marketable securities and existing cash balances. The indebtedness incurred in
part to finance such redemption was repaid in connection with the Transactions.
Cash used by financing activities of $5.6 million during the nine-month
period ended September 30, 1996 primarily reflects the IPO and the private
placement of First Mortgage Notes offset by the repayment of the previous debt
facilities and the payment of a dividend and inter-company balances to Triarc.
Cash used in financing activities during 1995 of $7.6 million reflected the
aggregate $30.0 million dividend paid to subsidiaries of Triarc and SEPSCO and
$0.8 million of deferred financing costs partially offset by net borrowings of
long-term debt of $23.2 million. Such net borrowings principally result from the
$30.0 million borrowing under the Former Credit Facility in December 1995
discussed above, less $9.5 million of repayments of Former Credit Facility term
loans.
Total partners' capital at September 30, 1996 was $26.5 million as compared
to a total stockholders' deficit of $48.6 million at December 31, 1995. The
increase of $75.1 million reflects the $117.9 million net proceeds of the IPO
and the retention of $19.7 million of net liabilities by the Managing General
Partner offset by $59.3 million which was used to pay a dividend to Triarc at
the time of the IPO and the net loss of $3.2 million for the nine month period
ended September 30, 1996. Total stockholders' deficit increased $29.1 million
during 1995 from a deficit of $19.5 million at December 31, 1994, principally
reflecting the $30.0 million dividend to subsidiaries of Triarc and SEPSCO
discussed above. In addition, the increase of $2.6 million in the receivable
from SEPSCO, which is classified as a component of stockholders' equity, and the
net loss of $0.6 million incurred during 1995 contributed to the deficit
increase but were more than offset by the capital contribution from Triarc of
two propane gas businesses it had acquired in 1995 amounting to $4.2 million.
The Operating Partnership entered into a $55 million Bank Credit Facility,
which includes a $15 million Working Capital Facility to be used for working
capital and other general partnership purposes and a $40 million Acquisition
Facility. At December 31, 1996, $6.0 million and $1.9 million were outstanding
under the Working Capital Facility and the Acquisition Facility, respectively.
The Partnership expects to meet its requirements for its capital expenditures,
acquisition programs and debt service through a combination of cash flow from
operations, the availability of the Bank Credit Facility and the interest on the
Partnership Loan.
National's principal cash requirements are maintenance capital expenditures
(currently budgeted at $3.5 million for the year ending December 31, 1997), and
funds for growth and business acquisitions, if any. There were no scheduled
principal repayments in 1996 under the Bank Credit Facility or the First
Mortgage Notes. The Working Capital Facility requires that for a period of at
least 30 consecutive days
76
in each year between March 1 and August 31, the principal amount outstanding be
reduced to zero. There are no scheduled principal repayments in 1997 with
respect to the First Mortgage Notes.
INITIAL PUBLIC OFFERING OF COMMON UNITS AND OTHER TRANSACTIONS
The Partnership was organized on March 13, 1996 and was formed to acquire,
own and operate National Propane's propane business and substantially all of the
related assets of National Propane. The Partnership's activities are conducted
through the Operating Partnership (including a wholly-owned corporate subsidiary
of the Operating Partnership). In connection with the IPO, National Propane
conveyed substantially all of its propane-related assets and liabilities (other
than amounts due from a parent, deferred financing costs and income tax
liabilities) to the Operating Partnership.
The Partnership issued 6,190,476 Common Units at an offering price of
$21.00 per Common Unit, representing limited partner interests in the
Partnership, pursuant to the IPO and concurrently issued 4,533,638 Subordinated
Units, representing subordinated general partner interests in the Partnership,
as well as an aggregate 4% unsubordinated general partner interest in the
Partnership and the Operating Partnership, on a combined basis, to the Managing
General Partner and the Special General Partner.
As a result of (i) the IPO and the issuance of 111,104 Common Units
pursuant to the exercise of the IPO Over-Allotment Option, (ii) the issuance of
the First Mortgage Notes, (iii) the repayment of all borrowings under the Former
Credit Facility, (iv) the Partnership Loan of $40.7 million and dividend to
Triarc of $59.3 million, respectively and (v) certain other related
transactions, as of September 30, 1996, the Operating Partnership had aggregate
partners' capital of $26.5 million representing an increase of $75.1 million
over the stockholders' deficit of National Propane of $48.6 million as of
December 31, 1995, before the effects of such transactions. The Operating
Partnership also has a cash interest-bearing receivable from Triarc of $40.7
million. The Partnership's operating cash flows also reflect (i) interest income
on the $40.7 million receivable from Triarc ($5.5 million annually, reflecting
the 13.5% interest rate), (ii) reduced interest expense reflecting lower debt
levels and (iii) significantly reduced Federal income taxes since the
Partnership is not subject to future income taxes on its propane-related income
(such taxes will be borne by its partners).
CONTINGENCIES
In May 1994 National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company which had purchased the assets of a utility which
had previously owned the property. National Propane believes that the
contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem, National
Propane engaged environmental consultants who began work in August 1994. In
December 1994 the environmental consultants provided a report to National
Propane which indicated the estimated range of potential remediation costs to be
between approximately $0.4 million and $0.9 million depending upon the actual
extent of impacted soils, the presence and extent, if any, of impacted
groundwater and the remediation method actually required to be implemented. In
February 1996, based upon new information, National Propane's environmental
consultants provided a second report which presented the two most likely
remediation methods and revised the estimates of the costs of such methods. The
range of estimated costs for the first method, which involves treatment of
groundwater and excavation, treatment and disposal of contaminated soil, is from
$1.6 million to $3.3 million. The range for the second method, which involves
only treatment of groundwater and the building of a soil containment wall, is
from $0.4 million to $0.8 million. Based on discussions with National Propane's
environmental consultants, both methods are acceptable remediation plans.
National Propane, however, will have to agree on a final plan with the State of
Wisconsin. Since receiving notice of the contamination, National Propane has
engaged in discussions of a general nature concerning remediation with the State
of Wisconsin. These discussions are ongoing and there is no indication as yet of
the time frame for a decision by the State of Wisconsin on the method of
remediation. Accordingly, it is unknown which remediation method will be used.
National Propane is also engaged in ongoing discussions of a general nature with
the successor to the utility that operated a coal gasification plant on the
property. There is as yet no indication that the
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successor will share the costs of remediation. National Propane, if found liable
for any of such costs, would attempt to recover such costs from the successor
owner. National Propane has notified its insurance carriers of the contamination
and the likely incurrence of costs to undertake remediation. Pursuant to a lease
relating to the Marshfield facility, the ownership of which was not transferred
to the Operating Partnership at the closing of the IPO, the Partnership has
agreed to be liable for any costs of remediation in excess of any amounts
recovered from such successor or from insurance. Since no amount within the
ranges of remediation costs can be determined to be a better estimate, National
has accrued $0.4 million at December 31, 1995 and September 30, 1996, in order
to provide for the minimum costs estimated for the second remediation method,
incurred legal fees and other professional costs. See 'Business and
Properties -- Transfer of the Partnership Assets.' The ultimate outcome of this
matter cannot presently be determined and, depending upon the cost of
remediation required, may have a material adverse effect on the Partnership's
consolidated financial position, results of operations or ability to make the
Minimum Quarterly Distribution to all Unitholders.
The IRS is currently finalizing its examination of Triarc's Federal income
tax returns for the tax years 1989 through 1992 and has issued to date notices
of proposed adjustments relating to National Propane. Such notices propose
increasing National Propane's taxable income by approximately $22.5 million, the
tax effect of which has not yet been determined. During 1995 National Propane
provided $2.5 million relating to the proposed adjustments. In connection with
the formation of the Partnership, the tax sharing agreement between Triarc and
National Propane was amended to provide that Triarc would be responsible for any
Federal income tax liability with respect to the proposed adjustments. The
amount and timing of any payments required as a result of such proposed
adjustments cannot presently be determined. No tax payments with respect to such
years were required in 1996. (See Note 11 to the Consolidated Financial
Statements included elsewhere herein.)
The Partnership is involved in ordinary claims, litigation and
administrative proceedings and investigations of various types in several
jurisdictions incidental to its business. In the opinion of management of the
Managing General Partner, the outcome of any such matter, or all of them
combined, will not have a material adverse effect on National's consolidated
financial condition or results of operations.
DESCRIPTION OF INDEBTEDNESS
DESCRIPTION OF FIRST MORTGAGE NOTES
Immediately prior to the IPO, the Managing General Partner issued $125
million aggregate principal amount of First Mortgage Notes in a private
placement, which First Mortgage Notes were assumed by the Operating Partnership
in connection with the Conveyance. The following is a summary of the material
terms of the First Mortgage Notes, all of which were issued pursuant to Note
Agreements entered into among the Managing General Partner, the Operating
Partnership and each purchaser of the First Mortgage Notes (collectively, the
'Note Agreements'), which is an exhibit to the Registration Statement of which
this Prospectus is a part. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE NOTE AGREEMENTS.
The Operating Partnership's obligations under the Note Agreements and the
First Mortgage Notes are secured, on an equal and ratable basis with the
Operating Partnership's obligations under the Bank Credit Facility, by a
mortgage on substantially all of the real property and liens on substantially
all of the operating assets, equipment and other assets of the Operating
Partnership (including all of its right under the Partnership Note), including
the capital stock but not the operating assets and equipment of National Sales &
Service, Inc. ('NSSI'), a wholly-owned corporate subsidiary of the Operating
Partnership, a pledge by the Partnership of its limited partner interest in the
Operating Partnership and a pledge by the Managing General Partner of its
general partner interest in the Operating Partnership and all of the capital
stock of the Special General Partner (collectively, the 'Mortgaged Property').
The First Mortgage Notes will mature June 30, 2010 and will require eight equal
annual prepayments of $15,625,000, without premium, of the principal thereof
beginning June 30, 2003. Pursuant to the Note Agreements and subject to the
provisions of the Bank Credit Facility, the Operating Partnership may prepay the
First Mortgage Notes in whole or in part at a premium provided in the Note
Agreements. Under certain circumstances following the disposition of assets, the
Operating Partnership is required to
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prepay at a premium the First Mortgage Notes with certain of the proceeds of
such asset dispositions. In addition, pursuant to the Note Agreements, within 90
days after any 'Change of Control' (as defined in the Note Agreements), the
Operating Partnership is required to make an offer to each holder of the First
Mortgage Notes to prepay all, but not less than all, of such holder's First
Mortgage Notes at a premium provided in the Note Agreements. Interest accrues on
the First Mortgage Notes at the rate of 8.54% per annum, payable semi-annually
in arrears.
The Note Agreements contain various restrictive and affirmative covenants
applicable to the Operating Partnership and its Restricted Subsidiaries (as
defined in the Note Agreement), including (i) restrictions on the incurrence of
additional indebtedness other than (a) borrowings permitted under the Bank
Credit Facility provided that the principal amount outstanding under the
Acquisition Facility, together with all outstanding indebtedness incurred
pursuant to clauses (g)(z)(A) and (h)(y) below, does not exceed $40 million, (b)
certain specified pre-existing indebtedness, (c) certain indebtedness incurred
in connection with additions (including by way of acquisitions of businesses),
repairs or improvements to the Operating Partnership's assets, not to exceed the
net proceeds of any partnership interests sold by the Operating Partnership or
capital contributions to the Operating Partnership to finance such additions,
repairs or improvements, (d) additional indebtedness, if after giving effect to
the incurrence thereof and the repayment of any debt being refinanced or repaid
(x) the pro forma ratio of Consolidated Cash Flow to Consolidated Pro Forma Debt
Service (each as defined in the Note Agreements) is greater than 2.50 for the
period of four fiscal quarters next succeeding the date of incurrence of such
debt, and (y) the pro forma ratio of Consolidated Cash Flow to Maximum
Consolidated Pro Forma Debt Service (each as defined in the Note Agreements) is
greater than 1.25 for the period of four fiscal quarters next succeeding the
date of incurrence of such debt, (e) unsecured debt owed to either of the
General Partners or an Affiliate of either of the General Partners, provided
that such debt is expressly subordinated to the First Mortgage Notes and does
not exceed a total of $20 million in the aggregate at any time outstanding, (f)
certain intercompany subordinated indebtedness, (g) certain pre-existing
indebtedness of acquired Persons or assets, provided that (x) such indebtedness
was not incurred in anticipation of such acquisition, (y) no Default or Event of
Default (each as defined in the Note Agreement) shall have occurred and be
continuing and (z) either (A) such indebtedness, together with the principal
amount outstanding under the Acquisition Facility, does not exceed $40 million
or (B) after giving effect to such acquisition, the Operating Partnership could
incur at least $1 of additional indebtedness pursuant to clause (d) above and
(h) certain indebtedness issued to a seller of assets or stock purchased by the
Partnership provided that (x) the financial terms of such indebtedness are the
same as (or more favorable than) that set forth in the Acquisition Facility and
(y) such indebtedness, together with the principal amount outstanding under the
Acquisition Facility and indebtedness incurred pursuant to (g)(2)(A) does not
exceed $40 million, (ii) restrictions on certain liens, investments, guarantees,
loans, advances, subsidiary dividends, fixed price supply contracts, lines of
business, mergers, consolidations, sales of assets, and transactions with
affiliates and (iii) restrictions on the payment of dividends or other
distributions in respect of any partnership interest if the pro forma ratio of
Consolidated Cash Flow to Consolidated Interest Expense (as defined in the Note
Agreements) is less than 1.75 to 1.0.
Under the Note Agreements, as long as no default exists or would result,
the Operating Partnership will be permitted to make cash distributions to the
Partnership not more frequently than quarterly in an amount not to exceed
Available Cash (as defined in the Note Agreements) for the immediately preceding
quarter. The Note Agreements require that Available Cash be reduced to reflect
reserves for various items, including, without duplication, the following: (i)
in each calendar quarter a reserve equal to at least 50% of the aggregate amount
of all interest payments in respect of all indebtedness upon which interest is
due semiannually or less frequently to be made in the next quarter, (ii) with
respect to any indebtedness secured equally and ratably with the First Mortgage
Notes of which principal is payable annually, in the third, second and first
calendar quarters immediately preceding each calendar quarter in which any
scheduled principal payment is due with respect to the First Mortgage Notes and
other Indebtedness, a reserve equal to at least 25%, 50% and 75%, respectively,
of the aggregate principal amount to be repaid on the First Mortgage Notes and
such other indebtedness on such payment date and (iii) with respect to the First
Mortgage Notes and any other indebtedness secured equally and ratably with the
First Mortgage Notes of which principal is payable semiannually, in
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each calendar quarter which immediately precedes a quarter in which principal is
payable in respect of the First Mortgage Notes and such other indebtedness, a
reserve equal to at least 50% of the aggregate amount of all principal to be
paid in respect of the Mortgage Notes and such other indebtedness in the next
quarter; provided that the amount of such reserve specified in clauses (ii) and
(iii) above for principal amounts to be paid shall be reduced by the aggregate
principal amount of all binding, irrevocable letters of credit established to
refinance such principal amounts.
Except as described below, if an Event of Default exists on the First
Mortgage Notes, the holders of a majority in principal amount of the First
Mortgage Notes may accelerate the maturity of the First Mortgage Notes and
exercise other rights and remedies. In the case of an Event of Default referred
to in (a) below, any holder of the First Mortgage Notes may accelerate the
maturity of the First Mortgage Notes such holder owns. In the case of an Event
of Default referred to in (g) below, the acceleration of the maturity of the
Notes will occur automatically. Events of Default include (a) failure to pay any
principal or premium when due, or interest within five business days of the date
due, on the First Mortgage Notes, (b) a material misrepresentation in the Note
Agreements, (c) failure to perform or otherwise comply with covenants contained
in the Note Agreements and related documents, (d) a payment default under the
Bank Credit Facility and any other default under the Bank Credit Facility or any
other indebtedness the aggregate principal amount of which exceeds $5 million
which results in such indebtedness becoming due before its stated maturity or
scheduled due date, (e) a material failure of any of the security documents
relating to the Mortgaged Property to be in full force and effect, (f) certain
unsatisfied final judgments in excess of $5 million or requiring a split-up or
divestiture of the Operating Partnership, and (g) various events of bankruptcy
or insolvency involving the Operating Partnership, Managing General Partner or
any Restricted Subsidiary.
DESCRIPTION OF THE BANK CREDIT FACILITY
Concurrently with the IPO, the Operating Partnership entered into the Bank
Credit Facility with a group of commercial banks, for which The First National
Bank of Boston acted as administrative agent. The following is a summary of the
material terms of the Bank Credit Facility, which is an exhibit to the
Registration Statement of which this Prospectus is a part. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE BANK CREDIT FACILITY.
The Bank Credit Facility consists of a $40 million Acquisition Facility and
a $15 million Working Capital Facility. The Operating Partnership's obligations
under the Bank Credit Facility are secured, on an equal and ratable basis with
the Operating Partnership's obligations under the Note Agreement and the First
Mortgage Notes, by a security interest or pledge of the Mortgaged Property. The
Bank Credit Facility bears interest at a rate based upon, at the Operating
Partnership's option, either (i) the London Interbank Offered Rate plus a margin
generally ranging from 1.00% to 1.75% or (ii) the higher of (x) the Prime Rate
(as defined in the Bank Credit Facility) and (y) the Federal Funds Effective
Rate (as defined in the Bank Credit Facility) plus 1/2 of 1%, in either case,
plus a margin generally ranging from 0.0% to 0.25%, plus, in the case of clauses
(i) and (ii) above, with respect to any period in which the First Mortgage Notes
have received a Sub-investment Grade Rating (as defined in the Bank Credit
Facility), a premium generally ranging from 0.125% to 0.750%. A quarterly
commitment fee on the unused portion of the Bank Credit Facility based on the
Leverage Ratio (as defined in the Bank Credit Facility) and the current rating
of the First Mortgage Notes is payable on the Bank Credit Facility.
The Working Capital Facility will mature on June 30, 1999. For a period of
at least 30 consecutive days in each year between March 1 and August 31 of such
year, the Operating Partnership must reduce the aggregate principal amount
outstanding under the Working Capital Facility to zero. Loans under the Working
Capital Facility will be used for working capital and other general partnership
purposes.
The Acquisition Facility will revolve until June 30, 1998, after which time
any loans outstanding will amortize in equal quarterly installments until June
30, 2001, which installments will be adjusted to apply mandatory prepayments or
reductions in commitments under the Acquisition Facility to the amortization
schedule. Loans under the Acquisition Facility will be used solely to finance
(i) acquisitions by the Operating Partnership and (ii) capital expenditures by
the Operating Partnership to improve its existing capital assets, to increase
its customer base or to construct new capital assets.
Borrowings under the Bank Credit Facilities will be subject to satisfaction
of customary conditions and, in addition, in the case of each borrowing under
the Acquisition Facility, pro forma compliance
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with certain financial covenants. At December 31, 1996, $7.9 million was
outstanding under the Bank Credit Facility.
The Bank Credit Facility contains various restrictive and affirmative
covenants applicable to the Operating Partnership and its Restricted
Subsidiaries (as defined in the Bank Credit Facility) including (i) restrictions
on indebtedness other than (a) the First Mortgage Notes, (b) certain permitted
indebtedness incurred to finance the making of expenditures for the improvement
or repair of or addition to the Assets (as defined in the Bank Credit Facility),
(c) certain indebtedness incurred by any Restricted Subsidiary owing to the
Operating Partnership or another Restricted Subsidiary not exceeding specified
amounts, (d) certain additional unsecured indebtedness owed to the General
Partners or the Partnership, provided that such indebtedness does not exceed
specified amounts and is subordinated to obligations under the Bank Credit
Facility on terms satisfactory to the banks under such facility, (e) additional
indebtedness, if on the date such indebtedness is incurred and after giving
effect thereto, certain financial tests are met, (f) certain pre-existing
indebtedness of acquired persons and indebtedness incurred to acquire any
person, business or assets, provided that, among other things, such indebtedness
was not incurred in anticipation of such acquisition and that all such
indebtedness does not exceed specified amounts, (g) certain pre-existing
indebtedness not exceeding $1.5 million, (h) so long as no Event of Default or
Default (each as defined in the Bank Credit Facility) has occurred and is
continuing, certain additional indebtedness secured under the Collateral
Documents (as defined in the Bank Credit Facility) which is incurred for any
extension, renewal, refunding or replacement of the First Mortgage Notes, and
(i) so long as no Event of Default or Default has occurred and is continuing,
certain indebtedness incurred for any extension, renewal, refunding or
replacement of indebtedness, and (ii) restrictions on certain liens,
investments, guarantees, loans, advances, lines of business, acquisitions,
mergers, consolidations, sales of assets, sale and leaseback transactions,
entering into transactions with affiliates, sales of receivables, and sales of
equity interests in subsidiaries. In addition, the Bank Credit Facility
prohibits Triarc or any of its subsidiaries, DWG Acquisition Group, L.P. or
Messrs. Peltz or May from acquiring any propane business while they are an
Affiliate of the Partnership.
The Bank Credit Facility requires Available Cash (as defined in the Bank
Credit Facility) to reflect reserves for various items, including without
duplication the following: (i) in each calendar quarter a reserve equal to at
least 50% of the aggregate amount of all interest payments in respect of all
indebtedness upon which interest is due semiannually or less frequently to be
made in the next quarter, (ii) with respect to any indebtedness secured equally
and ratably with the First Mortgage Notes of which principal is payable
annually, in the third, second and first calendar quarters immediately preceding
each calendar quarter in which any scheduled principal payment is due with
respect to the First Mortgage Notes and other indebtedness, a reserve equal to
at least 25%, 50% and 75%, respectively, of the aggregate principal amount to be
repaid on the First Mortgage Notes and such other indebtedness on such payment
date and (iii) with respect to the First Mortgage Notes and any other
indebtedness secured equally and ratably with the First Mortgage Notes of which
principal is payable semiannually, in each calendar quarter which immediately
precedes a quarter in which principal is payable in respect of such First
Mortgage Notes and such other indebtedness a reserve equal to at least 50% of
the aggregate amount of all principal to be paid in respect of the First
Mortgage Notes and other such indebtedness in the next quarter; provided that
the amount of such reserve specified in clauses (ii) and (iii) above for
principal amounts to be paid shall be reduced by the aggregate principal amount
of all binding, irrevocable letters of credit established to refinance such
principal amounts. Under the Bank Credit Facility, so long as no Default or
Event of Default exists or would result and the ratio of Consolidated Cash Flow
to Consolidated Interest Expense (as defined in the Bank Credit Facility) is
greater than 1.75 to 1.00, the Operating Partnership will be permitted to make
cash distributions to the Partnership not more frequently than quarterly in an
amount not to exceed Available Cash for the immediately preceding quarter.
In addition, the Bank Credit Facility requires that (i) the ratio of Total
Funded Debt to Consolidated Cash Flow (each as defined in the Bank Credit
Facility) be no greater than 4.50 to 1 through June 30, 1997 and 4.25 to 1
thereafter and (ii) Net Working Capital (as defined in the Bank Credit Facility)
exceed certain minimums.
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Events of Default include (a) failure to pay any principal or any
reimbursement obligation under any letter of credit when due, or interest or
fees or other amounts within five business days of the due date, (b) failure to
perform or otherwise comply with covenants contained in the Bank Credit
Facility, (c) a material misrepresentation in the Bank Credit Facility or
related loan documents or certain documents related to the Transactions, (d)
certain payment cross-defaults with respect to any indebtedness the aggregate
principal amount of which exceeds $3 million and certain other cross-defaults
with respect to indebtedness the aggregate principal amount of which exceeds $5
million, (e) the invalidity of the Bank Credit Facility, any of the related loan
documents or certain documents relating to the Transactions, (f) certain
unsatisfied judgments in excess of $2.5 million or requiring a split-up or
divestiture of the Operating Partnership, (g) certain events resulting in a
Material Adverse Effect (as defined in the Bank Credit Facility) and (h) various
events of bankruptcy or insolvency involving the Managing General Partner or any
Restricted Subsidiary. In addition a 'Change in Control' (as defined in the Bank
Credit Facility) will result in the Operating Partnership being required to
repay all indebtedness under the Bank Credit Facility.
EFFECTS OF INFLATION
In general, inflation has not had any significant impact on National in
recent years and changes in propane prices, in particular, have been dependent
on factors generally more significant than inflation, such as weather and
availability of supply. However, to the extent inflation affects the amounts
National pays for propane as well as operating and administrative expenses,
National attempts to limit the effects of inflation through passing on propane
cost increases to customers in the form of higher selling prices to the extent
it can do so as well as cost controls and productivity improvements. As such,
inflation has not had a material adverse effect on National's profitability and
National does not believe normal inflationary pressures will have a material
adverse effect on future results of operations of National.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective October 1, 1995 National adopted Statement of Financial
Accounting Standards ('SFAS') No. 121, 'Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of.' This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard had no effect on National's consolidated results of
operations or financial position.
In October 1995 the Financial Accounting Standards Board issued SFAS No.
123 'Accounting for Stock-Based Compensation' ('SFAS 123') which was adopted by
National in the year ended December 31, 1996. SFAS 123 defines a fair value
based method of accounting for employee stock-based compensation (including
Units) and encourages adoption of that method of accounting. Such method would
initially apply generally only to awards granted in the year SFAS 123 is
adopted. However, SFAS 123 allows entities to continue to measure compensation
cost under the intrinsic value method prescribed by existing accounting
pronouncements. Such entities, however, must make certain pro forma disclosures
as if the fair value method had been applied. Through September 30, 1996
National has not granted any stock options; however, Triarc has granted stock
options to purchase Triarc common stock to certain key employees of National.
Upon consummation of the IPO, the Managing General Partner adopted the National
Propane Corporation 1996 Unit Option Plan pursuant to which the Managing General
Partner may grant to certain officers, employees and consultants options to
purchase Common Units and Subordinated Units and UARs covering up to an
aggregate of 1,250,000 Common Units and Subordinate Units (subject to
adjustment), plus an additional number of Units equal to 1% of the number of
Units outstanding as of each December 31 following the Option Plan's effective
date. The adoption of SFAS 123 will not have any effect on National's results of
operations or financial position since (i) SFAS 123 generally does not apply to
stock-based compensation granted prior to the year of adoption, (ii) National
currently intends to elect to account for stock-based compensation using the
intrinsic value method if the employees of the Managing General Partner or NSSI
are granted any stock-based compensation and (iii) National understands that
Triarc would also elect to account for stock-based compensation using the
intrinsic value method for any further stock options granted to employees of the
Managing General Partner or NSSI.
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BUSINESS AND PROPERTIES
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT.
SEE 'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 4 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
GENERAL
The Partnership, a Delaware limited partnership formed in March 1996 to
acquire, own and operate the business and assets of National Propane, is engaged
primarily in (i) the retail marketing of propane to residential, commercial and
industrial, and agricultural customers and to dealers (located primarily in the
Northeast) that resell propane to residential and commercial customers and (ii)
the retail marketing of propane-related supplies and equipment, including home
and commercial appliances. The Partnership believes it is the sixth largest
retail marketer of propane in terms of volume in the United States, supplying
approximately 250,000 active retail and wholesale customers in 25 states through
its 166 service centers located in 24 states. The Partnership's operations are
concentrated in the Midwest, Northeast, Southeast and Southwest regions of the
United States. The retail propane sales volume of the Partnership was
approximately 150 million gallons in 1995. In 1995, approximately 48.6% of the
Partnership's retail sales volume was to residential customers, 34.2% was to
commercial and industrial customers, 6.3% was to agricultural customers, and
10.9% was to dealers. Sales to residential customers in 1995 accounted for
approximately 64% of the Partnership's gross profit on propane sales, reflecting
the higher-margin nature of this segment of the market. Approximately 90% of the
tanks used by the Partnership's retail customers are owned by the Partnership.
National Propane was incorporated in 1953 under the name Conservative Gas
Corporation. During the period the Partnership was controlled by DWG
Corporation, Triarc's predecessor, the Partnership's business was conducted
through nine regionally branded companies without central management or
coordinated pricing or distribution strategies. In April 1993, a partnership,
the sole general partners of which are Nelson Peltz and Peter W. May, completed
the Acquisition, in which it acquired approximately 28.6% of the then
outstanding shares of Triarc's common stock. Since the Acquisition, the
Partnership's new management team, headed by Ronald D. Paliughi, who became
President and Chief Executive Officer of National Propane in April 1993, has
implemented an operating plan designed to make the Partnership more efficient,
profitable and competitive.
Since the Acquisition, the Partnership's management has: (i) consolidated
nine separately branded businesses into a single company with a new, national
brand and logo; (ii) consolidated eight regional offices into one national
headquarters; (iii) installed the Partnership's first system-wide data
processing system; (iv) implemented system-wide pricing, marketing and
purchasing strategies, thereby reducing the cost duplication and purchasing and
pricing inefficiencies associated with the Partnership's formerly decentralized
structure; and (v) centralized and standardized accounting, administrative and
other corporate services. As a result of these initiatives, the Partnership has
become more efficient and competitive, and believes it is now positioned to
capitalize on opportunities for business growth, both internally and through
acquisitions.
Although management has focused primarily on implementing the new operating
plan, the Partnership has acquired seven propane businesses since November 1993
resulting in an increase in volume sales of approximately 14.2 million gallons
annually. Four of these acquired businesses operate in the Midwest, two operate
in the Southwest and one in the Southeast. Generally, National Propane has
financed acquisitions either with cash on hand or through the issuance of debt
securities. The Partnership recently entered into a letter of intent to acquire
an additional propane business for approximately $1.0 million; however,
consummation of this transaction is subject to customary closing conditions and
completion of definitive documentation, and no assurance can be given that this
acquisition will be completed.
The Partnership believes that its competitive strengths include: (i) gross
profit and operating margins that it believes to be among the highest of the
major retail propane companies whose financial statements are publicly
available; (ii) the concentration of its operations in colder regions (such as
the upper Midwest and Northeast), high margin regions (such as the Northeast and
Florida), and regions experiencing population growth (such as Florida and the
Southwest); (iii) an experienced management
83
team; (iv) a well-trained and motivated work force; and (v) an effective pricing
management system. However, the propane industry is highly competitive and
includes a number of large national firms that may have greater financial or
other resources or lower operating costs than the Partnership.
Prior to June 1995, the propane business of the Partnership was conducted
through two separate subsidiaries of Triarc, Public Gas Company and National
Propane Corporation (collectively, the 'Propane Companies'). To further
centralize the Partnership's businesses, on June 29, 1995, the operations of the
Propane Companies were formally consolidated by merging Public Gas Company with
and into National Propane.
Concurrently with the closing of the IPO, pursuant to the Conveyance,
National Propane contributed substantially all of its assets (which assets did
not include an existing intercompany note from Triarc, approximately $59.3
million of the net proceeds from the issuance of the First Mortgage Notes and
certain other assets) and related liabilities (other than income tax
liabilities) to the Operating Partnership. In general, the management and
employees who managed and operated the propane business of National Propane
prior to the IPO continue to manage and operate the Partnership's business as
officers of the Managing General Partner and its affiliates. The Partnership
does not directly employ any of the persons responsible for managing or
operating the Partnership. See 'The Transactions' and 'Management -- Partnership
Management.' The following discussion of and references to the Partnership
include the business, operations and assets of its predecessor, National
Propane.
OPERATING STRATEGY
The Partnership's operating strategy is to increase its efficiency,
profitability and competitiveness, while better serving its customers, by
building on the efforts it has already undertaken to improve pricing management,
marketing and purchasing and to consolidate its operations.
Improved Pricing Management: The $1.4 million pricing system recently
installed in substantially all of the Partnership's service centers
provides central management with current, system-wide supply, demand and
competitive pricing information. Based on that information, pricing
managers located in Cedar Rapids, Iowa, determine the prices to be charged
to the Partnership's existing residential customers. With respect to
commercial and industrial customers, agricultural customers and new
residential customers, management makes daily pricing recommendations to
local managers who determine prices based on such recommendations as well
as local conditions. The Partnership believes that this combination of
central and local decision making enables it to more effectively manage
prices. In addition, to further enhance its pricing management, the
Partnership intends to equip its delivery personnel with hand-held
computer terminals that simplify customer billing and the collection of
price and volume information.
Improved Marketing: The Partnership intends to differentiate itself from
smaller, local competitors by strengthening its image as a reliable, full
service, nationwide propane supplier. To that end, (i) all of the
Partnership's service centers operate under the National Propane brand
(other than certain service centers obtained by the Partnership in recent
acquisitions) and offer 24 hour/7 day-a-week service for emergency repairs
and deliveries, (ii) the Partnership conducts coordinated advertising and
marketing campaigns, (iii) the Partnership's employees attend training
courses at its new training center or at service centers where they are
employed and (iv) the Partnership is in the process of establishing
appliance showrooms at several service centers in an effort to increase
sales and rental income.
Efficient Purchasing: The Partnership intends to further improve its
propane purchasing and storage strategies, thereby making more efficient
use of its system-wide storage capacity. When conditions are appropriate,
the Partnership intends to purchase and store propane during the summer
months when prices are generally lower and sell these supplies during
periods of higher propane prices. In addition, the Partnership intends to
use its existing storage facilities or acquire additional facilities to
minimize transportation costs by storing propane near large concentrations
of its customers.
84
Consolidating Operations: The Partnership will continue to look for
opportunities to consolidate its operations. Since July 1993, the
Partnership has reduced its workforce by approximately 26%, from 1,228 to
911 full-time employees as of November 30, 1996.
STRATEGIES FOR GROWTH
The Partnership's strategies for growth involve expanding its operations
and increasing its market share through strategic acquisitions and internal
growth, including the opening of new service centers.
STRATEGIC ACQUISITIONS
The Partnership expects the overall demand for propane to remain relatively
constant over the next several years, with year-to-year industry volumes being
affected primarily by weather patterns. Accordingly, while the Partnership's
business strategy includes opening new locations, adding new retail customers
and retaining existing customers, the ability of the Partnership's business to
grow will depend in large part on its ability to acquire other retail
distributors. In recent years the Partnership's ability to acquire other propane
companies has been constrained primarily due to (i) management's focus on
implementing the new operating plan, (ii) the need to make significant
maintenance capital expenditures not made in prior years and (iii) limitations
under the Existing Credit Facility. Having successfully implemented much of the
operating plan and significantly improved its capital structure through the
October 1994 refinancing of relatively high cost indebtedness, the Partnership
is now in a better position to pursue acquisition opportunities, although the
Partnership's significant leverage may adversely affect its ability to
consummate such acquisitions. In addition, the Partnership has the flexibility
to fund acquisitions by either drawing on the $40 million Acquisition Facility
or issuing additional Common Units. The Partnership believes there are numerous
potential acquisition candidates because the propane industry is highly
fragmented, with approximately 8,000 retailers (according to the National
Propane Gas Association (the 'NPGA')) and with the 10 largest retailers
constituting approximately 32% of industry sales (according to LP-GAS magazine).
Moreover, no retailer has more than 10% of industry sales.
The Partnership intends to take two approaches to acquisitions: (i)
primarily to build on its broad geographic base by acquiring smaller,
independent competitors that operate within the Partnership's existing
geographic areas and incorporating them into the Partnership's distribution
network and (ii) to acquire propane businesses in areas in the United States
outside of its current geographic base where it believes there is growth
potential and where an attractive return on its investment can be achieved. The
Partnership recently entered into a letter of intent to acquire a propane
business for approximately $1.0 million; however, consummation of this
transaction is subject to customary closing conditions and completion of
definitive documentation, and no assurance can be given that this acquisition
will be completed. Although the Partnership continues to evaluate a number of
propane distribution companies, including regional and national firms, as part
of its ongoing acquisition program, except as described in the preceding
sentence, the Partnership does not have any present agreements or commitments
with respect to any acquisition. There can be no assurance, however, that the
Partnership will identify attractive acquisition candidates in the future, that
the Partnership will be able to acquire such candidates on acceptable terms, or
will be able to finance such acquisitions. If the Partnership is able to make
acquisitions, there can be no assurance that such acquisitions will not dilute
earnings and distributions or that any additional debt incurred to finance such
acquisitions will not adversely affect the ability of the Partnership to make
distributions to Unitholders. In addition, to the extent that warm weather
adversely affects the Partnership's operating and financial results, the
Partnership's access to capital and its acquisition activities may be limited.
The Managing General Partner has broad discretion in making acquisitions, and it
is expected that the Managing General Partner generally will not seek Unitholder
approval of acquisitions.
INTERNAL GROWTH
In addition to pursuing expansion through acquisitions, the Partnership
intends to pursue internal growth at its existing service centers and to expand
its business by opening new service centers. The
85
Partnership believes that it can attract new customers and expand its market
base by (i) providing superior service, (ii) introducing innovative marketing
programs and (iii) focusing on population growth areas.
The Partnership intends to leverage its position as a reliable, full
service propane company to attract new customers, particularly in those
locations where the Partnership competes against smaller, independent
distributors. For example, many propane customers rely on their suppliers for
technical services and advice because of the increasing complexity of the
equipment such customers use. The Partnership believes that in some areas it is
the only propane company that can fully provide such services and advice. To
enable them to provide such services and advice, the Partnership's employees
attend a training course at the Partnership's new training facility in Cedar
Rapids, Iowa or at the service centers where they are employed. Since the third
quarter of 1995, over 220 employees have attended these eight-hour courses. In
1997, the Partnership expects to establish a second training center near Great
Barrington, Massachusetts for its employees located in the Northeast.
In addition, the Partnership's marketing programs, in particular, its Water
Heater Program, are designed to attract new customers. In the Water Heater
Program, the Partnership offers to users of electric or fuel oil water heaters a
free propane water heater (excluding installation) in return for signing a
five-year propane purchase agreement. Approximately 3,500 customers have
participated in the Water Heater Program since it was introduced in the first
quarter of 1995.
Furthermore, the Partnership operates in several growth areas of the United
States. The Partnership believes that it is one of the leading propane retailers
in western Colorado, a rapidly growing market. The Partnership also operates in
central Arizona, an area that has experienced a significant rate of population
growth in recent years. In addition, the Partnership is one of the leading
propane retailers in Florida, the population of which has increased by
approximately 9.5% since 1990.
The Partnership also intends to expand its business by opening new service
centers, known as 'scratch-starts,' in areas where there is relatively little
competition. Scratch starts are newly opened service centers generally staffed
with a single employee, which typically involve minimal start up costs because
the infrastructure of the new service center is developed as the customer base
expands and the Partnership can, in many circumstances, transfer existing
assets, such as storage tanks, to the new service center. Under its
'scratch-start' program, the Partnership intends to open new service centers in
specific types of markets, such as resorts and new residential developments,
which have been targeted because of the unavailability of natural gas, the
limited number of competitors and the potential number of relatively high margin
residential accounts. Under this program, the Partnership has recently opened
three new service centers in California and one in each of Idaho, Georgia and
South Carolina.
INDUSTRY BACKGROUND
Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease of
use relative to alternative stand-alone energy sources. Propane is extracted
from natural gas or oil wellhead gas at processing plants or separated from
crude oil during the refining process. Propane is normally transported and
stored in a liquid state under moderate pressure or refrigeration for economy
and ease of handling in shipping and distribution. When the pressure is released
or the temperature is increased, it is useable as a flammable gas. Propane is
colorless and odorless; an odorant is added to allow its detection. Propane is
clean-burning, producing negligible amounts of pollutants when consumed.
The Partnership's retail customers fall into four broad categories:
residential customers, commercial and industrial customers, agricultural
customers and dealers (located primarily in the Northeast) that resell propane
to residential and commercial customers. Residential customers use propane
primarily for space heating, water heating, cooking and clothes drying.
Commercial and industrial customers use propane for commercial applications such
as cooking and clothes drying and industrial uses such as fueling over-the-road
vehicles, forklifts and stationary engines, firing furnaces, as a cutting gas
and in other process applications. Agricultural customers use propane for
tobacco curing, crop drying, poultry brooding and weed control.
86
Based upon information provided by the NPGA, propane accounts for
approximately 3.0% to 4.0% of total energy consumption in the United States, an
average level that has remained relatively constant for the past ten years. In
addition, propane is now the world's most widely used alternative fuel for
automobiles with approximately 350,000 and 3.5 million vehicles running on
propane in the United States and worldwide, respectively (according to the
NPGA). The Partnership believes, based on industry publications, that the
domestic retail market for propane is approximately 9.4 billion gallons
annually.
PRODUCTS, SERVICES AND MARKETING
The Partnership distributes its propane through a nationwide distribution
network integrating 166 service centers in 24 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast and
Southwest regions of the United States. The chart below sets forth information
regarding the Partnership's retail volume sales and service centers for each
region:
MIDWEST(1) NORTHEAST SOUTHEAST SOUTHWEST(2) TOTAL
---------- --------- --------- -------------- -------
Volume (in thousands of gallons)(3)....... 71,234 33,192 26,561 19,154 150,141
% of Total Volume......................... 47.4% 22.1% 17.7% 12.8% 100.0%
Number of Service Centers(4).............. 73 35 32 26 166
- ------------
(1) Includes one service center in Texas.
(2) Includes California and Idaho.
(3) For the year ended December 31, 1995.
(4) As of December 31, 1996.
------------------------
Typically, service centers are found in suburban and rural areas where
natural gas is not readily available. Generally, such locations consist of an
office and a warehouse and service facility, with one or more 18,000 to 30,000
gallon storage tanks on the premises. Each service center is managed by a
district manager and also typically employs a customer service representative, a
service technician and one or two bulk truck drivers. However, new service
centers established under the Partnership's 'scratch start' program generally do
not have offices, warehouses or service facilities and are typically staffed by
a single employee.
In 1995 the Partnership served approximately 250,000 active customers. No
single customer accounted for 10% or more of the Partnership's revenues in 1995.
Generally, the number of customers increases during the fall and winter and
decreases during the spring and summer. Historically, approximately 66% of the
Partnership's retail propane volume has been sold during the six-month season
from October through March, as many customers use propane for heating purposes.
Consequently, sales, gross profits and cash flows from operations are
concentrated in the Partnership's first and fourth fiscal quarters. To the
extent necessary, the Partnership may reserve cash from the first and fourth
fiscal quarters for distribution to Unitholders in the second and third fiscal
quarters.
As noted above, year-to-year demand for propane is affected by the relative
severity of the winter and other climatic conditions. For example, while the
frigid temperatures that were experienced by the United States in January and
February of 1994 significantly increased the overall demand for propane, the
warm weather during the winter of 1994-1995 significantly reduced such demand.
The Partnership believes, however, that the geographic diversity of its areas of
operations helps to reduce its exposure to regional weather patterns. In
addition, retail sales to the commercial and industrial markets, while affected
by economic patterns, are not as sensitive to variations in weather conditions
as sales to residential and agricultural markets. For information on the impact
of annual variations in weather on the operations of the Partnership, see
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General.'
Retail deliveries of propane are usually made to customers by means of
bobtail and rack trucks. Propane is pumped from the bobtail truck, which
generally holds 2,800 gallons of propane, into a stationary storage tank on the
customer's premises. The capacity of these tanks usually ranges from
87
approximately 50 to approximately 1,000 gallons, with a typical tank having a
capacity of 250 to 500 gallons. Typically, service centers deliver propane to
most of their residential customers at regular intervals, based on estimates of
such customers' usage, thereby eliminating the customers' need to make
affirmative purchase decisions. The Partnership also delivers propane to retail
customers in portable cylinders, which typically have a capacity of 23.5
gallons. When these cylinders are delivered to customers, empty cylinders are
picked up for replenishment at the Partnership's distribution locations or are
refilled in place. The Partnership also delivers propane to certain other retail
customers, primarily dealers and large commercial accounts, in larger trucks
known as transports, which have an average capacity of approximately 9,000
gallons. Propane is generally transported from refineries, pipeline terminals
and storage facilities (including the Partnership's underground storage
facilities in Hutchinson, Kansas and Loco Hills, New Mexico) to the
Partnership's bulk plants by a combination of common carriers, owner-operators,
railroad tank cars and, in certain circumstances, the Partnership's own highway
transport fleet. See ' -- Properties.'
Although overall demand for propane is affected by climate, availability
and cost of alternative energy sources, changes in price and other factors, the
Partnership believes that residential demand for its propane is relatively
stable for the following reasons. First, residential demand for propane has been
relatively unaffected by general economic conditions due to the largely
non-discretionary nature of most propane purchases by the Partnership's
customers. Second, when the Partnership's customers have switched to natural gas
and other competing energy sources, the Partnership has generally been able to
redeploy its tanks and attract new customers in other areas. Third, while
significant price increases can result in a loss of customers, many of the
Partnership's residential customers, particularly in the Northeast and
Southeast, are relatively less price sensitive because they tend to purchase
significantly less propane on an individual basis than customers in the Midwest.
Finally, the Partnership's residential customers tend to remain with the
Partnership because of the inconvenience of switching tanks and suppliers. In
many states certain fire safety regulations restrict the refilling of a leased
tank solely to the propane supplier that owns the tank and, therefore, customers
who do not own their own tanks are less likely to switch suppliers.
Approximately 90% of the tanks used by the Partnership's retail customers are
leased to them by the Partnership. Despite these factors, no assurance can be
given that demand for The Partnership's propane will not decline, and any
significant decline could have a material adverse affect on the Partnership.
The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as less traditional products such
as barbecue equipment and gas logs. In the industrial market, the Partnership
sells or leases specialized equipment for the use of propane as fork lift truck
fuel, in metal cutting and atmospheric furnaces and for portable heating for
construction. In the agricultural market, specialized equipment is leased or
sold for the use of propane as engine fuel and for chicken brooding and crop
drying. The sale of specialized equipment, service income and rental income
represented less than 10% of the Partnership's operating revenues during fiscal
1995. In an effort to increase sales and rental income, the Partnership has
recently established model appliance showrooms at its service centers in Cedar
Rapids, Iowa, New Smyrna Beach, Florida and West Palm Beach, Florida, where a
broad range of propane-related equipment and appliances are displayed. The
Partnership intends to establish additional appliance showrooms at other service
centers. Parts and appliance sales, installation and service activities are
conducted through NSSI, a wholly-owned corporate subsidiary of the Operating
Partnership.
PROPANE SUPPLY AND STORAGE
The profitability of the Partnership is dependent upon the price and
availability of propane as well as seasonal and climatic factors. Contracts for
propane are typically made on a year-to-year basis, but the price of the propane
to be delivered depends upon market conditions at the time of delivery.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets, and from time to time the ability to obtain propane at
attractive prices may be limited as a result of market conditions, thus
affecting price levels to all distributors of propane. Should the wholesale cost
of propane decline in the future, the Partnership believes that its margins on
its retail propane distribution business would increase in the short-term
because retail prices tend to change less rapidly than
88
wholesale prices. Should the wholesale cost of propane increase, for similar
reasons, retail marketing profitability would likely be reduced at least for the
short-term until retail prices can be increased. Since 1993, the Partnership has
generally been successful in maintaining retail gross margins on an annual basis
despite changes in the wholesale cost of propane. There may be times, however,
when the Partnership will be unable to pass on fully price increases to its
customers. Consequently, the Partnership's profitability will be sensitive to
changes in wholesale propane prices, and a substantial increase in the wholesale
cost of propane could adversely affect the Partnership's margins and
profitability. Except for occasional opportunistic buying and storage of
propane, the Partnership has not engaged in any significant hedging activities
with respect to its propane supply requirements, although it may do so from time
to time in the future. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General.'
The Partnership purchased propane from over 35 domestic and Canadian
suppliers during 1996, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
In 1996, the Partnership purchased approximately 85% and 15% of its propane
supplies from domestic and Canadian suppliers, respectively. Approximately 90%
of propane purchases by the Partnership in 1996 were on a contractual basis
(generally, under one year agreements subject to annual renewal), but the
percentage of contract purchases may vary from year to year as determined by the
Managing General Partner. Supply contracts generally do not lock in prices but
rather provide for pricing in accordance with posted prices at the time of
delivery or the current prices established at major storage points, such as Mont
Belvieu, Texas and Conway, Kansas. Some contracts include a pricing formula that
typically is based on such market prices.The Partnership is not currently a
party to any supply contracts containing 'take or pay' provisions.
Warren Petroleum Company ('Warren'), a division of Chevron U.S.A., supplied
14.9% of the Partnership's propane in 1996. The Partnership believes that if
supplies from either Warren or Conoco were interrupted, it would be able to
secure adequate propane supplies from other sources without a material
disruption of its operations; however, the Partnership believes that the cost of
procuring replacement supplies might be materially higher, at least on a
short-term basis, which could adversely affect the Partnership's margins. No
other single supplier provided more than 10% of the Partnership's total propane
supply during 1996. Although the Partnership has long-standing relations with a
number of its important suppliers and has generally been able to secure
sufficient propane to meet its customers' needs, no assurance can be given that
supplies of propane will be readily available in the future. The Partnership
expects a sufficient supply to continue to be available during 1997. However,
increased demand for propane in periods of severe cold weather, or otherwise,
could cause future propane supply interruptions or significant volatility in the
price of propane. In the fourth quarter of 1996, the price of propane was
significantly higher than historical levels. Between November 1, 1996 and
December 31, 1996, the price of propane in the spot market at Mont Belvieu,
Texas, the largest storage facility in the United States, averaged $0.5953 per
gallon, with a high of $0.7050 per gallon on December 16, 1996 and a low of
$0.4875 per gallon on December 31, 1996. During the 1995-96 winter season, from
November 1, 1995 to March 31, 1996, the price of propane at Mont Belvieu
averaged $0.3672 per gallon, with a high of $0.5250 on Feburary 15, 1996 and a
low $0.3037 on November 15, 1995. Between November 1, 1996 and December 31,
1996, the price of propane in the spot market at Conway, Kansas averaged $0.7494
per gallon, with a high of $1.04 per gallon on December 16, 1996 and a low of
$0.5100 per gallon on November 7, 1996. During the 1995-96 winter season, from
November 1, 1995 to March 31, 1996, the price of propane at Conway averaged
$0.3713 per gallon, with a high of $0.4363 on February 15, 1996 and a low 0.3237
on November 15, 1995. The Partnership has to date purchased a significant amount
of its propane in the Conway, Kansas spot market. Although the increased
wholesale price of propane has increased the Partnership's revenues for the
fourth quarter of 1996, the Partnership was unable to fully pass on the
increased product cost to its customers resulting in a lower per gallon profit
margin. As a result, the Partnership expects that it will have slightly lower
operating income for the fourth quarter of 1996 compared to the corresponding
period of 1995.
89
The following table shows the average monthly prices of propane in the spot
market during the last five years at Mont Belvieu, Texas and Conway, Kansas, two
major storage areas:
[GRAPHICAL REPRESENTATION of the average monthly propane prices in the
Spot-Market at Mont Belvieu, TX and Conway, KS from January 1991 to December
1996. Prices range from a low of approximately $0.24 per gallon to a high of
approximately $0.81 per gallon.]
The Partnership owns underground storage facilities in Hutchinson, Kansas
and Loco Hills, New Mexico, leases above ground storage facilities in Crandon,
Wisconsin and Orlando, Florida, and owns or leases smaller storage facilities in
other locations throughout the United States. As of December 31, 1996, the
Partnership's total storage capacity was approximately 33.1 million gallons
(including approximately one million gallons of storage capacity currently
leased to third parties). For a further description of these facilities, see
' -- Properties.' By utilizing its ability to store propane, the Partnership
believes that it should be able to lower its annual cost of goods sold by
maximizing supplies purchased during periods of seasonably low prices and
minimizing purchases during periods of seasonally high prices. However, because
of the potential volatility of propane prices, the market price of propane could
fall below the price at which the Partnership purchased propane held in
inventory, thereby adversely affecting gross margins or sales or rendering sales
from such inventory unprofitable.
PRICING POLICY
The Partnership believes that its pricing policy is an essential element in
the marketing of propane. The $1.4 million pricing system recently installed in
substantially all of the Partnership's service centers provides central
management with current, system-wide supply, demand and competitive pricing
information. Based on that information, pricing managers located in Cedar
Rapids, Iowa, determine the prices to be charged to the Partnership's existing
residential customers. With respect to commercial and industrial customers,
agricultural customers and new residential customers, management makes daily
pricing recommendations to local managers who determine prices based on such
recommendations as well as local conditions. The Partnership believes that this
flexible, joint pricing management system enables the Partnership to react more
effectively to cost increases, and will permit it, in most situations, to
respond to changes in supply costs in a manner that protects its gross margins,
to the extent possible.
To further enhance its price management, the Partnership intends to equip
its delivery personnel with hand-held computer terminals ('HHTs') that simplify
customer billing and the collection of customer data, including price and volume
information. The HHTs are also able to print accurate customer delivery
statements that can be provided to the customer by the Partnership's delivery
personnel. The Partnership began testing the HHTs in a limited number of service
centers in the Midwest in March 1996. The results of these tests have been
successful to date, and the Partnership has deployed the HHTs at eight
additional locations during 1996.
90
COMPETITION
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruptions in
natural gas service. The expansion of natural gas into traditional propane
markets has historically been inhibited by the capital costs required to expand
distribution and pipeline systems. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, the
Partnership believes that new opportunities for propane sales arise as more
geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space
heating, water heating, clothes drying and cooking. Although propane is similar
to fuel oil in certain applications, as well as in market demand and price,
propane and fuel oil have generally developed their own distinct geographic
markets, reducing competition between such fuels. Because furnaces and
appliances that burn propane will not operate on fuel oil and vice versa, a
conversion from one fuel to the other requires the installation of new
equipment.
In addition to competing with alternative energy sources, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and generally
occurs on a local basis with other large full-service multi-state propane
marketers, thousands of smaller local independent marketers and farm
cooperatives. Based on industry publications, the Partnership believes that the
domestic retail market for propane is approximately 9.4 billion gallons
annually, that the 10 largest retailers, including the Partnership, account for
approximately 32% of the total retail sales of propane in the United States, and
that no single marketer has a greater than 10% share of the total retail market
in the United States. Most of the Partnership's service centers compete with
several marketers or distributors and certain service centers compete with a
large number of marketers or distributors. Each service center operates in its
own competitive environment because retail marketers tend to locate in close
proximity to customers in order to lower the cost of providing service. The
Partnership's typical service center has an effective marketing radius of
approximately 50 miles.
The ability to compete effectively further depends on the reliability of
service, responsiveness to customers and the ability to maintain competitive
prices. The Partnership believes that its reliability and service capabilities
differentiate it from many of its competitors. The Partnership's service centers
offer 24-hour/7-day-a-week service for emergency repairs and deliveries. The
Partnership also believes that its safety procedures are more stringent than
many of its small, independent competitors and that the perceived benefits of
such safety procedures give the Partnership a competitive advantage. In
addition, if legislation is enacted that mandates compliance with similar safety
procedures, the Partnership would not be required to invest as heavily to comply
as would many of its smaller, independent competitors.
PROPERTIES
The Partnership maintains a large number of diverse properties, including
appliance showrooms, maintenance facilities, bulk plants, warehousing space,
garages, storage depots or large gas tanks and related distribution equipment
and underground space for gas storage. The Partnership believes that these
properties, taken as a whole, are generally well-maintained and adequate for
current and foreseeable business needs. The majority of these properties are
owned by the Partnership.
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Certain information about the major properties of the Partnership as of
December 31, 1996, is set forth in the following table.
DESCRIPTION OF FACILITIES NUMBER OF FACILITIES
- ------------------------------ -------------------------------------------- STORAGE CAPACITY
----------------
(IN THOUSANDS OF
GALLONS)
Service Centers located 127 owned
throughout the United 39 leased
States(1)
---
166 7,678
Remote Storage Facilities 58 owned
23 leased
---
81 2,201
Above Ground Storage
Facilities:
Crandon, Wisconsin(2).... 1 leased 241
Orlando, Florida(3)...... 1 leased 1,020
--- -------
2 1,261
Underground Storage
Facilities:
Hutchinson, Kansas(4).... 1 owned 12,000
Loco Hills, New Mexico... 1 owned 10,000
--- -------
2 22,000
-------
Total............... 33,140
-------
-------
- ------------
(1) Includes six service centers recently established under the Partnership's
'scratch start' program.
(2) The facility is leased on a year-to-year basis, and the lease is terminable
by either party upon 30 days' notice.
(3) The Partnership leases the real property from a third party pursuant to a
ground lease that terminates on October 31, 2006. The Partnership owns the
storage facility located at such property and leases it to Warren Petroleum
pursuant to an agreement that terminates October 31, 1999 and may be
cancelled by the Partnership upon 60 days' notice under certain
circumstances.
(4) The Partnership owns the underground storage facility, which, pursuant to an
operating agreement, is operated by a third party that owns the equipment
necessary to use the facility for propane storage. Such operating agreement
may be terminated by either party at the end of any calendar year upon
thirty days' notice.
------------------------
The transportation of propane requires specialized equipment. The trucks
utilized for this purpose carry specialized steel tanks that maintain the
propane in a liquefied state. As of December 31, 1996, the Partnership had a
fleet of 7 transport truck tractors, all of which are owned by the Partnership
and approximately 400 bulk delivery trucks and 400 service and light trucks, all
of which are owned by the Partnership. In addition, as of December 31, 1996, the
Partnership had approximately 150 cylinder delivery vehicles and 55 automobiles.
As of December 31, 1996, the Partnership owned approximately 210,000 customer
storage tanks with typical capacities of 250 to 500 gallons.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties. Substantially all of the Partnership's
assets (other than the assets of NSSI) are pledged to secure the First Mortgage
Notes and indebtedness under the Bank Credit Facility. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Description of Indebtedness.' In addition, some of the
Partnership's properties are subject to liabilities and leases and immaterial
encumbrances, easements and restrictions, although the Partnership does not
believe that any such burdens will materially interfere with the continued use
by the Partnership of its properties, taken as a whole. The Partnership believes
that it has, or in the ordinary course of business will obtain, all required
material approvals, authorizations, orders, licenses, permits, franchises and
consents of, and has obtained or made all required material registrations,
qualifications and filings with, the various state
92
and local governmental and regulatory authorities which relate to ownership of
the Partnership's properties or the operations of its business.
TRADEMARKS AND TRADENAMES
The Partnership utilizes a number of trademarks and tradenames which it
owns (including 'National PropaneTM'), some of which have a significant value in
the marketing of its products.
GOVERNMENT REGULATION
The Partnership is subject to various federal, state and local
environmental, health and safety laws and regulations. Generally, these laws
impose limitations on the discharge of pollutants and establish standards for
the handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA'), the Clean Air Act, the Occupational
Safety and Health Act, the Emergency Planning and Community Right to Know Act,
the Clean Water Act and comparable state statutes. CERCLA, also known as the
'Superfund' law, imposes joint and several liability without regard to fault or
the legality of the original conduct on certain classes of persons that are
considered to have contributed to the release or threatened release of a
'hazardous substance' into the environment. Propane is not a hazardous substance
within the meaning of CERCLA. However, automotive waste products, such as waste
oil, generated by the Partnership's truck fleet, as well as 'hazardous
substances' disposed of during past operations by third parties on the
Partnership's properties, could subject the Partnership to CERCLA. Such laws and
regulations could result in civil or criminal penalties in cases of
non-compliance or impose liability for remediation costs. Also, third parties
may make claims against owners or operators of properties for personal injuries
and property damage associated with releases of hazardous or toxic substances.
National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry standard in all of the
states in which the Partnership operates. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. With respect to the transportation of propane by truck, the
Partnership is subject to regulations promulgated under the Federal Motor
Carrier Safety Act. These regulations cover the transportation of hazardous
materials and are administered by the United States Department of
Transportation. The Partnership conducts ongoing training programs to help
ensure that its operations are in compliance with applicable regulations. The
Partnership maintains various permits that are necessary to operate some of its
facilities, some of which may be material to its operations. The Partnership
believes that the procedures currently in effect at all of its facilities for
the handling, storage and distribution of propane are consistent with industry
standards and are in compliance in all material respects with applicable laws
and regulations.
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Marshfield, Wisconsin. National
Propane purchased the property from a company which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem, National
Propane engaged environmental consultants who began work in August 1994. In
December 1994, the environmental consultants issued a report to National Propane
which estimated the range of potential remediation costs to be between
approximately $0.4 million and $0.9 million depending upon the actual extent of
impacted soils, the presence and extent, if any, of impacted ground water and
the remediation method actually required to be implemented. In February 1996,
based upon new information National Propane's environmental consultants issued a
second report which presented the two most likely remediation methods and
revised estimates of the costs of such methods. The range of estimated costs for
the first method, which involves treatment of groundwater and excavation,
treatment and disposal of contaminated soil, is from $1.6 million to $3.3
million. The range for the second method, which involves treatment of ground
water and building a containment wall, is from $0.4 million to $0.8 million.
Based on discussions with National Propane environmental consultants, both
methods are acceptable
93
remediation plans. The Partnership will have to agree upon the final plan with
the State of Wisconsin. Since receiving notice of the contamination, National
Propane has engaged in discussions of a general nature concerning remediation
with the State of Wisconsin. These discussions are ongoing and there is no
indication as yet of the time frame for a decision by the State of Wisconsin on
the method of remediation. Accordingly, it is unknown which remediation method
will be used. National Propane is also engaged in ongoing discussions of a
general nature with the successor to the utility that operated a coal
gasification plant on the property. There is as yet no indication that the
successor will share the costs of remediation. If National Propane is found
liable for any of such costs, it will attempt to recover them from the successor
owner. National Propane has notified its insurance carriers of the contamination
and the likely incurrence of costs to undertake remediation. Pursuant to a lease
relating to the Marshfield facility, the ownership of which was not transferred
to the Operating Partnership at the closing of the IPO, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts recovered
from such successor or from insurance. Since no amount within the ranges of
remediation costs can be determined to be a better estimate, National has
accrued $0.4 million at December 31, 1995 and September 30, 1996, in order to
provide for the minimum costs estimated for the second remediation method,
incurred legal fees and other professional costs. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Contingencies.'
The ultimate outcome of this matter cannot presently be determined and,
depending upon the cost of remediation required, may have a material adverse
effect on the Partnership's financial position, results of operations or ability
to make the Minimum Quarterly Distribution to all Unitholders.
In connection with all acquisitions of retail propane businesses that
involve the purchase of real estate, the Partnership conducts an environmental
review in an attempt to determine whether any substance other than propane has
been sold from, or stored on, any such real estate prior to its purchase. Such
review may include questioning the seller, obtaining representations and
warranties concerning the seller's compliance with environmental laws and visual
inspections of the properties, whereby the General Partner's employees, and in
certain cases, independent environmental consulting firms hired by the
Partnership, look for evidence of hazardous substances or the existence of
underground storage tanks.
Future developments, such as stricter environmental, health or safety laws
and regulations thereunder, could affect Partnership operations. It is not
anticipated that the Partnership's compliance with or liabilities under
environmental, health and safety laws and regulations, including CERCLA, will
have a material adverse effect on the Partnership. To the extent that there are
any environmental liabilities unknown to the Partnership or environmental,
health or safety laws or regulations are made more stringent, there can be no
assurance that the Partnership's results of operations will not be materially
and adversely affected.
EMPLOYEES
As of November 30, 1996, the Managing General Partner had 911 full time
employees, of whom 72 were general and administrative (including fleet
maintenance personnel), 23 were sales, 432 were transportation and product
supply and 384 were district employees. In addition, at November 30, 1996, the
Managing General Partner had 46 temporary and part-time employees. Approximately
131 of such full-time employees are covered by collective bargaining agreements
that expire on various dates in 1997, 1998, and 1999. The Managing General
Partner believes that its relations with both its union and non-union employees
are satisfactory.
The Partnership has no employees; however, for certain purposes, such as
workers' compensation claims, employees of the Managing General Partner who are
providing services for the benefit of the Partnership may also be considered to
be employees of the Partnership under applicable state law.
LITIGATION AND CONTINGENT LIABILITIES
There are a number of lawsuits pending or threatened against the
Partnership. In general, these lawsuits have arisen in the ordinary course of
the Partnership's business and involve claims for actual damages, and in some
cases punitive damages, arising from the alleged negligence of the Partnership
or
94
as a result of product defects or similar matters. Of the pending or threatened
matters, a number involve property damage, and several involve serious personal
injuries or deaths and the claims made are for relatively large amounts.
Although any litigation is inherently uncertain, based on past experience, the
information currently available to it and the availability of insurance coverage
in certain matters, the Partnership does not believe that the pending or
threatened litigation of which the Partnership is aware will have a material
adverse effect on its results of operations or its financial condition. However,
any one or all of these matters taken together may adversely affect the
Partnership's quarterly or annual results of operations and may limit the
Partnership's ability to make distributions to Unitholders.
In addition, certain contingent liabilities related to National Propane's
operations were assumed by the Partnership in connection with the Transactions.
These contingent liabilities include potential environmental remediation costs
(primarily costs related to the remediation of coal tar contamination at the
Managing General Partner's Marshfield, Wisconsin facility). As of September 30,
1996 the Partnership has accrued a liability of approximately $0.4 million for
contingent liabilities associated with the Marshfield facility. There can be no
assurance that the ultimate liability relating to this matter will not exceed
the $0.4 million reserved or that such matter will not have a material adverse
effect on the Partnership's results of operations, financial condition or its
ability to make the Minimum Quarterly Distribution to all Unitholders.
95
MANAGEMENT
PARTNERSHIP MANAGEMENT
The Managing General Partner manages and operates the activities of the
Partnership. Unitholders do not directly or indirectly participate in the
management or operation of the Partnership and have no actual or apparent
authority to enter into contracts on behalf of, or to otherwise bind, the
Partnership. The Managing General Partner owes a fiduciary duty to the
Unitholders. See 'Conflicts of Interest and Fiduciary Responsibility.'
Notwithstanding any limitation on obligations or duties, the Managing General
Partner and the Special General Partner are liable, as the general partners of
the Partnership, for all debts of the Partnership (to the extent not paid by the
Partnership), except to the extent that indebtedness or other obligations
incurred by the Partnership are made specifically non-recourse to either or both
of the General Partners. Whenever possible, the Managing General Partner intends
to make any such indebtedness or other obligations non-recourse to it and the
Special General Partner. However, if the Operating Partnership defaults under
the First Mortgage Notes or the Bank Credit Facility, the Managing General
Partner will be liable for any deficiency remaining after foreclosure on the
Operating Partnership's assets.
The Managing General Partner appointed Frederick W. McCarthy and Willis G.
Ryckman III, who are neither officers nor employees of the General Partners or
any Affiliate of the General Partners, to its Board of Directors. Such directors
serve on the Audit Committee with the authority to review, at the request of the
Managing General Partner, specific matters as to which the Managing General
Partner believes there may be a conflict of interest in order to determine if
the resolution of such conflict proposed by the Managing General Partner is fair
and reasonable to the Partnership. Absent specific delegation from the Board of
Directors of the Managing General Partner, determinations of the Audit Committee
are advisory and do not bind the Managing General Partner. Any matters approved
by the Audit Committee will be conclusively deemed to be fair and reasonable to
the Partnership, approved by all partners of the Partnership and not a breach by
the Managing General Partner of any duties it may owe the Partnership or the
Unitholders. In addition, the Audit Committee reviews external financial
reporting of the Partnership, recommends engagement of the Partnership's
independent accountants and reviews the Partnership's procedures for internal
auditing and the adequacy of the Partnership's internal accounting controls.
With respect to such additional matters, the Audit Committee may act on its own
initiative to question the Managing General Partner and, absent the delegation
of specific authority by the entire Board of Directors, its recommendations will
be advisory.
The Special General Partner, a wholly owned subsidiary of the Managing
General Partner, is a non-managing general partner of the Partnership and the
Operating Partnership with no operations or business other than acting as a
general partner of the Partnership and the Operating Partnership. In the event
that the Managing General Partner is merged with and into Triarc, the Audit
Committee of the Special General Partner will perform the functions described
above previously performed by the Audit Committee of the Managing General
Partner. The Audit Committee of the Special General Partner is composed of the
same directors that serve on the Audit Committee of the Managing General
Partner. In addition, if following a merger of the Managing General Partner with
and into Triarc, a bankruptcy event involving Triarc occurs, the Special General
Partner will become the managing general partner of the Partnership, continue
the business of the Partnership and have all the rights, authority and powers of
the Managing General Partner described in this Prospectus.
As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ any of the persons responsible for managing
or operating the Partnership. In general, the management of National Propane
continues to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its Affiliates. See 'Business and
Properties -- Employees.'
96
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER
The following table sets forth certain information with respect to the
current directors and executive officers of the Managing General Partner.
NAME AGE POSITION WITH THE MANAGING GENERAL PARTNER
- ----------------------------------- --- ----------------------------------------------------------------------
Nelson Peltz....................... 54 Director
Peter W. May....................... 54 Director
Frederick W. McCarthy.............. 55 Director
Willis G. Ryckman III.............. 52 Director
Ronald D. Paliughi................. 53 President, Chief Executive Officer and Director
Ronald R. Rominiecki............... 43 Senior Vice President and Chief Financial Officer
C. David Watson.................... 38 Senior Vice President, Administration, General Counsel and Assistant
Secretary
Nelson Peltz has been a director of the Managing General Partner and a
director and Chairman of the Board and Chief Executive Officer of Triarc since
April 23, 1993. Since then, he has also been a director and Chairman of the
Board and Chief Executive Officer of certain of Triarc's other subsidiaries,
including RC/Arby's Corporation formerly known as Royal Crown Corporation
('RCAC'). He is also a general partner of DWG Acquisition Group, L.P. ('DWG
Acquisition'), whose principal business is ownership of securities of Triarc.
From its formation in January 1989 until April 23, 1993, Mr. Peltz was Chairman
and Chief Executive Officer of Trian Group, Limited Partnership ('Trian'), which
provided investment banking and management services for entities controlled by
Mr. Peltz and Mr. May. From 1983 to December 1988, he was Chairman and Chief
Executive Officer and a director of Triangle Industries, Inc. ('Triangle'),
which, through wholly-owned subsidiaries, was, at that time, a manufacturer of
packaging products, copper electrical wire and cable and steel conduit and
currency and coin handling products. From November 1989 through May 1992, Mr.
Peltz was director of Mountleigh Group plc, a British property trading and
retailing company ('Mountleigh'). He served in various executive capacities,
including Executive Chairman, of Mountleigh from November 1989 until October
1991.
Peter W. May has been a director of the Managing General Partner and a
director and President and Chief Operating Officer of Triarc since April 23,
1993. Since then, he has also been a director and President and Chief Operating
Officer of certain of Triarc's other subsidiaries, including RCAC. He is also a
general partner of DWG Acquisition. From its formation in January 1989 until
April 23, 1993, Mr. May was President and Chief Operating Officer of Trian. He
was President and Chief Operating Officer and a director of Triangle from 1983
until December 1988. From November 1989 through May 1992, Mr. May was a director
of Mountleigh and served as Joint Managing Director of Mountleigh from November
1989 until October 1991. Mr. May was also named a director on April 29, 1993 of
The Leslie Fay Companies, Inc. following its filing on April 5, 1993 for
protection under Chapter 11 of the United States Bankruptcy Code.
Frederick W. McCarthy has been a director of the Managing General Partner
since September 25, 1996. Mr. McCarthy has been Chairman of Triumph Capital
Group, Inc., an investment management firm, since 1990. Mr. McCarthy was
formerly a Managing Director of Drexel Burnham Lambert where he was employed
from 1974 until 1990. Mr. McCarthy serves as a director of EnviroWorks, Inc., a
manufacturer of lawn and garden products, and of Paragon Acceptance Corporation,
an automotive finance company.
Willis G. Ryckman III has been a director of the Managing General Partner
since September 25, 1996. Mr. Ryckman has served as the Chairman of Tri-Tech
Labs, Inc., a holding company, since June 1992, Chairman of Irma Shorell, Inc.,
a cosmetics company, since April 1993, and Managing Director and Chief Operating
Officer of Associated Capital, a hedge fund, since April 1995 and Chairman of
Omni Capital, a finance company, since January 1996. Mr. Ryckman is a Director
of Banyan Hotel Management Corporation, Krasdale Foods, Inc. and Panavision Inc.
Ronald D. Paliughi has been President and Chief Executive Officer of the
Managing General Partner since April 29, 1993. From May 1992 through April 1993,
Mr. Paliughi was a temporary, full time officer in the U.S. Army National Guard,
serving as an Army Aviator. During 1991, he served on
97
active duty as an Army Aviator and commissioned officer in Operation Desert
Shield/Storm. From 1987 to 1990, Mr. Paliughi was Senior Vice
President -- Western Operations of AmeriGas Propane, Inc. (then a subsidiary of
UGI Corporation), the largest propane company in the U.S. During 1986, Mr.
Paliughi was Director of Retail Operations of CalGas Corporation. For more than
14 years prior, he held various positions with VanGas, Inc. ('VanGas'), the
western subsidiary of Suburban Propane Gas (then a division of Quantum Chemical
Corporation), the third largest U.S. propane company. He last served as Senior
Vice President/General Manager, the top executive officer at VanGas.
Ronald R. Rominiecki joined the Managing General Partner on December 1,
1995 as Senior Vice President and Chief Financial Officer. From April 1994 to
November 1995, he served as Vice President and Chief Financial Officer of
O'Brien Environmental Energy, Inc. ('O'Brien'), a publicly-owned company engaged
in cogeneration and other energy related businesses. In September 1994 O'Brien
filed a petition in bankruptcy under Chapter 11 of the United States Code. From
June 1988 to March 1994, Mr. Rominiecki was Corporate Controller at Westmoreland
Coal Company, a NYSE listed company.
C. David Watson has been Senior Vice President, Administration, General
Counsel and Assistant Secretary of the Managing General Partner since December
19, 1996. From December 2, 1996 to December 18, 1996 he was Senior Vice
President. He is responsible for legal matters, real estate, fleet management,
plant engineering, safety, risk management, human resources, insurance and
public relations. Prior to his employment with the Managing General Partner, he
was with the law firm of Jenner & Block in Chicago, Illinois, as a partner from
January 1, 1993 to November 30, 1996, and as an associate from September 25,
1986 to December 31, 1992.
Each director has been elected to serve until the Managing General
Partner's next annual meeting of stockholders and until such director's
successor is duly elected and qualified or until his death, resignation or
removal. The term of office of each executive officer is until the next annual
meeting of the Board of Directors of the Managing General Partner and until his
successor is elected and qualified or until his death, resignation or removal.
REIMBURSEMENT OF EXPENSES OF THE MANAGING GENERAL PARTNER
In general, the management and employees of National Propane who managed
and operated the propane business and assets of National Propane prior to the
IPO continue to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its Affiliates. The Partnership
does not have any officers or employees of its own. The Operating Partnership's
corporate subsidiary does, however, have its own employees to manage and operate
its business. The Managing General Partner does not receive any management fee
or other compensation in connection with its management of the Partnership, but
is reimbursed at cost for all direct and indirect expenses incurred on behalf of
the Partnership, including the costs of compensation and employee benefit plans
described herein properly allocable to the Partnership, and all other expenses
necessary or appropriate to the conduct of the business of, and allocable to,
the Partnership. The Partnership Agreement provides that the Managing General
Partner shall determine the expenses that are allocable to the Partnership in
any reasonable manner determined by the Managing General Partner in its sole
discretion. Affiliates of the Managing General Partner (including Triarc) may
perform certain administrative services for the Managing General Partner on
behalf of the Partnership. Such Affiliates will not receive a fee for such
services performed for or on behalf of the Partnership, but will be reimbursed
for all direct and indirect expenses incurred in connection therewith. In
addition, the General Partners and their Affiliates may provide additional
services to the Partnership, for which the Partnership will be charged
reasonable fees as determined by the Managing General Partner.
In addition, in connection with the IPO, the Managing General Partner
received an aggregate 2% unsubordinated General Partner Interest and a 40.6%
interest (at that date) as holder of the Subordinated Units as consideration for
its contribution to the Partnership of its limited partner interest in the
Operating Partnership, which was received as consideration for its contribution
to the Operating Partnership of the propane business of National Propane. Such
Subordinated Units currently represent a 38.7% interest in the Partnership. The
Managing General Partner will be entitled to distributions on such Units, and
the Managing General Partner will be entitled to incentive distributions as
holder of the Incentive Distribution rights, as described under 'Cash
Distribution Policy.'
98
EXECUTIVE COMPENSATION
The following table sets forth the annual salaries, bonuses and all other
compensation awards and payouts earned by the President and Chief Executive
Officer and by certain named executive officers of the Managing General Partner
(collectively, the 'Named Officers') for services rendered to the Managing
General Partner and its subsidiaries during the fiscal years ended December 31,
1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
ANNUAL
COMPENSATION OTHER
---------------------- ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
- ---------------------------------------- ---- --------- -------- ------------
Ronald D. Paliughi ..................... 1996 277,083 500,000 (4) --
President and Chief Executive Officer 1995 250,000 -- --
1994 250,000 300,000 --
Ronald R. Rominiecki ................... 1996 165,000 100,000 (4) --
Senior Vice President and Chief 1995 13,750(8) -- --
Financial Officer 1994 -- -- --
C. David Watson ........................ 1996 10,417(10) -- --
Senior Vice President, Administration, 1995 -- -- --
General Counsel and Assistant 1994 -- -- --
Secretary
Laurie B. Crawford ..................... 1996 122,917 124,500 --
Former Senior Vice President, 1995 88,333 -- --
Administration, General Counsel and 1994 78,472 20,000 --
Assistant Secretary
LONG-TERM COMPENSATION
----------------------------------------------
AWARDS
----------------------------------------------
NUMBER OF
SECURITIES LTIP
RESTRICTED STOCK UNDERLYING PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(S)(#)(1) OPTIONS/SARS(#)(2) ($) COMPENSATION(3)($)
- ---------------------------------------- ----------------- ------------------ ------- ------------------
Ronald D. Paliughi ..................... -- -- -- --
President and Chief Executive Officer -- 30,000(5) -- 2,592
5,000 51,000(6) -- 96,178(7)
Ronald R. Rominiecki ................... -- -- -- --
Senior Vice President and Chief -- 20,000(5) -- 63,000(9)
Financial Officer -- -- -- --
C. David Watson ........................ -- -- -- --
Senior Vice President, Administration, -- -- -- --
General Counsel and Assistant -- -- -- --
Secretary
Laurie B. Crawford ..................... -- -- -- --
Former Senior Vice President, -- 7,500(11) -- 1,579
Administration, General Counsel and -- 10,000(11) -- 1,117
Assistant Secretary
- ------------
(1) All restricted stock awards were of Triarc's Class A Common Stock, par
value $.10 per share (the 'Class A Common Stock'), and were made pursuant
to Triarc's 1993 Equity Participation Plan (described below). Restrictions
on such shares lapsed prior to December 31, 1996.
(2) All stock option grants were made pursuant to Triarc's 1993 Equity
Participation Plan. The option grants are described below under 'Option/SAR
Grants in Last Fiscal Year, Individual Grants.'
(3) Amounts of other compensation with respect to 1996 have not yet been
determined. Except as otherwise noted, consists only of life insurance
premiums and 401(k) contributions paid by National Propane.
(4) To be paid by Triarc in connection with activities related to the
monetization of its propane business.
(5) One-third of the options granted will vest on each of the first, second and
third anniversaries of the date of grant and the options will be
exercisable at any time between the date of vesting and the tenth
anniversary of the date of grant.
(6) With respect to 26,000 of the options granted, one-third of such options
will vest on each of the first, second and third anniversary of the date of
grant. With respect to the remaining 25,000 options, one-third of such
options will vest on each of the third, fourth and fifth anniversary of the
date of grant. All of such options will be exercisable at any time between
the date of vesting and the tenth anniversary of the date of grant.
(7) Includes $33,333 for certain salary allowances and $60,829 of reimbursed
moving expenses in connection with Mr. Paliughi's relocation to Cedar
Rapids, Iowa.
(8) Mr. Rominiecki began his employment with the Managing General Partner on
December 1, 1995. The amount reported is based on an annual salary of
$165,000.
(9) Represents a one-time bonus payable in connection with Mr. Rominiecki's
employment by the Managing General Partner.
(footnotes continued on next page)
99
(footnotes continued from previous page)
(10) Mr. Watson began his employment with the Managing General Partner on
December 2, 1996. The amount reported was based on an annual salary of
$125,000. See ' -- Employment Arrangements with Executive Officers' below.
(11) In connection with the termination of Ms. Crawford's employment by the
Managing General Partner on December 18, 1996, all of Ms. Crawford's stock
options immediately vested and are exercisable until March 18, 1997.
CASH INCENTIVE PLANS
Triarc has implemented an annual cash incentive plan (the 'Annual Incentive
Plan') for executive officers and key employees of National Propane and is
presently developing a mid-term cash incentive plan (the 'Mid-Term Incentive
Plan') for executive officers and key employees of National Propane.
The Annual Incentive Plan is designed to provide annual incentive awards to
participants, 50% of which are based on whether National Propane has met certain
pre-determined goals and 50% of which is based on the performance of the
participant during the preceding year. Under the Annual Incentive Plan,
participants may receive awards of a specified percentage of their then current
base salaries, which percentage varies depending upon the level of seniority and
responsibility of the participant. Such percentage is set by National Propane's
management in consultation with management of Triarc. The Board of Directors of
National Propane, in consultation with management of Triarc and the Compensation
Committee of the Triarc Board of Directors (the 'Compensation Committee'), may
elect to adjust awards on a discretionary basis to reflect the relative
individual contribution of the executive or key employee, to evaluate the
'quality' of National Propane's earnings or to take into account external
factors that affect performance results. The Board of Directors of National
Propane also may decide that multiple performance objectives related to National
Propane's and/or the individual's performance may be appropriate and, in such
event, such factors would be weighted in order to determine the amount of the
annual incentive awards. The Annual Incentive Plan is administered by National
Propane's Board of Directors and Triarc's management and may be amended or
terminated by such Board of Directors and Triarc's management at any time.
Under the Mid-Term Incentive Plan, incentive awards will be granted to
participants if National Propane achieves an agreed upon profit over a three
year performance cycle. During each plan year, an amount will be accrued for
each participant based upon the amount by which National Propane's profit for
such year exceeds a minimum return to be determined. A new three-year
performance cycle will begin each year, such that after the third year the
annual cash amount paid to participants pursuant to the Mid-Term Incentive Plan
should equal the target award if National Propane's profit goals have been
achieved for the full three-year cycle. The Board of Directors of National
Propane, together with Triarc's management and the Compensation Committee of
Triarc's Board of Directors, may adjust, upward or downward, an individual's
award based upon an assessment of the individual's relative contribution to
National Propane's longer-term profit performance. The Board of Directors of
Triarc and Triarc's management may amend or terminate the Mid-Term Incentive
Plan at any time.
From time to time, the Compensation Committee of the Triarc Board may, at
the request of Triarc's or National Propane's management, award discretionary
bonuses based on performance to certain executive officers. The amounts of such
bonuses will be based on the Compensation Committee's evaluation of each such
individual's contribution.
TRIARC'S 1993 EQUITY PARTICIPATION PLAN
Certain executive officers of the Managing General Partner have
participated in the Triarc Companies, Inc. 1993 Equity Participation Plan which
was adopted on April 24, 1993, and which provides that awards may be made
thereunder until April 24, 1998. The plan provides for, among other things, the
grant of options to purchase Triarc's Class A Common Stock, Stock Appreciation
Rights ('SARs') and restricted shares of Class A Common Stock. Directors,
selected officers and key employees of, and key consultants to, Triarc and its
subsidiaries, including the Managing General
100
Partner, are eligible to participate in the plan. The plan is being administered
by the Compensation Committee of the Triarc Board of Directors, which may
determine from time to time to grant options, SARs and restricted stock.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
No options to purchase shares of Triarc Class A Common Stock or SARs have
been granted to any of the Named Officers in respect of 1996.
OPTION/SAR EXERCISES IN 1996 AND YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning options to
purchase shares of Triarc Class A Common Stock, and the values at the end of
1996 of unexercised in-the-money options to purchase shares of Triarc Class A
Common Stock granted to the Named Officers outstanding as of the end of 1996. No
Named Officer exercised any options to purchase Triarc Class A Common Stock in
1996.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT
FISCAL 1996 AT FISCAL 1996
YEAR-END YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------
Ronald D. Paliughi....................................... 40,667 80,333 $26,750 $34,000
Ronald R. Rominiecki..................................... 6,667 13,333 9,167 18,333
C. David Watson.......................................... -- -- -- --
Laurie B. Crawford....................................... 17,500 -- 14,063 --
- ------------
(1) On December 31, 1996, the last day of Fiscal 1996, the closing price of the
Triarc Class A Common Stock was $11.50 per share.
UNIT OPTION PLAN
Effective upon the closing of the IPO, the Managing General Partner adopted
the National Propane Corporation 1996 Unit Option Plan (the 'Option Plan'),
which permits the issuance of options (the 'Options') and Unit appreciation
rights ('UARs') to eligible persons. An aggregate of 1,250,000 Common Units and
Subordinated Units are initially reserved for issuance as of the Option Plan's
effective date. Pursuant to the terms of the Option Plan, an additional number
of Units equal to 1% of the number of Units outstanding as of each December 31
following the Option Plan's effective date will be added to the total number of
Units that may be issued thereafter. Accordingly, as of December 31, 1996, an
additional 67,015 Units were available for issuance under the Option Plan. The
number of Units available for issuance will also be increased by the number of
Units received by the Managing General Partner as payment of the exercise price
of Options and by the number of Units purchased by the Managing General Partner
from an amount equal to the cash proceeds received by the Managing General
Partner on the exercise of Options. The number of Units available for issuance
pursuant to the Option Plan is subject to adjustment in certain circumstances.
The following is a summary of the material terms of the Option Plan and is
qualified in its entirety by reference to the Option Plan, which is an exhibit
to the Registration Statement of which this Prospectus is a part.
The Option Plan has been designed to furnish additional incentive
compensation to selected directors, officers, employees and consultants of the
Managing General Partner and its Affiliates and to increase their personal and
proprietary interest in the future performance of the Partnership. Approximately
1,000 directors, officers, employees, and consultants will be eligible to
participate in the Option Plan. In addition, in the event that the provision
relating to disinterested administration in Rule 16b-3 under the 1934 Act (as in
effect on the Option Plan's effective date) becomes inapplicable to the Managing
General Partner and the Partnership, directors who are not employees or officers
of the Managing General Partner will be eligible to receive Options and UARs.
101
The Option Plan is administered by the Managing General Partner's
compensation committee (the 'Committee'). The Committee, in its sole discretion
and authority, but subject to the terms of the Option Plan, determines the
directors, officers, employees and consultants who are eligible to receive
Options and UARs and the date of grant, number of Units, exercise price, vesting
schedule, duration (not to exceed ten years) and other terms and conditions
applicable to each Option and UAR granted under the Option Plan. The Committee
may accelerate the exercisability of Options and UARs. No Option or UAR with
respect to Subordinated Units will become exercisable before the end of the
Subordination Period.
On a change of control (as defined in the Option Plan), the Committee will
have discretion to accelerate the exercisability (and duration) of outstanding
Options and UARs or cancel outstanding Options and UARs in exchange for cash.
The exercise price of each Option may be paid in the form of cash, check
acceptable to the Managing General Partner, Units held by the participant for
such period as may be required to avoid a charge to earnings for financial
reporting purposes, or such other form of consideration permitted by the
Committee, including by assignment of a portion of the proceeds on sale of Units
deliverable upon exercise or any combination of the foregoing.
Units delivered by the Managing General Partner on exercise of an Option or
UAR may consist of Units acquired in the open market or from any person
(including Units newly issued by the Partnership), Units already owned by the
Managing General Partner, or any combination of the foregoing. Options and UARs
are generally nontransferable.
With respect to each Unit delivered upon the exercise of an Option (unless
newly issued by the Partnership), the Managing General Partner shall be entitled
to reimbursement by the Partnership for the excess, if any, of (i) the fair
market value of each such Unit (as of the date of exercise of such Option) or,
in the case of Units purchased in the open market, the price actually paid by
the Managing General Partner therefor over (ii) the exercise price of the Option
relating to such Unit. With respect to the settlement of a UAR, the Managing
General Partner shall be entitled to reimbursement by the Partnership for (i)
the amount of cash, if any, paid in connection with such settlement or (ii) the
fair market value of each such Unit delivered in connection with such settlement
(unless such Unit is newly issued by the Partnership). Thus, the cost of the
Options and UARs will be borne by the Partnership.
The Committee may grant UARs in such amounts and subject to such terms and
conditions as the Committee may determine. UARs may be granted in connection
with all or any part of, or independently of, any Option granted under the
Option Plan. The grantee of a UAR has the right to receive from the Managing
General Partner an amount equal to (a) the excess of (i) the fair market value
of a Unit on the date of exercise of the UAR over (ii) the fair market value of
a Unit on the date of grant (or over the Option exercise price if the UAR is
granted in connection with an Option), multiplied by (b) the number of Units
with respect to which the UAR is exercised. Payment to the grantee upon exercise
of a UAR will be in cash or in Units (valued at their fair market value on the
date of exercise of the UAR) or both, all as the Committee shall determine in
its sole discretion. Upon the exercise of a UAR granted in connection with an
Option, the number of Units subject to the related Option shall be reduced by
the number of Units with respect to which the UAR is exercised. Upon the
exercise of an Option in connection with which a UAR has been granted, the
number of Units subject to the related UAR shall be reduced by the number of
Units with respect to which the Option is exercised.
The Board of Directors of the Managing General Partner in its discretion
may terminate the Option Plan at any time with respect to any Units for which a
grant has not theretofore been made. The Board of Directors will also have the
right to alter or amend the Option Plan, any award made thereunder or any part
thereof from time to time; provided, that no change in any previously granted
Option or UAR may be made which would impair the rights of the grantee without
the consent of such grantee; and provided further, that to the extent necessary
to comply with Rule 16b-3 under the 1934 Act, no such amendment or alteration
will, without the requisite consent under such Rule 16b-3: (i) materially
increase the total number of Units available for Options and UARs under the
Option Plan, subject to certain exceptions; (ii) materially modify the
requirements as to eligibility for participation in the Option Plan; (iii)
extend the maximum period during which Options and UARs may
102
be granted under the Option Plan; or (iv) materially increase the benefits
accruing to participants under the Option Plan.
Generally, no tax is imposed on the grantee upon the grant of an Option or
UAR under the Plan and neither the Partnership nor the Managing General Partner
will be entitled to a tax deduction by reason of such a grant. Generally, upon
the exercise of an Option, the optionee will be taxable on ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the Units on the date of exercise over the Option exercise price and the
employer will be entitled to a deduction in an equivalent amount. In general,
upon exercising a UAR, the amount of any cash received and the fair market value
on the exercise date of any Units or other property received are taxable to the
recipient as ordinary income and deductible by the employer. Insofar as the
Partnership will reimburse the Managing General Partner for the difference
between the cost incurred by the Managing General Partner in acquiring Units to
deliver to the optionee or holder of UARs upon exercise and the proceeds
received by the Managing General Partner from the optionee in connection with
such exercise, the Managing General Partner will generally be treated as
receiving income in the amount of such reimbursement and the Partnership may
claim a deduction for such payment. Upon a subsequent disposition of the Units
received upon exercise of an Option or UAR, any appreciation after the date of
exercise will generally qualify as capital gain. If the Units received upon the
exercise of an Option or UAR are transferred to the optionee subject to certain
restrictions, then the taxable income realized by the optionee, unless the
optionee elects otherwise, and the corresponding tax deduction (assuming any
federal income tax withholding requirements are satisfied) should be deferred
and should be measured at the fair market value of the Units at the time the
restrictions lapse. The restrictions imposed on certain individuals by Section
16(b) of the 1934 Act may constitute such a transfer restriction during the
period prescribed thereby with respect to Options or UARs exercised within six
months of the grant date thereof.
No Options or UARs have been granted as of the date of this Prospectus.
COMPENSATION OF DIRECTORS
The Managing General Partner pays no additional remuneration to its
employees (or employees of any of its Affiliates) for serving as directors or to
directors who are not employees of the Managing General Partner or any of its
Affiliates. The Managing General Partner may in the future pay remuneration to
its directors. In addition, the Partnership anticipates that directors who are
not employees of the Managing General Partner or its Affiliates will be
compensated for serving as such, will be reimbursed for out-of-pocket expenses
and will be eligible to participate in the Partnership's or Managing General
Partner's Unit purchase or option plans, if any.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
Mr. Paliughi has an employment contract with the Managing General Partner,
effective as of April 24, 1993, as amended, pursuant to which (i) the Managing
General Partner agrees to employ Mr. Paliughi as President and Chief Executive
Officer through January 2, 1998, (ii) Mr. Paliughi receives a base salary of
$300,000 per annum (effective June 15, 1996) during his employment (subject to
increase at the discretion of the Board of Directors), (iii) Mr. Paliughi is
eligible to participate in the Annual Incentive Plan, enabling him to receive an
annual cash bonus of up to 75% of his base salary based upon the achievement of
certain individual and Partnership performance objectives, (iv) Mr. Paliughi is
eligible to participate in the Mid-Term Incentive Plan, enabling him to receive
an annual bonus award at least equal to 75% of his base salary based upon the
achievement by the Partnership of certain financial performance objectives over
a three-year performance cycle, (v) Mr. Paliughi is entitled to severance
benefits generally equal to two years base salary and bonuses (approximately
$1,050,000 if such termination occurred on June 15, 1996) and certain relocation
payments in the event he is terminated other than for cause (as defined), or if
his existing employment agreement is not renewed or extended on substantially
similar terms and (vi) Mr. Paliughi is entitled to participate in other
generally available compensation plans and receives various other benefits
including reimbursement of certain expenses. The agreement also restricts Mr.
Paliughi from competing with the General Partner for 24 months after the
termination of the agreement if such termination results from Mr. Paliughi's
voluntary
103
resignation or the Managing General Partner's termination of Mr. Paliughi's
employment for cause (as defined in the agreement).
Mr. Rominiecki has a severance agreement with the Managing General Partner
which provides that in the event he is terminated by the Managing General
Partner other than for cause (as defined in the agreement), he is entitled to
severance benefits generally equal to his annual compensation (approximately
$165,000 if such termination occurred on June 15, 1996) if such termination
occurs prior to December 1, 1996 or within one year of a change of control (as
defined in the agreement) of the Managing General Partner or six month's
compensation if such termination occurs thereafter.
Mr. Watson has an employment agreement with the Managing General Partner
pursuant to which (i) Mr. Watson is employed as Senior Vice
President -- Administration and General Counsel effective December 19, 1996,
(ii) Mr. Watson receives a base salary of $125,000 per annum, (iii) Mr. Watson
is eligible to participate in the Annual Incentive Plan, enabling him to receive
an annual cash bonus of up to 50% of his base salary, based upon the achievement
of certain individual and Partnership performance objectives, (iv) Mr. Watson is
eligible to participate in the Mid-Term Incentive Plan, enabling him to receive
an annual bonus award equal to 40% of his base salary, based upon the
achievement by the Partnership of certain financial performance objectives over
a three-year performance cycle, (v) Mr. Watson is entitled to severance benefits
generally equal to one year's base salary and bonuses in the event he is
terminated other than for cause (as defined) during the term of his employment
agreement, (vi) Mr. Watson received a relocation allowance equal to the net
amount of two months salary, which amount must be repaid if Mr. Watson
voluntarily separates from the Managing General Partner within the first year
from his date of hire, and (vii) Mr. Watson is entitled to participate in other
generally available compensation plans and receive various other benefits,
including reimbursement of certain expenses.
Ms. Crawford's employment by the Managing General Partner ended effective
December 18, 1996. In accordance with the terms of her employment agreement with
the Managing General Partner, Ms. Crawford will receive (i) severance pay at the
annual base salary of $137,500 from January 1, 1997 through December 18, 1998,
(ii) $65,625 in the first quarter of 1997 and $68,750 in the first quarter of
1998 in lieu of bonuses which otherwise would have been paid to Ms. Crawford
with respect to 1996 and 1997 and (iii) accrued and unpaid vacation time through
the date of termination. In addition, Ms. Crawford is eligible to maintain her
current health and medical coverage for 18 months following the date of
termination at the cost of the Managing General Partner. In addition, all of Ms.
Crawford's Triarc stock options immediately vested and are exercisable until
March 18, 1997.
104
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF PARTNERSHIP UNITS BY THE DIRECTORS AND EXECUTIVE
OFFICERS OF THE MANAGING GENERAL PARTNER AND THE SELLING UNITHOLDER
The table below sets forth the beneficial ownership as of December 31,
1996, by each person known by the Managing General Partner to be the beneficial
owner of more than 5% of any class of Units of the Partnership, including the
Selling Unitholder, each director and each Named Officer of the Managing General
Partner and the executive officers and directors of the Managing General Partner
as a group. The Common Units are traded on the NYSE.
CLASS OF AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------------------------- ------------- -------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ... Common 401,250(2) 6.0%
250 Vesey Street
New York, N.Y. 10281
National Propane Corporation .......................... Subordinated 4,533,638 100%
IES Tower, Suite 1700
200 First Street, S.E.
Cedar Rapids, I.A. 52401
Nelson Peltz .......................................... Common 1,210(3) *
280 Park Avenue
New York, N.Y. 10017
Peter W. May .......................................... Common 30,000 *
280 Park Avenue
New York, N.Y. 10017
Frederick W. McCarthy ................................. Common -- *
222 Lakeview Avenue
West Palm Beach, FL 33401
Willis G. Ryckman III ................................. Common -- *
477 Madison Avenue
New York, NY 10022
Ronald D. Paliughi..................................... Common -- *
Ronald R. Rominiecki................................... Common 200 *
C. David Watson........................................ Common -- *
All executive officers and directors as a group
(7 persons).......................................... Common 31,410 *%
- ------------
* Less than 1%
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such Units.
(2) In addition to the 400,000 Common Units offered hereby, includes 1,250
Common Units held in discretionary customer accounts. As to 250 of such
Common Units, the Selling Unitholder has joint voting and dispositive power.
(3) Includes 1,210 Units owned by minor children of Mr. Peltz. Mr. Peltz
disclaims beneficial ownership of these Units.
105
OWNERSHIP OF TRIARC COMMON STOCK BY THE DIRECTORS
AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER
AND CERTAIN BENEFICIAL OWNERS
All of the issued and outstanding shares of common stock of the General
Partner are indirectly owned by Triarc. The table below sets forth the
beneficial ownership as of December 31, 1996, by each person known by the
Managing General Partner to be the beneficial owner of more than 5% of the
outstanding shares of Triarc Class A Common Stock (constituting the only class
of voting capital stock of Triarc), each director and each Named Officer of the
Managing General Partner and the executive officers and directors of the
Managing General Partner as a group. Triarc's Class A Common Stock is traded on
the NYSE.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) PERCENT OF CLASS
- ----------------------------------------------------------------------- --------------------- ----------------
Nelson Peltz .......................................................... 6,974,967(2)(3)(4)(5) 28.1%
280 Park Avenue
New York, NY 10017
Peter W. May .......................................................... 6,653,000(2)(4)(6) 27.1%
280 Park Avenue
New York, NY 10017
DWG Acquisition Group, L.P. ........................................... 5,982,867(4) 25.1%
1201 North Market Street
Wilmington, DE 19801
William Ehrman ........................................................ 1,460,093(7)(8) 6.1%
300 Park Avenue
New York, NY 10022
Frederick Ketcher ..................................................... 1,390,493(7)(9) 5.8%
300 Park Avenue
New York, NY 10022
Jonas Gerstl .......................................................... 1,376,793(7)(10) 5.8%
300 Park Avenue
New York, NY 10022
Frederic Greenberg .................................................... 1,370,793(7)(11) 5.7%
300 Park Avenue
New York, NY 10022
James McLaren ......................................................... 1,365,793(7)(12) 5.7%
300 Park Avenue
New York, NY 10022
Frederick W. McCarthy.................................................. -- *
Willis G. Ryckman III.................................................. -- *
Ronald D. Paliughi..................................................... 59,000(13) *
Ronald R. Rominiecki................................................... 6,667(14) *
C. David Watson........................................................ -- *
All executive officers and directors as a group (7 persons)............ 7,710,767 30.2%
- ------------
* Less than 1%.
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.
(2) Includes 5,982,867 shares held by DWG Acquisition, of which Mr. Peltz and
Mr. May are the sole general partners.
(3) Includes 200 shares owned by a family trust of which Mr. Peltz is a general
partner. Mr. Peltz disclaims beneficial ownership of such 200 shares.
(4) The Partnership is informed that DWG Acquisition has pledged such shares to
a financial institution on behalf of Messrs. Peltz and May to secure loans
made to them.
(5) Includes options to purchase 965,000 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.
(6) Includes options to purchase 643,333 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.
(footnotes continued on next page)
106
(footnotes continued from previous page)
(7) The information set forth herein with respect to Messrs. Ehrman, Greenberg,
Ketcher, Gerstl and McLaren is based solely on information contained in a
Schedule 13D, dated July 16, 1996, filed pursuant to the Securities
Exchange Act of 1934, as amended.
(8) Includes 39,150 shares of Class A Common Stock owned by members of Mr.
Ehrman's immediate family and an aggregate of 1,365,793 shares of Class A
Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, L.P., a Delaware limited partnership ('EGS Associates'),
EGS Partners, L.L.C., a Delaware limited liability company ('EGS
Partners'), Bev Partners, L.P., a Delaware limited partnership ('Bev
Partners'), and Jonas Partners, L.P., a Delaware limited partnership
('Jonas Partners').
(9) Includes 1,100 shares of Class A Common Stock owned by a member of Mr.
Ketcher's immediate family and his mother-in-law and an aggregate of
1,365,793 shares of Class A Common Stock he may be deemed to beneficially
own as a general partner of EGS Associates, EGS Partners, Bev Partners and
Jonas Partners.
(10) Includes 8,500 shares of Class A Common Stock owned by a member of Mr.
Gerstl's immediate family and an aggregate of 1,365,793 shares of Class A
Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, EGS Partners, Bev Partners and Jonas Partners.
(11) Includes 3,000 shares of Class A Common Stock owned by a member of Mr.
Greenberg's immediate family and an aggregate of 1,365,793 shares of Class
A Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, EGS Partners, Bev Partners and Jonas Partners.
(12) Constitutes the shares of Class A Common Stock Mr. McLaren may be deemed to
beneficially own as a general partner of EGS Associates, EGS Partners, Bev
Partners and Jonas Partners.
(13) Includes options to purchase 49,000 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.
(14) Represents options to purchase 6,667 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.
------------------------
The foregoing table does not include 5,997,622 shares of Triarc's
non-voting Class B Common Stock owned by Victor Posner or entities related to
Victor Posner as a result of a certain Settlement Agreement dated on January 9,
1995. The shares of Class B Common Stock can be converted without restriction
into an equal number of shares of Class A Common Stock following a transfer to a
non-affiliate of Victor Posner. Triarc has certain rights of first refusal if
such shares are proposed to be sold to an unaffiliated party. If the 5,997,622
currently outstanding shares of the Class B Common Stock were converted into
shares of Class A Common Stock, such shares would constitute approximately 20.1%
of the then outstanding shares of Class A Common Stock as of December 31, 1996.
107
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RIGHTS OF THE GENERAL PARTNERS
The Partnership and the Managing General Partner have extensive ongoing
relationships with Triarc and its Affiliates. Affiliates of the Managing General
Partner, including Triarc, perform certain administrative services for the
Managing General Partner on behalf of the Partnership. Such Affiliates do not
receive a fee for such services, but are reimbursed for all direct and indirect
expenses incurred in connection therewith. See 'Management -- Reimbursement of
Expenses of the Managing General Partner.' In addition, the Managing General
Partner owns all of the Subordinated Units, representing 40.4% of the
outstanding Units. Triarc indirectly owns 100% of the General Partners. Through
the Managing General Partner's ability to control the management of the
Partnership and its right to vote the Subordinated Units (effectively giving the
Managing General Partner the ability to veto certain actions of the
Partnership), the Managing General Partner and its Affiliates have the ability
to exercise substantial control over the Partnership. See 'Conflicts of Interest
and Fiduciary Responsibility.'
TRANSACTIONS INVOLVING TRIARC AND ITS AFFILIATES
In January 1996, the Partnership entered into a five-year lease, as lessee,
with Graniteville, then a wholly owned subsidiary of Triarc, as lessor, with
respect to certain storage facilities located in Graniteville, South Carolina.
As consideration for the use of the leased premises, the Partnership is required
to provide all of Graniteville's annual propane requirements (up to 700,000
gallons annually) at cost plus delivery expenses. Pursuant to the Graniteville
Sale, such lease was assigned to Avondale and amended to provide that it may be
terminated by either party thereto upon six months' notice.
In August 1995 Triarc, through a wholly owned subsidiary, acquired all of
the outstanding stock of two related propane distribution businesses. The
aggregate purchase price was approximately $4.2 million (including the
assumption of certain existing indebtedness). In September 1995 the stock of the
subsidiary which acquired the two companies was contributed by Triarc to NPC
Holdings, Inc. ('NPC Holdings') which, in turn, contributed such stock to the
Managing General Partner. In consideration for such contribution, NPC Holdings
received an additional 30 shares of the Managing General Partner's common stock,
increasing its ownership of the Managing General Partner to 75.7% from 75.2%.
In December 1995, National Propane borrowed $30 million under the Former
Credit Facility and dividended such amount to subsidiaries of Triarc ($22.7
million) and SEPSCO ($7.3 million) in proportion to their respective percentage
ownership in National Propane. On February 22, 1996, the 11 7/8% senior
subordinated debentures of SEPSCO were redeemed. The cash for such redemption
came from the proceeds of the $30 million of borrowings (which, under the Former
Credit Facility, were restricted to the redemption of the 11 7/8% Debentures),
liquidation of marketable securities and existing cash balances. The
indebtedness incurred in part to finance such redemption was assumed by the
Operating Partnership and repaid in connection with the Transactions.
In the fourth quarter of 1995, the Managing General Partner sold
approximately $3.9 million face amount of its accounts receivable to Triarc for
approximately $3.8 million. As collections on such accounts receivable are
received by the Managing General Partner they are remitted to Triarc on a
periodic basis. This arrangement terminated on July 2, 1996 with a final payment
to Triarc of approximately $300,000.
The Managing General Partner receives from Triarc certain management
services including legal, accounting, tax, insurance, financial and other
management services. Effective April 23, 1993 the Managing General Partner
entered into a management services agreement with Triarc, which was amended as
of July 2, 1996 (as so amended, the 'Management Services Agreement'), pursuant
to which Triarc is entitled to certain management fees from the Managing General
Partner for services which do not relate to the business or operations of the
Partnership or its subsidiaries and to (i) reimbursement of expenses incurred by
it from the Partnership or the Operating Partnership regarding administrative
services performed with respect to the business or operations of the Partnership
and its subsidiaries and (ii) such reasonable fees as may be agreed to by Triarc
and the Partnership for the performance by Triarc of any other services provided
by it that relate to the business of the Partnership and its subsidiaries. Prior
to April 23, 1993, the costs of management services were allocated by Triarc to
its subsidiaries under a former management services agreement (the 'Former
Management
108
Services Agreement') based first directly on the cost of the services provided
and then, for those costs which could not be directly allocated, based upon the
relative revenues and tangible assets as a percentage of Triarc's corresponding
consolidated amounts. Additionally, in Transition 1993 the Managing General
Partner was allocated certain costs representing uncollectible amounts owed to
Triarc for similar management services by certain affiliates or former
affiliates. For additional information regarding the Management Services
Agreement and the Former Management Services Agreement, see note 19 to the
consolidated financial statements of National Propane.
Chesapeake Insurance Company Limited ('Chesapeake Insurance'), an indirect
subsidiary of Triarc, provided certain insurance coverage and reinsurance of
certain risks to the Managing General Partner until October 1993 at which time
Chesapeake Insurance ceased writing all insurance and reinsurance. The net
premium expense incurred was approximately $4 million in Transition 1993. In
addition, on April 1, 1995 the Managing General Partner issued a promissory note
to Chesapeake Insurance for $900,000. $125,000 of the principal of such note was
repaid on December 31, 1995 and the remaining $775,000 was repaid on June 7,
1996.
Triarc's wholly owned leasing subsidiary, NPC Leasing Corp. ('NPC
Leasing'), leases vehicles and other equipment to companies that are or were
affiliates of the Managing General Partner under long-term lease obligations.
The Managing General Partner distributed the shares of NPC Leasing to Triarc as
a dividend on July 2, 1996. NPC Leasing has had no billings with the Partnership
since the closing of the IPO.
The Managing General Partner holds an intercompany note of Triarc's in the
aggregate principal amount of approximately $30.0 million as of December 31,
1996. Concurrent with the closing of the IPO, the Managing General Partner made
a dividend of approximately $51.4 million aggregate principal amount of a then
outstanding $81.4 million intercompany note to Triarc. See 'The IPO and
Additional Transactions.' For additional information regarding the intercompany
note, see Note 13 to the consolidated financial statements of National Propane.
PARTNERSHIP NOTE
Concurrent with the closing of the IPO, the Operating Partnership made the
Partnership Loan to Triarc. Management believes that, based on the terms of the
Partnership Note, taken as a whole, the Partnership Note has a fair market value
of not less than 100% of its principal amount. For information regarding the
Partnership Loan and Triarc, see 'Cash Distribution Policy -- Partnership Loan'
and 'Certain Information Regarding Triarc.'
See 'The IPO and Additional Transactions,' 'Units Eligible for Future Sale'
and 'The Selling Unitholder' for information regarding certain transactions
between the Selling Unitholder and the Partnership.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY
CONFLICTS OF INTEREST
Certain conflicts of interest could arise as a result of the General
Partners' relationships with their stockholders, on the one hand, and the
Partnership, on the other hand. The directors and officers of the Managing
General Partner and the Special General Partner have fiduciary duties to manage
such Managing General Partner, including its investments in its subsidiaries and
Affiliates, in a manner beneficial to their stockholders. In general, the
Managing General Partner has a fiduciary duty to manage the Partnership in a
manner beneficial to the Partnership and the Unitholders. The Partnership
Agreement contains provisions that allow the Managing General Partner to take
into account the interests of parties in addition to the Partnership in
resolving conflicts of interest, thereby limiting its fiduciary duty to the
Unitholders as well as provisions that may restrict the remedies available to
Unitholders for actions taken that might, without such limitations, constitute
breaches of fiduciary duty. The duty of the directors and officers of the
Managing General Partner to the stockholders of the Managing General Partner
may, therefore, come into conflict with the duties of the Managing General
Partner to the Partnership and the Unitholders. The Audit Committee of the Board
of Directors of the
109
Managing General Partner will, at the request of the Managing General Partner,
review conflicts of interest that may arise between the Managing General Partner
or its Affiliates, on the one hand, and the Partnership, on the other. See
'Management -- Partnership Management' and ' -- Fiduciary Duties of the General
Partners.'
Conflicts of interest could arise in the situations described below, among
others:
CERTAIN ACTIONS TAKEN BY THE MANAGING GENERAL PARTNER MAY AFFECT THE AMOUNT OF
CASH AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS OR ACCELERATE THE RIGHT TO
CONVERT SUBORDINATED UNITS
Decisions of the Managing General Partner with respect to the amount and
timing of cash expenditures, participation in capital expansions and
acquisitions, borrowings, issuance of additional Units and reserves in any
quarter may affect whether, or the extent to which, there is sufficient
Available Cash from Operating Surplus to meet the Minimum Quarterly Distribution
and Target Distribution Levels on all Units in such quarter or subsequent
quarters. The Partnership Agreement provides that any borrowings by the
Partnership or the approval thereof by the Managing General Partner shall not
constitute a breach of any duty owed by the Managing General Partner to the
Partnership or the Unitholders including borrowings that have the purpose or
effect, directly or indirectly, of enabling the the Managing General Partner to
receive Incentive Distributions or hasten the expiration of the Subordination
Period or the conversion of the Subordinated Units into Common Units. The
Partnership Agreement provides that the Partnership may make loans to and borrow
funds from the General Partners and their Affiliates. Further, any actions taken
by the Managing General Partner consistent with the standards of reasonable
discretion set forth in the definitions of Available Cash, Operating Surplus and
Capital Surplus will be deemed not to breach any duty of the Managing General
Partner to the Partnership or the Unitholders. The Managing General Partner
intends to submit any question regarding amendments to the Partnership
Agreement, the enforcement of Triarc's obligations under the Partnership Note
and other matters that could have, in each case, a material adverse affect on
the limited partners to the Audit Committee of the Board of Directors of the
Managing General Partner. See 'Risk Factors -- Conflicts of Interest and
Fiduciary Responsibility' and 'Cash Distribution Policy.'
BORROWINGS BY THE PARTNERSHIP MAY ENABLE THE MANAGING GENERAL PARTNER TO PERMIT
PAYMENTS OF DISTRIBUTIONS ON THE SUBORDINATED UNITS
The Managing General Partner generally must act as a fiduciary to the
Partnership and the Unitholders, and therefore must generally consider the best
interests of the Partnership when deciding whether to make capital or operating
expenditures or take other steps with respect to the business of the
Partnership. However, the Partnership Agreement provides that it will not
constitute a breach of the General Partner's fiduciary duty if Partnership
borrowings are effected that, directly or indirectly, enable the Managing
General Partner to permit the payment of distributions on the Subordinated
Units.
THE GENERAL PARTNER MAY MERGE WITH AND INTO TRIARC
The Partnership Agreement provides that the Managing General Partner may
merge with and into Triarc (the 'Triarc Merger') without the prior approval of
any Unitholder; provided, however, that immediately prior to such merger (a) the
Partnership has received an Opinion of Counsel, (b) the Special General Partner
has not converted or transferred any portion of its General Partner Interest and
(c) the Special General Partner has a net worth equal to at least $15 million
independent of its interest in the Partnership Group (as defined in the
Glossary). The Partnership Note contains a covenant of Triarc that, in the event
of the merger or consolidation of the Managing General Partner with and into
Triarc, Triarc will concurrently therewith pledge as security for the
Partnership Loan certain assets of the Managing General Partner. See 'Cash
Distribution Policy -- Partnership Loan.' The Partnership Agreement also
provides that after a merger of the General Partner into Triarc, Triarc may
conduct businesses and activities of its own in which the Partnership will have
no economic interest. On October 29, 1996, Triarc announced that its Board of
Directors approved a plan to
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undertake the Spinoff Transactions. It is expected that the Triarc Merger may
occur in connection with the Spinoff Transactions. See 'Certain Information
Regarding Triarc.'
CERTAIN PARTNERSHIP ACTIONS REQUIRE THE APPROVAL OF THE UNITHOLDERS
The Partnership and the Unitholders may not take certain actions without
the affirmative vote of the holders of 66 2/3% of the outstanding Units or, in
certain cases, a Unit Majority (which, during the Subordination Period, requires
the affirmative vote of the holders of a majority of the Common Units and the
Subordinated Units each voting as a separate class). The affirmative vote of
66 2/3% of the outstanding Units (including Units held by the General Partners
and their Affiliates) is required to remove the Managing General Partner (with
or without Cause). Certain amendments to the Partnership Agreement, a sale,
merger or other disposition of substantially all of the assets of the
Partnership and certain issuances of Partnership Securities during the
Subordination Period require the approval of a Unit Majority. At the date of
this Prospectus, the Managing General Partner owns a sufficient percentage of
the outstanding Units to require the Managing General Partner's affirmative vote
to take such actions. The Managing General Partner may give or withhold its
approval of any such action or vote its Subordinated Units for or against any
such action, as the case may be, in its sole discretion without considering any
interest of, or factors affecting, the Partnership or any Unitholder. See 'The
Partnership Agreement.'
EMPLOYEES OF THE MANAGING GENERAL PARTNER AND ITS AFFILIATES WHO PROVIDE
SERVICES TO THE PARTNERSHIP ALSO PROVIDE SERVICES TO OTHER BUSINESSES
The Partnership does not have any employees and relies on employees of its
subsidiaries, the Managing General Partner and its Affiliates, including Triarc.
Prior to any merger of the Managing General Partner into Triarc, the Managing
General Partner will not conduct any other business as long as it is a general
partner of the Partnership. After any such merger, Triarc, as the Managing
General Partner, may conduct businesses and activities of its own in which the
Partnership will have no economic interest. In addition, Triarc and other
Affiliates of the Managing General Partner, principally direct and indirect
wholly owned subsidiaries of Triarc, will conduct business and activities of
their own in which the Partnership will have no economic interest. Accordingly,
there may be competition between the Partnership and Affiliates of the Managing
General Partner, including Triarc, for the time and effort of employees who
provide services to both. Certain officers of Affiliates of the Managing General
Partner divide their time between the business of the Partnership and the
business of the Affiliates and are not be required to spend any specified
percentage or amount of their time on the business of the Partnership.
THE PARTNERSHIP WILL REIMBURSE THE MANAGING GENERAL PARTNER AND ITS AFFILIATES
FOR CERTAIN EXPENSES
Under the terms of the Partnership Agreement, the Managing General Partner
and its Affiliates are reimbursed by the Partnership for certain expenses
incurred on behalf of the Partnership, including costs incurred in providing
corporate staff and support services to the Partnership (including compensation
costs incurred under employee benefit plans). The Partnership Agreement provides
that the Managing General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the Managing
General Partner in its sole discretion. See 'Management -- Reimbursement of
Expenses of the Managing General Partner' and 'Certain Relationships and Related
Transactions.'
THE MANAGING GENERAL PARTNER INTENDS TO LIMIT ITS LIABILITY WITH RESPECT TO THE
PARTNERSHIP'S OBLIGATIONS
Whenever possible, the Managing General Partner intends to limit the
Partnership's liability under contractual arrangements to all or particular
assets of the Partnership, with the other party thereto to have no recourse
against the Managing General Partner, the Special General Partner or their
respective assets. The Partnership Agreement provides that any action by the
Managing General Partner in so limiting the liability of the General Partners or
that of the Partnership will not be deemed to be a breach of the General
Partners' fiduciary duties, even if the Partnership could have obtained more
favorable terms without such limitation on liability.
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COMMON UNITHOLDERS WILL HAVE NO RIGHT TO ENFORCE OBLIGATIONS OF THE MANAGING
GENERAL PARTNER AND ITS AFFILIATES UNDER AGREEMENTS WITH THE PARTNERSHIP
The Partnership will acquire or provide many services from or to the
Managing General Partner and its Affiliates (including Triarc) on an ongoing
basis, including those described above. The agreements relating thereto do not
grant to the holders of the Common Units, separate and apart from the
Partnership, the right to enforce the obligations of the Managing General
Partner and its Affiliates in favor of the Partnership. Therefore, the Managing
General Partner will be primarily responsible for enforcing such obligations.
CONTRACTS BETWEEN THE PARTNERSHIP, ON THE ONE HAND, AND THE MANAGING GENERAL
PARTNER AND ITS AFFILIATES, ON THE OTHER, WILL NOT BE THE RESULT OF ARMS'-LENGTH
NEGOTIATIONS
Under the terms of the Partnership Agreement, the Managing General Partner
is not restricted from paying the Managing General Partner or its Affiliates for
any services rendered (provided such services are rendered on terms fair and
reasonable to the Partnership) or entering into additional contractual
arrangements with any of them on behalf of the Partnership. Neither the
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the Partnership, on the one hand, and the Managing General
Partner and its Affiliates, on the other, are or will be the result of
arm's-length negotiations. All of such transactions entered into after the sale
of the Common Units offered in the Offering are to be on terms which are fair
and reasonable to the Partnership, provided that any transaction shall be deemed
fair and reasonable if (i) such transaction is approved by the Audit Committee,
(ii) its terms are no less favorable to the Partnership than those generally
being provided to or available from unrelated third parties or (iii) taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership), the transaction is fair to the Partnership. The Managing
General Partner and its Affiliates have no obligation to permit the Partnership
to use any facilities or assets of the Managing General Partner and such
Affiliates, except as may be provided in contracts entered into from time to
time specifically dealing with such use, and there is no obligation on the
Managing General Partner and its Affiliates to enter into any such contracts.
POTENTIAL ROLL-UP TRANSACTIONS
The Partnership Agreement does not prohibit the Partnership from engaging
in roll-up transactions. Although the Managing General Partner has no present
intention of causing the Partnership to engage in any such transaction, it is
possible it will do so in the future. There can be no assurance that a roll-up
transaction would not have a material adverse effect on a Unitholder's
investment in the Partnership.
COMMON UNITHOLDERS HAVE NOT BEEN REPRESENTED BY COUNSEL
The Common Unitholders were not represented by counsel in connection with
the preparation of the Partnership Agreement or other agreements referred to
herein. The attorneys, accountants and others who have performed services for
the Partnership in connection with the IPO, the Transactions, the Private
Placement and the Offering have been employed by the Managing General Partner
and its Affiliates and may continue to represent the Managing General Partner
and its Affiliates. Attorneys, accountants and others who will perform services
for the Partnership in the future will be selected by the Managing General
Partner or the Audit Committee and may also perform services for the Managing
General Partner and its Affiliates. The Managing General Partner may retain
separate counsel for the Partnership or the Unitholders, depending on the nature
of the conflict that arises, but it does not intend to do so in most cases.
PARTNERSHIP INTERESTS ARE SUBJECT TO THE MANAGING GENERAL PARTNER'S LIMITED CALL
RIGHT
The Partnership Agreement provides that it will not constitute a breach of
the Managing General Partner's fiduciary duties if the Managing General Partner
exercises its right to call for and purchase partnership interests as provided
in the Partnership Agreement or assign this right to its Affiliates or to the
Partnership. The Managing General Partner thus may use its own discretion, free
of fiduciary duty restrictions, in determining whether to exercise such right.
As a consequence, a holder of partnership
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interests may have his partnership interests purchased from him even though he
may not desire to sell them, and the price paid may be less than the amount the
holder would desire to receive upon sale of his partnership interests. For a
description of such right, see 'The Partnership Agreement -- Limited Call
Right.'
THE GENERAL PARTNERS' AFFILIATES MAY COMPETE WITH THE PARTNERSHIP
The General Partners are not restricted from engaging in any business
activities other than the retail sales of propane to end users in the
continental United States, even if they are in competition with the Partnership.
As a result, conflicts of interest may arise between Affiliates of the General
Partners, on the one hand, and the Partnership, on the other. The Partnership
Agreement expressly provides that, subject to certain limited exceptions, it
shall not constitute a breach of the General Partners' fiduciary duties to the
Partnership or the Unitholders for Affiliates of the General Partners to engage
in direct competition with the Partnership, other than with respect to the
retail sale of propane to end users within the continental United States. Such
competition may include the trading, transportation, storage and wholesale
distribution of propane. The Partnership Agreement also provides that the
General Partners and their Affiliates have no obligation to present business
opportunities to the Partnership.
FIDUCIARY DUTIES OF THE GENERAL PARTNERS
The General Partners are accountable to the Partnership and the Unitholders
as fiduciaries. Consequently, the General Partners must exercise good faith and
integrity in handling the assets and affairs of the Partnership. In contrast to
the relatively well-developed law concerning fiduciary duties owed by officers
and directors to the shareholders of a corporation, the law concerning the
duties owed by general partners to other partners and to partnerships is
relatively undeveloped. Neither the Delaware Revised Uniform Limited Partnership
Act (the 'Delaware Act') nor case law defines with particularity the fiduciary
duties owed by general partners to limited partners or a limited partnership,
but the Delaware Act provides that Delaware limited partnerships may, in their
partnership agreements, restrict or expand the fiduciary duties that might
otherwise be applied by a court in analyzing the standard of duty owed by
general partners to limited partners and the partnership. The provisions of the
Delaware Act that allow the fiduciary duties of a general partner to be waived
or restricted by a partnership agreement have not been resolved in a court of
law, and the General Partners have not obtained an opinion of counsel covering
the provisions set forth in the Partnership Agreement that purport to waive or
restrict fiduciary duties of the General Partners. Unitholders should consult
their own legal counsel concerning the fiduciary responsibilities of the General
Partners and their officers and directors and the remedies available to the
Unitholders.
Fiduciary duties are generally considered to include an obligation to act
with good faith, fairness and loyalty. Such duty of loyalty, in the absence of a
provision in a partnership agreement providing otherwise, would generally
prohibit a general partner of a Delaware limited partnership from taking any
action or engaging in any transaction as to which it has a conflict of interest.
In order to induce the Managing General Partner to manage the business of the
Partnership, the Partnership Agreement, as permitted by the Delaware Act,
contains various provisions intended to have the effect of limiting the
fiduciary duties that might otherwise be owed by the Managing General Partner to
the Partnership and its partners and waiving or consenting to conduct by the
Managing General Partner and its Affiliates that might otherwise raise issues as
to compliance with fiduciary duties or applicable law.
The Partnership Agreement provides that in order to become a limited
partner of the Partnership, a holder of Common Units is required to agree to be
bound by the provisions thereof, including the provisions discussed above. This
is in accordance with the policy of the Delaware Act favoring the principle of
freedom of contract and enforceability of partnership agreements. The Delaware
Act also provides that a partnership agreement is not unenforceable by reason of
its not having been signed by a person being admitted as a limited partner or
becoming an assignee in accordance with the terms thereof.
The Partnership Agreement provides that whenever a conflict of interest
arises between the General Partners or their Affiliates, on the one hand, and
the Partnership or any other partner, on the other, the Managing General Partner
shall resolve such conflict. The General Partners shall not be in breach of
their obligations under the Partnership Agreement or their duties to the
Partnership or the
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Unitholders if the resolution of such conflict is fair and reasonable to the
Partnership, and any resolution shall conclusively be deemed to be fair and
reasonable to the Partnership if such resolution is (i) approved by the Audit
Committee (although no party is obligated to seek such approval and the Managing
General Partner may adopt a resolution or course of action that has not received
such approval), (ii) on terms no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties or (iii)
fair to the Partnership, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Partnership). In resolving such
conflict, the Managing General Partner may (unless the resolution is
specifically provided for in the Partnership Agreement) consider the relative
interests of the parties involved in such conflict or affected by such action,
any customary or accepted industry practices or historical dealings with a
particular person or entity and, if applicable, generally accepted accounting or
engineering practices or principles and such other factors as it deems relevant.
Thus, unlike the strict duty of a fiduciary who must act solely in the best
interests of his beneficiary, the Partnership Agreement permits the Managing
General Partner to consider the interests of all parties to a conflict of
interests, including the interests of the General Partners and their
stockholders. In connection with the resolution of any conflict that arises,
unless the Managing General Partner has acted in bad faith, the action taken by
the Managing General Partner shall not constitute a breach of the Partnership
Agreement, any other agreement or any standard of care or duty imposed by the
Delaware Act or other applicable law. The Partnership Agreement also provides
that in certain circumstances the Managing General Partner may act in its sole
discretion, in good faith or pursuant to other appropriate standards.
The Delaware Act provides that a limited partner may institute legal action
on behalf of the partnership (a partnership derivative action) to recover
damages from a third party where the general partner has refused to institute
the action or where an effort to cause the general partner to do so is not
likely to succeed. In addition, the statutory or case law of certain
jurisdictions may permit a limited partner to institute legal action on behalf
of himself or all other similarly situated limited partners (a class action) to
recover damages from a general partner for violations of its fiduciary duties to
the limited partners.
The Partnership Agreement also provides that any standard of care and duty
imposed thereby or under the Delaware Act or any applicable law, rule or
regulation will be modified, waived or limited, to the extent permitted by law,
as required to permit the Managing General Partner and its officers and
directors to act under the Partnership Agreement or any other agreement
contemplated therein and to make any decision pursuant to the authority
prescribed in the Partnership Agreement so long as such action is reasonably
believed by the Managing General Partner to be in, or not inconsistent with, the
best interests of the Partnership. Further, the Partnership Agreement provides
that the Managing General Partner and its officers and directors will not be
liable for monetary damages to the Partnership, the limited partners or
assignees for errors of judgment or for any acts or omissions if the Managing
General Partner and such other persons acted in good faith.
In addition, under the terms of the Partnership Agreement, the Partnership
is required to indemnify the General Partners and their officers, directors,
employees, Affiliates, partners, agents and trustees, to the fullest extent
permitted by law, against liabilities, costs and expenses incurred by the
General Partners or other such persons, if the General Partners or such persons
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the Partnership and, with respect to any
criminal proceedings, had no reasonable cause to believe the conduct was
unlawful. See 'The Partnership Agreement -- Indemnification.' Thus, the General
Partners could be indemnified for their negligent acts if they meet such
requirements concerning good faith and the best interests of the Partnership.
DESCRIPTION OF THE COMMON UNITS
The Common Units are registered under the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'), and the rules and regulations promulgated
thereunder, and the Partnership is subject to the reporting and certain other
requirements of the Exchange Act. The Partnership is required to file periodic
reports containing financial and other information with the Commission.
Purchasers of Common Units in the Offering and subsequent transferees of Common
Units (or their brokers, agents
114
or nominees on their behalf) will be required to execute Transfer Applications,
the form of which is included as Appendix A to this Prospectus. Purchasers in
the Offering may hold Common Units in nominee accounts, provided that the broker
(or other nominee) executes and delivers a Transfer Application and becomes a
limited partner. The Partnership will be entitled to treat the nominee holder of
a Common Unit as the absolute owner thereof, and the beneficial owner's rights
will be limited solely to those that it has against the nominee holder as a
result of or by reason of any understanding or agreement between such beneficial
owner and nominee holder.
THE UNITS
The Common Units and the Common Units issued upon conversion of
Subordinated Units represent limited partner interests in the Partnership. The
Subordinated Units held by the Managing General Partner or its Affiliates are
(unless such Persons elect otherwise) general partner interests in the
Partnership. The holders of Common Units and Subordinated Units are entitled to
participate in Partnership distributions and exercise the rights or privileges
available to Common Unitholders and Subordinated Unitholders, respectively,
under the Partnership Agreement. For a description of the relative rights and
preferences of Common Units and Subordinated Units in and to Partnership
distributions, together with a description of the circumstances under which
Subordinated Units may convert into Common Units, see 'Cash Distribution
Policy.' For a description of the rights and privileges of limited partners
under the Partnership Agreement, see 'The Partnership Agreement.'
TRANSFER AGENT AND REGISTRAR
DUTIES
American Stock Transfer & Trust Company is the registrar and transfer agent
(the 'Transfer Agent') for the Common Units and receives a fee from the
Partnership for serving in such capacities. All fees charged by the Transfer
Agent for transfers of Common Units will be borne by the Partnership and not by
the holders of Common Units, except that fees similar to those customarily paid
by stockholders for surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges, special charges for services requested by
a holder of a Common Unit and other similar fees or charges will be borne by the
affected holder. There will be no charge to holders for disbursements of the
Partnership's cash distributions. The Partnership has agreed to indemnify the
Transfer Agent, its agents and each of their respective shareholders, directors,
officers and employees against all claims and losses that may arise out of acts
performed or omitted in respect of its activities as such, except for any
liability due to any negligence, gross negligence, bad faith or intentional
misconduct of the indemnified person or entity.
RESIGNATION OR REMOVAL
The Transfer Agent may at any time resign, by notice to the Partnership, or
be removed by the Partnership, such resignation or removal to become effective
upon the appointment by the Partnership of a successor transfer agent and
registrar and its acceptance of such appointment. If no successor has been
appointed and accepted such appointment within 30 days after notice of such
resignation or removal, the Managing General Partner is authorized to act as the
transfer agent and registrar until a successor is appointed.
TRANSFER OF COMMON UNITS
Until a Common Unit has been transferred on the books of the Partnership,
the Partnership and the Transfer Agent, notwithstanding any notice to the
contrary, may treat the record holder thereof as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations. The
transfer of the Common Units to persons that purchase directly from the Selling
Unitholder will be accomplished through the completion, execution and delivery
of a Transfer Application by such investor in connection with such Common Units.
Any subsequent transfers of a Common Unit will not be recorded by the Transfer
Agent or recognized by the Partnership unless the transferee executes and
115
delivers a Transfer Application. By executing and delivering a Transfer
Application (the form of which is set forth as Appendix A to this Prospectus and
which is also set forth on the reverse side of the certificates representing the
Common Units), the transferee of Common Units (i) becomes the record holder of
such Common Units and shall constitute an assignee until admitted into the
Partnership as a substitute limited partner, (ii) automatically requests
admission as a substituted limited partner in the Partnership, (iii) agrees to
be bound by the terms and conditions of, and executes, the Partnership
Agreement, (iv) represents that such transferee has the capacity, power and
authority to enter into the Partnership Agreement, (v) grants powers of attorney
to the Partnership and any liquidator of the Partnership as specified in the
Partnership Agreement, and (vi) makes the consents and waivers contained in the
Partnership Agreement. An assignee will become a substituted limited partner of
the Partnership in respect of the transferred Common Units upon the consent of
the Partnership and the recordation of the name of the assignee on the books and
records of the Partnership. Such consent may be withheld in the sole discretion
of the Managing General Partner.
Common Units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in the Partnership in respect of the transferred
Common Units. A purchaser or transferee of Common Units who does not execute and
deliver a Transfer Application obtains only (a) the right to assign the Common
Units to a purchaser or other transferee and (b) the right to transfer the right
to seek admission as a substituted limited partner in the Partnership with
respect to the transferred Common Units. Thus, a purchaser or transferee of
Common Units who does not execute and deliver a Transfer Application will not
receive cash distributions unless the Common Units are held in a nominee or
'street name' account and the nominee or broker has executed and delivered a
Transfer Application with respect to such Common Units, and may not receive
certain federal income tax information or reports furnished to record holders of
Common Units. The transferor of Common Units will have a duty to provide such
transferee with all information that may be necessary to obtain registration of
the transfer of the Common Units, but a transferee agrees, by acceptance of the
certificate representing Common Units, that the transferor will not have a duty
to insure the execution of the Transfer Application by the transferee and will
have no liability or responsibility if such transferee neglects or chooses not
to execute and forward the Transfer Application to the Transfer Agent. See 'The
Partnership Agreement -- Status as Limited Partner or Assignee.'
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THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The Partnership Agreement for the Partnership and the
Partnership Agreement for the Operating Partnership (the 'Operating Partnership
Agreement') are exhibits to the Registration Statement of which this Prospectus
is a part. The Partnership will provide prospective investors with a copy of the
Partnership Agreement and the Operating Partnership Agreement upon request at no
charge. THE FOLLOWING SUMMARY OF MATERIAL PROVISIONS OF THE PARTNERSHIP
AGREEMENT (AND EACH OTHER SUMMARY CONTAINED IN THIS PROSPECTUS OF ANY PROVISIONS
OF THE PARTNERSHIP AGREEMENT) IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PARTNERSHIP AGREEMENTS FOR THE PARTNERSHIP AND FOR THE OPERATING PARTNERSHIP.
The Partnership is the sole limited partner of the Operating Partnership, which
owns, manages and operates the Partnership's business. The Managing General
Partner and the Special General Partner serve as the general partners of the
Partnership and of the Operating Partnership. Unless specifically described
otherwise, references herein to the 'Partnership Agreement' constitute
references to the Partnership Agreement and the Operating Partnership Agreement,
collectively.
Certain material provisions of the Partnership Agreement are summarized
elsewhere in this Prospectus under various headings. With regard to various
transactions and relationships of the Partnership with the General Partners and
their Affiliates, see 'Risk Factors -- Conflicts of Interest and Fiduciary
Responsibility,' 'Certain Relationships and Related Transactions,' and
'Conflicts of Interest and Fiduciary Responsibility.' With regard to the
management of the Partnership, see 'Management.' With regard to the transfer of
Common Units, see 'Description of the Common Units -- Transfer of Common Units.'
With regard to distributions of Available Cash, see 'Cash Distribution Policy.'
With regard to allocations of taxable income and taxable loss, see 'Tax
Considerations.' Prospective investors are urged to review these sections of
this Prospectus and the Partnership Agreement carefully.
ORGANIZATION
The Partnership and the Operating Partnership were organized on March 13,
1996 and March 15, 1996, respectively, as Delaware limited partnerships. The
Managing General Partner and the Special General Partner are the general
partners of the Partnership and the Operating Partnership. The General Partners
own an effective combined 4% unsubordinated General Partner Interest, the
Managing General Partner owns a 38.7% subordinated general partner interest (as
holder of the Subordinated Units) and the Common Unitholders own a 57.3% limited
partner interest, in the Partnership and the Operating Partnership on a combined
basis.
SPECIAL GENERAL PARTNER
The Special General Partner, a wholly owned subsidiary of the Managing
General Partner, is a non-managing general partner of the Partnership and the
Operating Partnership. Pursuant to the Partnership Agreement, the Special
General Partner is prohibited from conducting any business or having any
operations other than those incidental to serving as a general partner of the
Partnership and the Operating Partnership. The Partnership Agreement also
provides that the Board of Directors of the Special General Partner shall be at
all times composed of the same individuals who compose the Board of Directors of
the Managing General Partner. In the event the Managing General Partner is
merged with and into Triarc, the Audit Committee of the Special General Partner
will perform the functions previously performed by the Audit Committee of the
Managing General Partner. In addition, the Partnership Agreement provides that
if, following a merger of the Managing General Partner with and into Triarc,
Triarc involuntarily withdraws as general partner of the Partnership pursuant to
bankruptcy or certain related events, the Special General Partner shall become
the managing general partner of the Partnership and shall continue the business
of the Partnership, without any Unitholder approval.
Provided that the Triarc Merger has not occurred, the Special General
Partner may convert all or a portion of its combined unsubordinated general
partner interest into Units having rights to distributions of Available Cash
from Operating Surplus equal to the distribution rights with respect to
Available Cash from Operating Surplus of the combined unsubordinated general
partner interest so converted. For example, the Special General Partner's
combined effective 2% interest in the Partnership and the
117
Operating Partnership would be exchanged into 234,067 Units. Additional capital
contributions by the Special General Partner upon other issuances of additional
Partnership securities will increase the number of Units into which such
combined interest is exchanged. Such Units shall be issued as Subordinated Units
and/or Common Units in the same proportion as Subordinated Units initially
issued to the General Partner are at such time constituted. Upon conversion of
all of the Special General Partner's combined unsubordinated general partner
interests, the Special General Partner will no longer be obligated to make
additional capital contributions upon other issuances of additional Partnership
securities.
PURPOSE
The purpose of the Partnership under the Partnership Agreement is limited
to serving as the limited partner of the Operating Partnership and engaging in
any business activity that may be engaged in by the Operating Partnership or
that is approved by the Managing General Partner. The Operating Partnership
Agreement provides that the Operating Partnership may engage in any activity
engaged in by National Propane and its subsidiaries immediately prior to the
IPO, and any other activity approved by the Managing General Partner. Although
the Managing General Partner has the ability under the Partnership Agreement to
cause the Partnership and the Operating Partnership to engage in activities
other than propane marketing and related businesses, the Managing General
Partner has no current intention of doing so. The Managing General Partner is
authorized in general to perform all acts deemed necessary to carry out such
purposes and to conduct the business of the Partnership. See ' -- Certain
Required Approvals of the Managing General Partner.'
CAPITAL CONTRIBUTIONS
For a description of the initial capital contributions made to the
Partnership, see 'The IPO and Additional Transactions.' The Unitholders are not
obligated to make additional capital contributions to the Partnership, except as
described below under ' -- Limited Liability.'
POWER OF ATTORNEY
Each Limited Partner (as defined in the Glossary), and each person who
acquires a Unit from a Unitholder and executes and delivers a Transfer
Application with respect thereto, grants to the Managing General Partner and, if
a liquidator of the Partnership has been appointed, such liquidator, a power of
attorney to, among other things, execute and file certain documents required in
connection with the qualification, continuance or dissolution of the
Partnership, or the amendment of the Partnership Agreement in accordance with
the terms thereof and to make consents and waivers contained in the Partnership
Agreement.
LIMITED LIABILITY
Assuming that a Limited Partner does not participate in the control of the
business of the Partnership within the meaning of the Delaware Act and that such
Limited Partner otherwise acts in conformity with the provisions of the
Partnership Agreement, his liability under the Delaware Act will be limited,
subject to certain possible exceptions, to the amount of capital that such
Limited Partner is obligated to contribute to the Partnership in respect of his
Common Units plus such Limited Partner's share of any undistributed profits and
assets of the Partnership. If it were determined, however, that the right or
exercise of the right by the Limited Partners as a group, to remove or replace
the General Partners, to approve certain amendments to the Partnership Agreement
or to take other action pursuant to the Partnership Agreement constituted
'participation in the control' of the Partnership's business for the purposes of
the Delaware Act, then the Limited Partners could be held personally liable for
the Partnership's obligations under the laws of the State of Delaware to the
same extent as the General Partners with respect to persons who transact
business with the Partnership reasonably believing, based on the Limited
Partner's conduct, that the Limited Partner is a general partner.
Under the Delaware Act, a limited partnership may not make a distribution
to a partner to the extent that at the time of the distribution, after giving
effect to the distribution, all liabilities of the
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partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specific property of the Partnership, exceed the fair value of the assets of the
limited partnership. For the purpose of determining the fair value of the assets
of a limited partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is limited shall
be included in the assets of the limited partnership only to the extent that the
fair value of that property exceeds that nonrecourse liability. The Delaware Act
provides that a limited partner who receives such a distribution and knew at the
time of the distribution that the distribution was in violation of the Delaware
Act shall be liable to the limited partnership for the amount of the
distribution for three years from the date of the distribution. Under the
Delaware Act, an assignee who becomes a substituted limited partner of a limited
partnership is liable for the obligations of his assignor to make contributions
to the partnership, except the assignee is not obligated for liabilities unknown
to him at the time he became a limited partner and which could not be
ascertained from the partnership agreement.
The Operating Partnership currently conducts business in approximately 25
states. Maintenance of limited liability may require compliance with legal
requirements in such jurisdictions in which the Operating Partnership conducts
business, including qualifying the Operating Partnership to do business there.
Limitations on the liability of limited partners for the obligations of a
limited partnership have not been clearly established in many jurisdictions. If
it were determined that the Partnership was, by virtue of its limited partner
interest in the Operating Partnership or otherwise, conducting business in any
state without compliance with the applicable limited partnership statute, or
that the right or exercise of the right by the Limited Partners as a group, to
remove or replace the General Partners, to approve certain amendments to the
Partnership Agreement, or to take other action pursuant to the Partnership
Agreement constituted 'participation in the control' of the Partnership's
business for the purposes of the statutes of any relevant jurisdiction, then the
Limited Partners could be held personally liable for the Partnership's
obligations under the law of such jurisdiction to the same extent as the General
Partners under certain circumstances. The Partnership will operate in such
manner as the Managing General Partner deems reasonable and necessary or
appropriate to preserve the limited liability of the Limited Partners.
ISSUANCE OF ADDITIONAL SECURITIES
The Partnership Agreement authorizes the Managing General Partner to cause
the Partnership to issue an unlimited number of additional limited and/or
general partner interests and other equity securities of the Partnership for
such consideration and on such terms and conditions as are established by the
Managing General Partner in its sole discretion without the approval of any
Limited Partners; provided that, during the Subordination Period, except as
provided in clauses (i) and (ii) of the following sentence, the Partnership may
not issue equity securities of the Partnership ranking prior or senior to the
Common Units or an aggregate of more than 3,095,238 additional Common Units
(including the 400,000 Common Units sold in the Private Placement and offered
hereby) or an equivalent number of securities ('parity securities') ranking on a
parity with the Common Units (excluding the 111,074 Common Units issued upon
exercise of the IPO Over-Allotment Option, and Common Units issued pursuant to
employee benefit plans, upon conversion of the Special General Partner's
combined unsubordinated general partner interest, upon conversion of
Subordinated Units and subject to adjustment in the event of a combination or
subdivision of Common Units) without the approval of the holders of at least a
Unit Majority. During the Subordination Period the Partnership may also issue
(i) an unlimited number of additional Common Units or parity securities without
the approval of the Unitholders if such issuance occurs (A) in connection with
an Acquisition or a Capital Improvement or (B) within 365 days of, and the net
proceeds from such issuance are used to repay debt incurred in connection with,
an Acquisition or a Capital Improvement, in each case where such Acquisition or
Capital Improvement involves assets that would have, if acquired by the
Partnership as of the date that is one year prior to the first day of the
quarter in which such transaction is to be effected, resulted in an increase in
(1) the amount of Adjusted Operating Surplus generated by the Partnership on a
per-Unit basis for all outstanding Units with respect to each of the four most
recently completed quarters (on a pro forma basis) over (2) the actual amount of
Adjusted Operating Surplus generated by the Partnership on a per-Unit basis for
all outstanding Units with respect to each of such
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four quarters (or, if the issuance of Units with respect to an Acquisition or
Capital Improvement occurs within the first four full quarters from the Closing
Date, then based on the Partnership's pro forma Adjusted Operating Surplus for
any full quarter for which there was no actual performance); and (ii) an
unlimited number of Units or parity securities prior to the end of the
Subordination Period and without the approval of the Unitholders if the use of
proceeds from such issuance is exclusively to repay up to $50 million in
indebtedness of a member of the Partnership Group (as defined in the Glossary),
in each case only where the aggregate amount of distributions that would have
been paid with respect to such newly issued Units and the related additional
distributions that would have been made to the General Partners in respect of
the four-quarter period ending prior to the first day of the quarter in which
the issuance is to be consummated (assuming such additional Units had been
outstanding throughout such period and that distributions equal to the
distributions that were actually paid on the outstanding Units during the period
were paid on such additional Units) did not exceed the interest costs actually
incurred during such period on the indebtedness that is to be repaid (or, if
such indebtedness was not outstanding throughout the entire period, would have
been incurred had such indebtedness been outstanding for the entire period).
From time to time, the Partnership may file a registration statement with
respect to Common Units to be issued in connection with Acquisitions or Capital
Improvements. In addition, the Partnership may file a Registration Statement on
Form S-8 with respect to Units that have been issued pursuant to the Unit Option
Plan. In accordance with Delaware law and the provisions of the Partnership
Agreement, the Partnership may also issue additional partnership interests that,
in the discretion of the Managing General Partner, may have special voting
rights to which the Common Units are not entitled.
The General Partners will have the right, which they may from time to time
assign in whole or in part to any of their Affiliates, to purchase Common Units,
Subordinated Units or other equity securities of the Partnership from the
Partnership whenever, and on the same terms that, the Partnership issues such
securities or rights to Persons other than the General Partners and their
Affiliates, to the extent necessary to maintain the percentage interest of the
General Partners and their Affiliates in the Partnership that existed
immediately prior to each such issuance. Moreover, upon the issuance of
additional Partnership Securities each of the General Partners will be required
to make contributions to the Partnership which, when added to the additional
amount contributed in exchange for such Partnership Securities, will equal 2% of
such additional capital contributions. The holders of Common Units or
Subordinated Units (other than the General Partners and their Affiliates) do not
have preemptive rights to acquire additional Common Units, Subordinated Units or
other partnership interests that may be issued by the Partnership. Furthermore,
the General Partners and any of their Affiliates may acquire Units or other
Partnership Securities and, except as otherwise provided in the Partnership
Agreement, shall be entitled to exercise all rights of a holder or assignee of
such Units or Partnership Securities, as the case may be. Additional issuances
of Units, including Subordinated Units or other equity securities of the
Partnership ranking junior to the Common Units, may reduce the likelihood of,
and the amount of, any distributions above the Minimum Quarterly Distribution.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by or with the
consent of the Managing General Partner. In order to adopt a proposed amendment,
the Partnership is required to seek written approval of the holders of the
number of Units required to approve such amendment or call a meeting of the
Unitholders to consider and vote upon the proposed amendment, except as
described below. Proposed amendments (unless otherwise specified) must be
approved by holders of a majority of the outstanding Units (including Units held
by the General Partners and their Affiliates), except that no amendment may be
made which would (i) enlarge the obligations of any Limited Partner, without its
consent, (ii) enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable, reimbursable or
otherwise payable by the Partnership to, the General Partners or any of their
Affiliates without the Managing General Partner's consent, which may be given or
withheld in its sole discretion, (iii) change the term of the Partnership, (iv)
provide that the Partnership is not dissolved upon the expiration of its term or
(v) give any Person the right to dissolve the Partnership other than the
Managing General Partner's right to dissolve the Partnership with the approval
of holders of a Unit Majority.
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The Managing General Partner may generally make amendments to the
Partnership Agreement without the approval of any Limited Partner or assignee to
reflect (i) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent or the
registered office of the Partnership, (ii) admission, substitution, withdrawal
or removal of partners in accordance with the Partnership Agreement, (iii) a
change that, in the sole discretion of the Managing General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability or to ensure that neither the Partnership nor
the Operating Partnership will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income tax purposes
(except approval of holders of a Unit Majority will be required if such
amendment would result in a delisting or a suspension of trading of any class of
Units on the principal national securities exchange or over the counter market
where such class of Units is then traded), (iv) an amendment that is necessary,
in the opinion of counsel to the Partnership, to prevent the Partnership, or the
General Partners or their directors, officers, agents or trustees from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, the Investment Advisors Act of 1940, as amended, or 'plan asset'
regulations adopted under the Employee Retirement Income Security Act of 1974,
as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed, (v) subject to the limitations on the issuance of
additional Common Units or other limited or general partner interests described
above, an amendment that in the sole discretion of the Managing General Partner
is necessary or advisable in connection with the authorization of additional
limited or general partner interests, (vi) any amendment expressly permitted in
the Partnership Agreement to be made by the Managing General Partner acting
alone, (vii) an amendment effected, necessitated or contemplated by a merger
agreement that has been approved pursuant to the terms of the Partnership
Agreement, (viii) any amendment that, in the sole discretion of the Managing
General Partner, is necessary or advisable in connection with the formation by
the Partnership of, or its investment in, any corporation, partnership or other
entity (other than the Operating Partnership) as otherwise permitted by the
Partnership Agreement, (ix) a change in the fiscal year and/or taxable year of
the Partnership and changes related thereto, (x) a conversion of Units held by
the Managing General Partner or its Affiliates at the election of the Managing
General Partner or its Affiliates from general partner interests into limited
partner interests, and (xi) any other amendments substantially similar to any of
the foregoing.
In addition to the Managing General Partner's right to amend the
Partnership Agreement as described above, the Managing General Partner may make
amendments to the Partnership Agreement without the approval of any Unitholder
or assignee if such amendments (i) do not adversely affect the Limited Partners
in any material respect, (ii) are necessary or advisable (in the sole discretion
of the Managing General Partner) to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, ruling or regulation of any
federal or state agency or judicial authority or contained in any federal or
state statute, (iii) are necessary or advisable (in the sole discretion of the
Managing General Partner) to facilitate the trading of the Common Units or to
comply with any rule, regulation, guideline or requirement of any securities
exchange on which the Common Units are or will be listed for trading, compliance
with any of which the Managing General Partner deems to be in the best interests
of the Partnership and the Unitholders, (iv) are necessary or advisable in
connection with any action taken by the Managing General Partner relating to
splits or combinations of Units pursuant to the provisions of the Partnership
Agreement or (v) are required to effect the intent expressed in this Prospectus
or contemplated by the Partnership Agreement. The Managing General Partner will
not be required to obtain an Opinion of Counsel (as defined in the Glossary) in
the event of the amendments described in the two immediately preceding
paragraphs. No other amendments to the Partnership Agreement will become
effective without the approval of holders of at least 90% of the Units
(including Units held by the General Partners and their Affiliates) unless the
Partnership has obtained an Opinion of Counsel to the effect that such amendment
will not affect the limited liability under applicable law of any limited
partner in the Partnership or the limited partner of the Operating Partnership.
Any amendment that materially and adversely affects the rights or preferences of
any type or class of outstanding Units in relation to other classes of Units
will require the approval of at least a majority of the type or class of Units
so affected.
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MERGER, SALE OR OTHER DISPOSITION OF ASSETS
The Managing General Partner is prohibited, without the prior approval of
holders of a Unit Majority, from causing the Partnership to, among other things,
sell, exchange or otherwise dispose of all or substantially all of its assets in
a single transaction or a series of related transactions (including by way of
merger, consolidation or other combination) or approving on behalf of the
Partnership the sale, exchange or other disposition of all or substantially all
of the assets of the Operating Partnership; provided that the Partnership may
mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of the Partnership's assets without such approval. The
Partnership may also sell all or substantially all of its assets pursuant to a
foreclosure or other realization upon the foregoing encumbrances without such
approval. The Unitholders are not entitled to dissenters' rights of appraisal
under the Partnership Agreement or applicable Delaware law in the event of a
merger or consolidation of the Partnership, a sale of substantially all of the
Partnership's assets or any other transaction or event.
TERMINATION AND DISSOLUTION
The Partnership will continue until December 31, 2086, unless sooner
terminated pursuant to the Partnership Agreement. The Partnership will be
dissolved upon (i) the election of the Managing General Partner to dissolve the
Partnership, if approved by the holders of a Unit Majority, (ii) the sale,
exchange or other disposition of all or substantially all of the assets and
properties of the Partnership and the Operating Partnership, (iii) the entry of
a decree of judicial dissolution of the Partnership or (iv) the withdrawal or
removal of the Managing General Partner or the occurrence of any other event
that results in its ceasing to be the Managing General Partner (other than (x)
by reason of a transfer of its unsubordinated general partner interest in
accordance with the Partnership Agreement, (y) withdrawal or removal following
approval and admission of a successor or (z) certain bankruptcy-related events
of the Managing General Partner but only if at such time Triarc is the Managing
General Partner and the Special General Partner is not bankrupt at such time).
Upon a dissolution pursuant to (x) or (y) of clause (iv) above, the holders of a
Unit Majority may also elect, within certain time limitations, to reconstitute
the Partnership and continue its business on the same terms and conditions set
forth in the Partnership Agreement by forming a new limited partnership on terms
identical to those set forth in the Partnership Agreement and having as general
partner an entity approved by the holders of at least a Unit Majority subject to
receipt by the Partnership of an Opinion of Counsel. Upon a dissolution pursuant
to (z) of clause (iv) above, the Special General Partner shall automatically
become the Managing General Partner and the Partnership shall continue without
any Unitholder action.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is
reconstituted and continued as a new limited partnership, the Person authorized
to wind up the affairs of the Partnership (the 'Liquidator') will, acting with
all of the powers of the Managing General Partner that such Liquidator deems
necessary or desirable in its good faith judgment in connection therewith,
liquidate the Partnership's assets and apply the proceeds of the liquidation as
provided in 'Cash Distribution Policy -- Distributions of Cash Upon
Liquidation.' Under certain circumstances and subject to certain limitations,
the Liquidator may defer liquidation or distribution of the Partnership's assets
for a reasonable period of time or distribute assets to partners in kind if it
determines that a sale would be impractical or would cause undue loss to the
partners.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNERS
The Managing General Partner has agreed not to withdraw voluntarily as the
managing general partner of the Partnership and the Operating Partnership prior
to June 30, 2006 (with limited exceptions described below), without obtaining
the approval of the holders of a Unit Majority and furnishing an Opinion of
Counsel. On or after June 30, 2006, the Managing General Partner may withdraw as
the Managing General Partner (without first obtaining approval from any
Unitholder) by giving 90 days' written notice, and such withdrawal will not
constitute a violation of the Partnership Agreement. Notwithstanding the
foregoing, the Managing General Partner may withdraw without Unitholder
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approval upon 90 days' notice to the Limited Partners if more than 50% of the
outstanding Common Units are held or controlled by one Person and its Affiliates
(other than the General Partners and their Affiliates). In addition, the
Partnership Agreement permits the Managing General Partner (in certain limited
instances) to sell or otherwise transfer all of its General Partner Interest,
without the approval of the Unitholders. See ' -- Transfer of General Partners'
Interests and Right to Receive Incentive Distributions and Conversion of Units
Held by Managing General Partner into Limited Partner Interests.'
Upon the withdrawal of the Managing General Partner under any circumstances
(other than as a result of (x) a transfer by the Managing General Partner of all
or a part of its General Partner Interest or (y) certain bankruptcy-related
events of the Managing General Partner but only if the Managing General Partner
is Triarc and the Special General Partner is not bankrupt at such time), the
holders of a Unit Majority may select a successor to such withdrawing Managing
General Partner. If such a successor is not elected, or is elected but an
Opinion of Counsel cannot be obtained, the Partnership will be dissolved, wound
up and liquidated, unless within 180 days after such withdrawal the holders of a
Unit Majority agree in writing to continue the business of the Partnership and
to the appointment of a successor Managing General Partner. See ' -- Termination
and Dissolution.'
The Managing General Partner may not be removed unless such removal is
approved by the vote of the holders of not less than 66 2/3% of the outstanding
Units (including Units held by the General Partners and their Affiliates) and
the Partnership receives an Opinion of Counsel. Any such removal is also subject
to the approval of a successor general partner by the vote of the holders of not
less than a Unit Majority. Units held by the General Partners and their
Affiliates shall be deemed to be outstanding for purposes of any such vote. The
Partnership Agreement also provides that if the Managing General Partner is
removed as general partner of the Partnership other than for Cause and Units
held by the General Partners and their Affiliates are not voted in favor of such
removal (i) the Special General Partner shall withdraw as general partner of the
Partnership and the Operating Partnership, (ii) the Subordination Period will
end and all outstanding Subordinated Units will immediately convert into Common
Units on a one-for-one basis, (iii) any existing Common Unit Arrearages will be
extinguished and (iv) the General Partners will have the right to convert their
General Partner Interests and the right to receive Incentive Distributions into
Common Units or to receive in exchange for such interests a cash payment equal
to the fair market value (as determined below) of such interests.
Withdrawal or removal of the Managing General Partner as a general partner
of the Partnership also constitutes withdrawal or removal, as the case may be,
of the Managing General Partner as a general partner of the Operating
Partnership. The withdrawal or removal of the Managing General Partner, as a
general partner of the Partnership, will also constitute a withdrawal or
removal, as the case may be, of the Special General Partner as a general partner
of the Partnership and the Operating Partnership unless such withdrawal of the
Managing General Partner is caused by certain bankruptcy related events of the
Managing General Partner but only if the Managing General Partner is Triarc and
the Special General Partner is not bankrupt at such time (in which case the
Special General Partner will automatically become the managing general partner
and the Partnership will continue without any action by Unitholders).
In the event of withdrawal of the General Partners where such withdrawal
violates the Partnership Agreement, a successor general partner will have the
option to purchase the unsubordinated general partner interests of the departing
General Partners (the 'Departing Partners') in the Partnership and the Operating
Partnership and the right to receive Incentive Distributions for a cash payment
equal to the fair market value of such interests. Under all other circumstances
where the General Partners withdraw or are removed by the Unitholders, the
Departing Partners will have the option to require the successor general partner
to purchase such unsubordinated general partner interests of the Departing
Partners and the right to receive Incentive Distributions for such amount. In
each case, such fair market value will be determined by agreement between the
Departing Partners and the successor general partner, or if no agreement is
reached, by an independent investment banking firm or other independent experts
selected by the Departing Partners and the successor general partner (or if no
expert can be agreed upon, by an expert chosen by agreement of the experts
selected by each of them). In addition, the Partnership will be required to
reimburse the Departing Partners for all amounts due the Departing
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Partners, including, without limitation, all employee-related liabilities,
including severance liabilities, incurred in connection with the termination of
any employees employed by the Departing Partners for the benefit of the
Partnership.
If neither of the above-described options are exercised by either the
Departing Partners or the successor general partner, as applicable, the
Departing General Partners will have the right to convert their unsubordinated
general partner interests and their right to receive Incentive Distributions
into Common Units equal to the fair market value of such interests as determined
by an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph or to receive cash from the Partnership in
exchange for such interests.
TRANSFER OF GENERAL PARTNERS' INTERESTS AND RIGHT TO RECEIVE INCENTIVE
DISTRIBUTIONS
AND CONVERSION OF UNITS HELD BY THE MANAGING GENERAL PARTNER INTO LIMITED
PARTNER INTERESTS
Except for (x) a transfer by either of the General Partners of all, but not
less than all, of their General Partner Interests in the Partnership and the
Operating Partnership to (a) an Affiliate (including Triarc) or (b) another
Person in connection with the merger or consolidation of either of the Managing
General Partner with or into another Person, (y) the transfer by either of the
General Partners of all or substantially all of its assets to another Person, or
(z) the transfer by operation of law upon the merger or liquidation of the
Managing General Partner with and into Triarc but only if, (i) the Partnership
has received an Opinion of Counsel, (ii) the Special General Partner has not
converted or transferred any portion of its 1.0% general partner interest in the
Partnership or 1.0101% general partner interest in the Operating Partnership and
(iii) the Special General Partner has a net worth equal to at least $15 million
independent of its interest in the Partnership Group, neither of the General
Partners may transfer all or any part of its General Partner Interest in the
Partnership to another Person prior to June 30, 2006, without the approval of
the holders of a Unit Majority; provided that, in each case, such transferee
assumes the rights and duties of the Managing General Partner to whose interest
such transferee has succeeded, agrees to be bound by the provisions of the
Partnership Agreement, furnishes an Opinion of Counsel and agrees to acquire all
(or the appropriate portion thereof, as applicable) of the transferring Managing
General Partner's interests in the Operating Partnership and agrees to be bound
by the provisions of the Operating Partnership Agreement. The Partnership
Agreement permits the Managing General Partner to transfer its Subordinated
Units and Common Units to one or more Persons. The Partnership Note, however,
contains certain agreements by Triarc that could restrict the Managing General
Partner's ability to transfer or sell Subordinated Units. See 'Cash Distribution
Policy -- Partnership Loan.' The Managing General Partner and its Affiliates may
each at their election convert any portion of the Units from general partner
interests into limited partner interests. In addition, the Subordinated Units
held by the Managing General Partner will convert into limited partner interests
upon (i) the conversion into Common Units or (ii) immediately prior to the
transfer of the Subordinated Units to transferees who are unaffiliated with the
Managing General Partner. Furthermore, the Special General Partner can convert
its General Partner Interest into Units. See ' -- Special General Partner.'
Furthermore, the Managing General Partner shall have the right at any time to
transfer its right to receive Incentive Distributions to one or more Persons (as
an assignment of such rights or as a special limited partner interest in the
Partnership) subject only to any reasonable restrictions on transfer and
requirements for registering the transfer of such right as may be adopted by the
Managing General Partner without Unitholder approval. At any time, the
Affiliates of the General Partners (including Triarc) may sell or transfer all
or part of their respective direct or indirect interest in the General Partners
to an Affiliate or an unaffiliated third party without the approval of the
Unitholders.
LIMITED CALL RIGHT
If at any time less than 20% of the then-issued and outstanding partnership
interests of any class are held by Persons other than the General Partners and
their Affiliates, the Managing General Partner will have the right, which it may
assign in whole or in part to any of its Affiliates or to the Partnership, to
acquire all, but not less than all, of the remaining partnership interests of
such class held by such unaffiliated Persons as of a record date to be selected
by the Managing General Partner, on at least 10
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but not more than 60 days' notice. The purchase price in the event of such a
purchase shall be the greater of (i) the highest price paid by the General
Partners or any of their Affiliates for partnership interests purchased within
the 90 days preceding the date on which the Managing General Partner first mails
notice of its election to purchase such partnership interests, and (ii) the
Current Market Price (as defined in the Glossary) of such partnership interests
as of the date three days prior to the date such notice is mailed. As a
consequence of the Managing General Partner's right to purchase outstanding
partnership interests, a holder of partnership interests may have such
partnership interests purchased even though he may not desire to sell them, or
the price paid may be less than the amount the holder would desire to receive
upon the sale of his partnership interests. The tax consequences to a Unitholder
of the exercise of this call right are the same as a sale by such Unitholder of
his Common Units in the market. See 'Tax Considerations -- Disposition of Common
Units.'
MEETINGS; VOTING
Except as described below with respect to a Person or group owning 20% or
more of all Units, Unitholders or assignees who are record holders of Units on
the record date set pursuant to the Partnership Agreement will be entitled to
notice of, and to vote at, meetings of Unitholders and to act with respect to
matters as to which approvals may be solicited. With respect to voting rights
attributable to Common Units that are owned by an assignee who is a record
holder but who has not yet been admitted as a Limited Partner, the Managing
General Partner shall be deemed to be the Limited Partner with respect thereto
and shall, in exercising the voting rights in respect of such Common Units on
any matter, vote such Common Units at the written direction of such record
holder. Absent such direction, such Common Units will not be voted (except that,
in the case of Common Units held by the Managing General Partner on behalf of
Non-citizen Assignees (as defined below), the Managing General Partner shall
distribute the votes in respect of such Common Units in the same ratios as the
votes of Limited Partners in respect of other Common Units are cast).
The Managing General Partner does not anticipate that any meeting of
Unitholders will be called in the foreseeable future. Any action that is
required or permitted to be taken by the Unitholders may be taken either at a
meeting of the Unitholders or without a meeting if consents in writing setting
forth the action so taken are signed by holders of such number of Units as would
be necessary to authorize or take such action at a meeting of all of the
Unitholders. Meetings of the Unitholders may be called by the Managing General
Partner or by Unitholders owning in the aggregate at least 20% of the
outstanding Common Units of the class for which a meeting is proposed.
Unitholders may vote either in person or by proxy at meetings. The holders of a
majority of the outstanding Units of the class for which a meeting has been
called represented in person or by proxy will constitute a quorum at a meeting
of Unitholders of such class or classes, unless any such action by the
Unitholders requires approval by holders of a greater percentage of such Units,
in which case the quorum shall be such greater percentage.
Each record holder of a Unit has a vote according to his percentage
interest in the Partnership, although additional limited and/or general partner
interests having special voting rights could be issued by the Managing General
Partner. See ' -- Issuance of Additional Securities.' However, if any Person or
group (other than the General Partners and their Affiliates) acquires, in the
aggregate, beneficial ownership of 20% or more of the total Units then
outstanding, such Person or group loses voting rights with respect to all of its
Units and such Units may not be voted on any matter and will not be considered
to be outstanding when sending notices of a meeting of limited partners,
calculating required votes, determining the presence of a quorum or for other
similar Partnership purposes. The Partnership Agreement provides that Common
Units held in nominee or street name account will be voted by the broker (or
other nominee) pursuant to the instruction of the beneficial owner unless the
arrangement between the beneficial owner and his nominee provides otherwise.
Except as otherwise provided in the Partnership Agreement, Subordinated Units
will vote together with the Common Units as a single class.
Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of Common Units (whether or not such
record holder has been admitted as a partner) under the terms of the Partnership
Agreement will be delivered to the record holder by the Partnership or by the
Transfer Agent at the request of the Partnership.
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STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described above under ' -- Limited Liability,' the Common Units
offered hereby are fully paid, and Unitholders will not be required to make
additional contributions to the Partnership.
An assignee of a Common Unit or Subordinated Unit subsequent to executing
and delivering a Transfer Application, but pending its admission as a
substituted Limited Partner in the Partnership, is entitled to an interest in
the Partnership equivalent to that of a Limited Partner with respect to the
right to share in allocations and distributions from the Partnership, including
liquidating distributions. The Managing General Partner will vote and exercise
other powers attributable to Common Units or Subordinated Units, as the case may
be, owned by an assignee who has not become a substitute Limited Partner at the
written direction of such assignee. See ' -- Meetings; Voting.' Transferees who
do not execute and deliver a Transfer Application will be treated neither as
assignees nor as record holders of Common Units, and will not receive cash
distributions, federal income tax allocations or reports furnished to record
holders of Common Units. See 'Description of the Common Units -- Transfer of
Common Units.'
NON-CITIZEN ASSIGNEES; REDEMPTION
If the Partnership is or becomes subject to federal, state or local laws or
regulations that, in the reasonable determination of the Partnership, create a
substantial risk of cancellation or forfeiture of any property in which the
Partnership has an interest because of the nationality, citizenship, residency
or other related status of any Partner or assignee, the Partnership may redeem
the Common Units held by such Partner or assignee at their Current Market Price.
In order to avoid any such cancellation or forfeiture, the Partnership may
require each Partner or assignee to furnish information about his nationality,
citizenship, residency or related status. If a Partner or assignee fails to
furnish information about such nationality, citizenship, residency or other
related status within 30 days after a request for such information, such Limited
Partner or assignee may be treated as a non-citizen assignee ('Non-citizen
Assignee'). In addition to other limitations on the rights of an assignee who is
not a substituted Partner, a Non-citizen Assignee does not have the right to
direct the voting of his Common Units and may not receive distributions in kind
upon liquidation of the Partnership.
INDEMNIFICATION
The Partnership Agreement provides that the Partnership will indemnify each
General Partner, any Departing Partner, any Person who is or was an Affiliate of
either of the General Partners or any Departing Partner, any Person who is or
was an officer, director, partner or trustee of a General Partner or any
Departing Partner or any affiliate of either of the General Partners or any
Departing Partner, or any Person who is or was serving at the request of a
General Partner or any Departing Partner or any Affiliate of either of the
General Partners or any Departing Partner as an officer, director, employee,
partner, agent or trustee of another Person ('Indemnitees'), to the fullest
extent permitted by law, from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation, legal
fees and expenses), judgments, fines, penalties, interest, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as any of the foregoing; provided that in
each case the Indemnitee acted in good faith and in a manner that such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful. Any indemnification under these
provisions will be only out of the assets of the Partnership, and the General
Partners shall not be personally liable for, or have any obligation to
contribute or loan funds or assets to the Partnership to enable it to
effectuate, such indemnification. The Partnership is authorized to purchase (or
to reimburse the General Partners or their Affiliates for the cost of) insurance
against liabilities asserted against and expenses incurred by such persons in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such person against such
liabilities under the provisions described above. National Propane Corporation
(and, after the Triarc Merger, Triarc) has generally indemnified National
Propane SGP, Inc. for all liabilities arising as a result of National Propane
SGP, Inc.'s status as general partner of the Partnership and the Partnership
Group.
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BOOKS AND REPORTS
The Partnership is required to keep appropriate books of the business of
the Partnership at the principal offices of the Partnership. The books will be
maintained for both tax and financial reporting purposes on an accrual basis.
For financial reporting and tax purposes, the fiscal year of the Partnership is
the calendar year.
As soon as practicable, but in no event later than 120 days after the close
of each fiscal year, the Managing General Partner will furnish or make available
to each record holder of Units (as of a record date selected by the Managing
General Partner) an annual report containing audited financial statements of the
Partnership for the past fiscal year, prepared in accordance with generally
accepted accounting principles. As soon as practicable, but in no event later
than 90 days after the close of each quarter (except the last quarter of each
fiscal year), the Managing General Partner will furnish or make available to
each record holder of Units (as of a record date selected by the Managing
General Partner) a report containing unaudited financial statements of the
Partnership with respect to such quarter and such other information as may be
required by law.
The Partnership will use all reasonable efforts to furnish each record
holder of a Unit information reasonably required for tax reporting purposes
within 90 days after the close of each calendar year. Such information is
expected to be furnished in summary form so that certain complex calculations
normally required of partners can be avoided. The Partnership's ability to
furnish such summary information to Unitholders will depend on the cooperation
of such Unitholders in supplying certain information to the Partnership. Every
Unitholder (without regard to whether he supplies such information to the
Partnership) will receive information to assist him in determining his federal
and state tax liability and filing his federal and state income tax returns.
RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS
The Partnership Agreement provides that a Limited Partner can, for a
purpose reasonably related to such Limited Partner's interest as a limited
partner, upon reasonable demand and at his own expense, have furnished to him
(i) a current list of the name and last known address of each partner, (ii) a
copy of the Partnership's tax returns, (iii) information as to the amount of
cash, and a description and statement of the agreed value of any other property
or services, contributed or to be contributed by each partner and the date on
which each became a partner, (iv) copies of the Partnership Agreement, the
certificate of limited partnership of the Partnership, amendments thereto and
powers of attorney pursuant to which the same have been executed, (v)
information regarding the status of the Partnership's business and financial
condition and (vi) such other information regarding the affairs of the
Partnership as is just and reasonable. The Partnership may, and intends to, keep
confidential from the Limited Partners trade secrets or other information the
disclosure of which the Partnership believes in good faith is not in the best
interests of the Partnership or which the Partnership is required by law or by
agreements with third parties to keep confidential.
REIMBURSEMENT FOR SERVICES
The Partnership Agreement provides that the General Partners are not
entitled to receive any compensation for their services as general partners of
the Partnership; the General Partners are, however, entitled to be reimbursed on
a monthly basis (or such other basis as the Managing General Partner may
reasonably determine) for all direct and indirect expenses such General Partner
incurs or payments it makes on behalf of or for the benefit of the Partnership
(including payments made or expenses incurred under employee benefit plans), and
all other necessary or appropriate expenses allocable to the Partnership or
otherwise reasonably incurred by the General Partners in connection with the
operation of the Partnership's business (including expenses allocated to the
General Partners by their Affiliates). The Partnership Agreement provides that
the Managing General Partner shall determine the expenses that are allocable to
the Partnership in any reasonable manner determined by the Managing General
Partner in its sole discretion. In addition, Affiliates of the General Partners
(including Triarc) may perform administrative services for the General Partners
on behalf of the Partnership. Such Affiliates will be reimbursed for all direct
and indirect expenses incurred in
127
connection therewith. Furthermore, the General Partners and their Affiliates may
provide additional services to the Partnership, for which the Partnership will
be charged reasonable fees as determined by the Managing General Partner.
CHANGE OF MANAGEMENT PROVISIONS
The Partnership Agreement contains certain provisions that are intended to
discourage a Person or group from attempting to remove the Managing General
Partner as general partner of the Partnership or otherwise change management of
the Partnership. If any Person or group (other than the General Partners and
their Affiliates) acquires, in the aggregate, beneficial ownership of 20% or
more of the Units of any class then outstanding, such Person or group loses
voting rights with respect to all of its Units. In addition, if the Managing
General Partner is removed as Managing General Partner other than for Cause, (i)
the Subordination Period will end and all outstanding Subordinated Units will
immediately convert into Common Units on a one-for-one basis, (ii) any existing
Common Units Arrearages will be extinguished and (iii) the General Partners will
have the right to convert their General Partner Interests and the right to
receive Incentive Distributions into Common Units or to receive in exchange for
such interests a cash payment equal to the fair market value of such interests.
See ' -- Withdrawal or Removal of the General Partners.'
REGISTRATION RIGHTS
Pursuant to the terms of the Partnership Agreement and subject to certain
limitations described therein, the Partnership has agreed to register for resale
under the Securities Act and applicable state securities laws any Common Units
or other securities of the Partnership (including Subordinated Units and
Incentive Rights) proposed to be sold by the Managing General Partner or any of
its Affiliates. The Partnership is obligated to pay all expenses incidental to
such registration, excluding underwriting discounts and commissions. See 'Units
Eligible for Future Sale.'
UNITS ELIGIBLE FOR FUTURE SALE
The Managing General Partner holds 4,533,638 Subordinated Units, all of
which will convert into Common Units at the end of the Subordination Period and
some of which may convert earlier. In addition, the Special General Partner may
convert all or a portion of its General Partner Interest into a number of
Subordinated Units (or Common Units after the end of the Subordination Period)
having rights to distributions of Available Cash from Operating Surplus equal to
the distribution rights with respect to Available Cash from Operating Surplus of
the General Partner Interest so converted, provided that the Triarc Merger has
not occurred. See 'Cash Distribution Policy -- Distributions from Operating
Surplus during Subordination Period.' The sale of these Units could have an
adverse impact on the price of the Common Units or on any trading market that
may develop. For a discussion of the transactions whereby the General Partner
acquired the Subordinated Units in connection with the organization of the
Partnership, see 'The IPO and Additional Transactions.'
The Common Units offered hereby will generally be transferable without
restriction or further registration under the Securities Act, except that any
Common Units owned by 'an affiliate' of the Partnership (as that term is defined
in the rules and regulations under the Securities Act) may not be resold
publicly except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom under Rule 144 thereunder
('Rule 144') or otherwise. Rule 144 permits securities acquired by an affiliate
of the issuer in an offering to be sold into the market in an amount that does
not exceed, during any three-month period, the greater of (i) 1% of the total
number of such securities outstanding or (ii) the average weekly reported
trading volume of the Common Units for the four calendar weeks prior to such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Partnership. A person who is not deemed to have been an
affiliate of the Partnership at any time during the three months preceding a
sale, and who has beneficially owned his Common Units for at least three years,
would be entitled to sell such Common Units under Rule 144 without regard to the
public information requirements, volume limitations, manner of sale provisions
or notice requirements of Rule 144.
128
Prior to the end of the Subordination Period, the Partnership may not issue
equity securities of the Partnership ranking prior or senior to the Common Units
or an aggregate of more than 3,095,238 additional Common Units (including the
400,000 Common Units sold in the Private Placement and offered hereby) or an
equivalent amount of securities ranking on a parity with the Common Units
(excluding the 111,074 Common Units issued upon exercise of the IPO
Over-Allotment Option, Common Units issued upon conversion of Subordinated Units
or in connection with Acquisitions or Capital Improvements or the repayment of
certain indebtedness or pursuant to employee benefit plans) in either case
without the approval of the holders of at least a Unit Majority, except under
certain circumstances. After the Subordination Period, the Partnership, without
a vote of the Unitholders, may issue an unlimited number of additional Common
Units or other equity securities of the Partnership on a parity with or senior
to the Common Units. The Partnership Agreement does not impose any restriction
on the Partnership's ability to issue equity securities ranking junior to the
Common Units at any time. Any issuance of additional Common Units or certain
other equity securities would result in a corresponding decrease in the
proportionate ownership interest in the Partnership represented by, and could
adversely affect the cash distributions to and market price of, Common Units
then outstanding. See 'The Partnership Agreement -- Issuance of Additional
Securities.'
Pursuant to the Partnership Agreement, the Managing General Partner and its
Affiliates will have the right, upon the terms and subject to the conditions
therein, to cause the Partnership to register under the Securities Act and state
securities laws the offer and sale of any Units or other Partnership Securities
that it holds. Subject to the terms and conditions of the Partnership Agreement,
such registration rights allow the Managing General Partner and its affiliates
or their assigns, holding any Units to require registration of any such Units
and to include any such Units in a registration by the partnership of other
Units, including Units offered by the Partnership or by any Unitholder. Such
registration rights will continue in effect for two years following any
withdrawal or removal of the Managing General Partner as the general partner of
the Partnership. In connection with any such registration, the Partnership will
indemnify each Unitholder participating in such registration and its officers,
directors and controlling Persons from and against any liabilities under the
Securities Act or any state securities laws arising from the registration
statement or prospectus. The Partnership will bear the reasonable costs of any
such registration, excluding underwriting discounts and commissions. In
addition, the Managing General Partner and its Affiliates may sell their Units
in private transactions at any time, subject to compliance with applicable laws.
Pursuant to a Registration Agreement between the Partnership and the
Selling Unitholder (the 'Registration Agreement'), the Selling Unitholder has
the right, upon the terms and subject to the conditions therein, to cause the
Partnership to register under the Securities Act the offer and sale of the
Common Units purchased pursuant to the Purchase Agreement and held by the
Selling Unitholder or any of its affiliated transferees. Subject to the terms
and conditions of the Registration Agreement, such registration rights allow the
Selling Unitholder or such transferees to require the Partnership to (i) file
the Registration Statement of which this Prospectus is a part and to maintain
the effectiveness thereof for a period of six months, (ii) effect the
registration of the Common Units owned by the Selling Unitholder or such
transferees at any time following six months after the shelf registration
statement is no longer effective and to maintain the effectiveness thereof for a
period of six months and (iii) to include any such Common Units in a
registration by the Partnership of other Common Units, including Common Units
offered by the Partnership or by any Common Unitholder. In connection with any
such registration, the Partnership will indemnify each Common Unitholder
participating in such registration and its directors, officers, employee,
attorneys and controlling persons from and against certain liabilities,
including liabilities, arising under the Securities Act. The Partnership will
bear certain of the costs of any such registration, excluding underwriting
discounts and commissions and transfer fees.
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TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective Unitholders and, to the extent set forth below under
' -- Legal Opinions and Advice,' represents the opinion of Andrews & Kurth
L.L.P., special counsel to the General Partners and the Partnership ('Counsel'),
insofar as it relates to matters of law and legal conclusions. A copy of such
opinion has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. This section is based upon current provisions of the
Internal Revenue Code of 1986, as amended ('Code'), existing and proposed
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Subsequent changes in such authorities may
cause the tax consequences to vary substantially from the consequences described
below. Unless the context otherwise requires, references in this section to
Partnership are references to both the Partnership and the Operating
Partnership.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting the Partnership or the Unitholders.
Moreover, the discussion focuses on Unitholders who are individual citizens or
residents of the United States and has only limited application to corporations,
estates, trusts, non-resident aliens or other Unitholders subject to specialized
tax treatment (such as tax-exempt institutions, individual retirement accounts,
REITs or mutual funds). Accordingly, each prospective Unitholder should consult,
and should depend on, his own tax advisor in analyzing the federal, state, local
and foreign tax consequences to him of the ownership or disposition of Common
Units.
SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION
CONSTITUTE 'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT.
SEE 'SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 4 FOR ADDITIONAL
FACTORS RELATING TO SUCH STATEMENTS.
LEGAL OPINIONS AND ADVICE
Counsel has expressed its opinion that, based on the representations and
subject to the qualifications set forth in the detailed discussion that follows,
for federal income tax purposes (i) the Partnership and the Operating
Partnership will each be treated as a partnership and (ii) owners of Common
Units (with certain exceptions, as described in 'Limited Partner Status' below)
will be treated as partners of the Partnership (but not the Operating
Partnership). In addition, all statements as to matters of law and legal
conclusions contained in this section, unless otherwise noted, reflect the
opinion of Counsel.
Although no attempt has been made in the following discussion to comment on
all federal income tax matters affecting the Partnership or prospective
Unitholders, Counsel has advised the Partnership that, based on current law, the
following is a general description of the principal federal income tax
consequences that should arise from the ownership and disposition of Common
Units and, insofar as it relates to matters of law and legal conclusions,
addresses the material tax consequences to Unitholders who are individual
citizens or residents of the United States.
No ruling has been or will be requested from the IRS with respect to
classification of the Partnership as a partnership for federal income tax
purposes, whether the Partnership's propane operations generate 'qualifying
income' under SS7704 of the Code or any other matter affecting the Partnership
or prospective Unitholders. An opinion of counsel represents only that counsel's
best legal judgment and does not bind the IRS or the courts. Thus, no assurance
is given that the opinions set forth herein would be sustained by a court if
contested by the IRS. Any such contest with the IRS may materially and adversely
impact the market for the Common Units and the prices at which Common Units
trade. In addition, the costs of any contest with the IRS will be borne directly
or indirectly by the Unitholders and the General Partners. Furthermore, no
assurance is given that the treatment of the Partnership or an investment
therein will not be significantly modified by future legislative or
administrative changes or court decisions. Any such modification may or may not
be retroactively applied.
For the reasons hereinafter described, Counsel has not rendered an opinion
with respect to the following specific federal income tax issues: (i) the
treatment of a Unitholder whose Common Units are loaned to a short seller to
cover a short sale of Common Units (see ' -- Tax Treatment of Operations --
130
Treatment of Short Sales'), (ii) whether a Unitholder acquiring Common Units in
separate transactions must maintain a single aggregate adjusted tax basis in his
Common Units (see ' -- Disposition of Common Units -- Recognition of Gain or
Loss'), (iii) whether the Partnership's 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 (iv) whether the Partnership's method for depreciating
Section 743 adjustments, utilized to maintain the uniformity of the economic and
tax characteristics of the Common Units, is sustainable (see ' -- Uniformity of
Units').
TAX RATES AND CHANGES IN FEDERAL INCOME TAX LAWS
The top marginal income tax rate for individuals is 36% subject to a 10%
surtax on individuals with taxable income in excess of $271,050 per year. The
surtax is computed by applying a 39.6% rate to taxable income in excess of the
threshold. The net capital gain of an individual is subject to a maximum 28% tax
rate.
The 1995 Proposed Legislation that was passed by Congress on November 17,
1995, as part of the Revenue Reconciliation Act of 1995, would alter the tax
reporting system and the deficiency collection system applicable to large
partnerships (generally defined as electing partnerships with more than 100
partners) and would make certain additional changes to the treatment of large
partnerships, such as the Partnership. Certain of the proposed changes are
discussed later in this section. The 1995 Proposed Legislation is generally
intended to simplify the administration of the tax rules governing large
partnerships such as the Partnership. In addition, the 1995 Proposed Legislation
contained provisions which would have reduced the maximum tax rate applicable to
the net capital gains of an individual to 19.8%.
On March 19, 1996, President Clinton introduced tax legislation, known as
the Revenue Reconciliation Act of 1996, that would impact the taxation of
certain financial products, including partnership interests. One proposal would
treat a taxpayer as having sold an 'appreciated' partnership interest (one in
which gain would be recognized if such interest were sold) if the taxpayer or
related persons enters into one or more positions with respect to the same or
substantially identical property which, for some period, substantially
eliminates both the risk of loss and opportunity for gain on the appreciated
financial position (including selling 'short against the box' transactions).
Certain of these proposed changes are also discussed later in this section under
'Disposition of Common Units.'
President Clinton vetoed the 1995 Proposed Legislation on December 6, 1995.
As of the date of this Prospectus, it is not possible to predict whether any of
the changes set forth in the 1995 Proposed Legislation, the Revenue
Reconciliation Act of 1996 or any other changes in the federal income tax laws
that would impact the Partnership and the Unitholders will ultimately be enacted
or, if enacted, what form they will take, what the effective dates will be, and
what, if any, transition rules will be provided.
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his allocable
share of items of income, gain, loss and deduction of the Partnership in
computing his 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 his partnership interest.
No ruling has been or will be sought from the IRS as to the status of the
Partnership or the Operating Partnership as a partnership for federal income tax
purposes. Instead the Partnership has relied on the opinion of Counsel that,
based upon the Code, the regulations thereunder, published revenue rulings and
court decisions, the Partnership and the Operating Partnership will each be
classified as a partnership for federal income tax purposes.
131
In rendering its opinion, Counsel has relied on the accuracy of the
following factual representations made by the Partnership and the General
Partners:
(a) With respect to the Partnership and the Operating Partnership, the
General Partners, at all times while acting as general partners of the
Partnership and the Operating Partnership (since the IPO), have had and
will have a combined net worth, computed on a fair market value basis,
excluding interests in the Partnership and in the Operating Partnership and
any amounts due from the Partnership or the Operating Partnership and
deferred taxes, of not less than $15 million;
(b) The Partnership has been and will be operated in accordance with
(i) all applicable partnership statutes, (ii) the Partnership Agreement,
and (iii) this Prospectus;
(c) The Operating Partnership has been and will be operated in
accordance with (i) all applicable partnership statutes, (ii) the limited
partnership agreement for the Operating Partnership, and (iii) the
description thereof in this Prospectus;
(d) The General Partners have and will, at all times, act
independently of the limited partners (other than any limited partner
interest held by the General Partners); and
(e) For each taxable year of the Partnership's existence, more than
90% of the gross income of the Partnership has been and will be derived
from (i) marketing of propane, (ii) interest (from other than a financial
business) and dividends, and (iii) other items of income which, in the
opinion of Counsel, constitute 'qualifying income' within the meaning of
Section 7704(d) of the Code.
Counsel's opinion as to the partnership classification of the Partnership
in the event of a change in the general partner is based upon the assumption
that the new general partner will satisfy the foregoing representations.
Section 7704 of the Code provides that publicly-traded partnerships will,
as a general rule, be taxed as corporations. However, an exception (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.' Counsel is of the opinion that qualifying
income includes interest from the Partnership Loan to Triarc, interest on the
Partnership's customer account balances and other interest (from other than a
financial business), dividends (including dividends from the corporate
subsidiary of the Operating Partnership) and income and gains from the
transportation and marketing of crude oil, natural gas, and products thereof,
including the retail and wholesale marketing of propane and the transportation
of propane and natural gas liquids. The Managing General Partner, based on
advice of Counsel, estimates, that at least 90% of the Partnership's gross
income will constitute qualifying income. The Partnership estimates, based on
advice of Counsel, that less than 6% of its gross income for its taxable year
ending December 31, 1996 did not constitute qualifying income. The Partnership
further estimates that less than 6% of its gross income for each subsequent
taxable year will not constitute qualifying income.
If the Partnership fails to meet the Qualifying Income Exception (other
than a failure which is determined by the IRS to be inadvertent and which is
cured within a reasonable time after discovery), the Partnership will be treated
as if it had transferred all of its assets (subject to liabilities) to a newly
formed corporation (on the first day of the year in which it fails to meet the
Qualifying Income Exception) in return for stock in that corporation, and then
distributed that stock to the partners in liquidation of their interests in the
Partnership. This contribution and liquidation should be tax-free to Unitholders
and the Partnership, so long as the Partnership, at that time, does not have
liabilities in excess of the basis of its assets. Thereafter, the Partnership
would be treated as a corporation for federal income tax purposes.
If the Partnership or the Operating Partnership were treated as an
association taxable as a corporation in any taxable year, either as a result of
a failure to meet the Qualifying Income Exception or otherwise, its items of
income, gain, loss and deduction would be reflected only on its tax return
rather than being passed through to the Unitholders, and its net income would be
taxed to the Partnership or the Operating Partnership at corporate rates. In
addition, any distribution made to a Unitholder would be treated as either
taxable dividend income (to the extent of the Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits or
to the extent any distribution exceeds current and accumulated earnings and
profits) a nontaxable return of capital
132
(to the extent of the Unitholder's tax basis in his Common Units) or taxable
capital gain (after the Unitholder's tax basis in the Common Units is reduced to
zero). Accordingly, treatment of either the Partnership or the Operating
Partnership as an association taxable 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 the Units.
The discussion below is based on the assumption that the Partnership will
be classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of the Partnership will be
treated as partners of the Partnership for federal income tax purposes.
Moreover, the IRS has ruled that assignees of partnership interests who have not
been admitted to a partnership as partners, but who have the capacity to
exercise substantial dominion and control over the assigned partnership
interests, will be treated as partners for federal income tax purposes. On the
basis of this ruling, except as otherwise described herein, Counsel is of the
opinion that (a) assignees who have executed and delivered Transfer
Applications, and are awaiting admission as limited partners, and (b)
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 partners of
the Partnership for federal income tax purposes. As this ruling does not extend,
on its facts, to assignees of Common Units who are entitled to execute and
deliver Transfer Applications and thereby become entitled to direct the exercise
of attendant rights, but who fail to execute and deliver Transfer Applications,
Counsel's opinion does not extend to these persons. Income, gain, deductions or
losses would not appear to be reportable by a Unitholder who is not a partner
for federal income tax purposes, and any cash distributions received by such a
Unitholder would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as partners
in the Partnership for federal income tax purposes. A purchaser or other
transferee of Common Units who does not execute and deliver a Transfer
Application may not receive certain federal income tax information or reports
furnished to record holders of Common Units unless the Common Units are held in
a nominee or street name account and the nominee or broker has executed and
delivered a Transfer Application with respect to such Common Units.
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 his status as a
partner with respect to such Common Units for federal income tax purposes. See
' -- Tax Treatment of Operations -- Treatment of Short Sales.'
TAX CONSEQUENCES OF UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME
No federal income tax will be paid by the Partnership. Instead, each
Unitholder will be required to report on his income tax return his allocable
share of the income, gains, losses and deductions of the Partnership without
regard to whether corresponding cash distributions are received by such
Unitholder. Consequently, a Unitholder may be allocated income from the
Partnership even if he has not received a cash distribution. Each Unitholder
will be required to include in income his allocable share of Partnership income,
gain, loss and deduction for the taxable year of the Partnership ending with or
within the taxable year of the Unitholder.
TREATMENT OF PARTNERSHIP DISTRIBUTIONS
Distributions by the Partnership to a Unitholder generally will not be
taxable to the Unitholder for federal income tax purposes to the extent of his
basis in his Common Units immediately before the distribution. Cash
distributions in excess of a Unitholder's basis generally will be considered to
be gain from the sale or exchange of the Common Units, taxable in accordance
with the rules described under ' -- Disposition of Common Units' below. Any
reduction in a Unitholder's share of the Partnership's liabilities for which no
partner, including the General Partners, bears the economic risk of loss
133
('nonrecourse liabilities') will be treated as a distribution of cash to that
Unitholder. To the extent that Partnership distributions cause a Unitholder's
'at risk' amount to be less than zero at the end of any taxable year, he must
recapture any losses deducted in previous years. See ' -- Limitations on
Deductibility of Partnership Losses.'
A decrease in a Unitholder's Percentage Interest in the Partnership because
of the issuance by the Partnership of additional Common Units will decrease such
Unitholder's share of nonrecourse liabilities of the Partnership, and thus will
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 his basis in his Common Units, if such distribution reduces the
Unitholder's share of the Partnership's 'unrealized receivables' (including
depreciation recapture) and/or substantially appreciated 'inventory items' (both
as defined in Section 751 of the Code) (collectively, 'Section 751 Assets'). To
that extent, the Unitholder will be treated as having been distributed his
proportionate share of the Section 751 Assets and having exchanged such assets
with the Partnership in return for the non-pro rata portion of the actual
distribution made to him. This latter deemed exchange will generally result in
the Unitholder's realization of ordinary income under Section 751(b) of the
Code. Such income will equal the excess of (1) the non-pro rata portion of such
distribution over (2) the Unitholder's basis for the share of such Section 751
Assets deemed relinquished in the exchange.
BASIS OF COMMON UNITS
A Unitholder's initial tax basis for his Common Units will be the amount he
paid for the Common Units plus his share of the Partnership's nonrecourse
liabilities. That basis will be increased by his share of Partnership income and
by any increases in his share of Partnership nonrecourse liabilities. That basis
will be decreased (but not below zero) by distributions from the Partnership, by
the Unitholder's share of Partnership losses, by any decrease in his share of
Partnership nonrecourse liabilities and by his share of expenditures of the
Partnership that are not deductible in computing its taxable income and are not
required to be capitalized. A limited partner will have no share of Partnership
debt which is recourse to a partner, but will have a share, generally based on
his share of profits, of Partnership debt which is not recourse to any partner.
The Partnership does not anticipate having nonrecourse liabilities, however. See
' -- Disposition of Common Units -- Recognition of Gain or Loss.'
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
The deduction by a Unitholder of his share of Partnership losses will be
limited to the tax basis in his Units and, in the case of an individual
Unitholder or a corporate Unitholder (if more than 50% in the value of its stock
is owned directly or indirectly by five or fewer individuals or certain
tax-exempt organizations), to the amount which the Unitholder is considered to
be 'at risk' with respect to the Partnership's activities, if that is less than
the Unitholder's basis. A Unitholder must recapture losses deducted in previous
years to the extent that Partnership distributions cause the 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 basis or
at risk amount (whichever is the limiting factor) is subsequently increased.
Upon the taxable disposition of a 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 is no
longer utilizable.
In general, a Unitholder will be at risk to the extent of the tax basis of
his Units, excluding any portion of that basis attributable to his share of
Partnership nonrecourse liabilities, reduced by any amount of money the
Unitholder borrows to acquire or hold his Units if the lender of such borrowed
funds owns an interest in the Partnership, is related to such a person or can
look only to Units for repayment. A Unitholder's at risk amount will increase or
decrease as the basis of the Unitholder's Units increases or decreases (other
than basic increases or decreases attributable to increases or decreases in his
share of Partnership nonrecourse liabilities).
134
The passive loss limitations generally provide that individuals, estates,
trusts and certain 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 the Partnership will only be available to offset
future income generated by the Partnership 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 income
generated by the Partnership may be deducted in full when he disposes of his
entire investment in the Partnership in a fully taxable transaction to 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 net income from the Partnership may be offset by
any suspended passive losses from the Partnership, 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.
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 the Partnership will
be treated as investment income for this purpose. In addition, the Unitholder's
share of the Partnership's portfolio income will be treated as investment
income. Investment interest expense includes (i) interest on indebtedness
properly allocable to property held for investment, (ii) the Partnership's
interest expense attributed to portfolio income, and (iii) 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 own a 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 the Partnership has a net profit, items of income, gain,
loss and deduction will be allocated among the General Partners and the
Unitholders in accordance with their respective percentage interests in the
Partnership. With respect to any taxable year, a class of Unitholders (such as
Common Units) that receives more cash than another class (such as Subordinated
Units), on a per Unit basis, will be allocated additional income equal to that
excess. If the Partnership has a net loss, items of income, gain, loss and
deduction will generally be allocated, first, to the General Partners and the
Unitholders in accordance with their respective Percentage Interests to the
extent of their positive capital accounts (as maintained under the Partnership
Agreement), and, second, to the General Partners.
Certain items of Partnership income, deduction, gain and loss will be
allocated to account for the difference between the tax basis and fair market
value of certain property held by the Partnership ('Contributed Property'). The
effect of these allocations to a Unitholder will be essentially the same as if
the tax basis of the Contributed Property were equal to its fair market value at
the time of contribution. In addition, certain items of recapture income will be
allocated to the extent possible to the partner allocated the deduction giving
rise to the treatment of such gain as recapture income in order to minimize the
recognition of ordinary income by some Unitholders, but these allocations may
not be respected. If these allocations of recapture income are not respected,
the amount of the income or gain allocated to a Unitholder will not change but
instead a change in the character of the income
135
allocated to a Unitholder would result. Finally, although the Partnership does
not expect that its operations will result in the creation of negative capital
accounts, if negative capital accounts nevertheless result, items of Partnership
income and gain will be allocated in an amount and manner sufficient to
eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of partnership income,
gain, loss or deduction, other than an allocation to eliminate the difference
between a partner's 'book' capital account (credited with the fair market value
of Contributed Property) and 'tax' capital account (credited with the tax basis
of Contributed Property) (the 'Book-Tax Disparity'), will generally be given
effect for federal income tax purposes in determining a partner's distributive
share of an item of income, gain, loss or deduction only if the allocation has
substantial economic effect. In any other case, a partner's distributive share
of an item will be determined on the basis of the partner's interest in the
partnership, which will be determined by taking into account all the facts and
circumstances, including the partner's relative contributions to the
partnership, the interests of the partners in economic profits and losses, the
interest of the partners in cash flow and other nonliquidating distributions and
rights of the partners to distributions of capital upon liquidation. Counsel is
of the opinion that, with the exception of the allocation of recapture income
discussed above, allocations under the Partnership Agreement will be given
effect for federal income tax purposes in determining a partner's distributive
share of an item of income, gain, loss or deduction. There are, however,
uncertainties in the Treasury Regulations relating to allocations of Partnership
income, and investors should be aware that the allocations of recapture income
in the Partnership Agreement may be successfully challenged by the IRS.
TAX TREATMENT OF OPERATIONS
ACCOUNTING METHOD AND TAXABLE YEAR
The Partnership uses the fiscal year ending December 31 as its taxable year
and has adopted the accrual method of accounting for federal income tax
purposes. Each Unitholder will be required to include in income his allocable
share of Partnership income, gain, loss and deduction for the fiscal year of the
Partnership ending within or with the taxable year of the Unitholder. In
addition, a Unitholder who has a taxable year ending on a date other than
December 31 and who disposes of all of his Units following the close of the
Partnership's taxable year but before the close of his taxable year must include
his allocable share of Partnership income, gain, loss and deduction in income
for his taxable year with the result that he will be required to report in
income for his taxable year his distributive share of more than one year of
Partnership income, gain, loss and deduction. See ' -- Disposition of Common
Units -- Allocations Between Transferors and Transferees.'
INITIAL TAX BASIS, DEPRECIATION AND AMORTIZATION
The tax basis of the assets of the Partnership will be used for purposes of
computing depreciation and cost recovery deductions and, ultimately, gain or
loss on the disposition of such assets. The Partnership assets will initially
have an aggregate tax basis equal to the tax basis of the assets in the hands of
the Managing General Partner immediately prior to the formation of the
Partnership plus the amount of gain recognized by the Managing General Partner
as a result of the formation of the Partnership. The federal income tax burden
associated with the difference between the fair market value of property
contributed by the Managing General Partners and the tax basis established for
such property will be borne by the General Partners. See ' -- Allocation of
Partnership Income, Gain, Loss and Deduction.'
The Partnership may elect to use allowable depreciation and cost recovery
methods that will result in the largest depreciation deductions in the early
years of the Partnership. The Partnership will not be entitled to any
amortization deductions with respect to goodwill conveyed to the Partnership on
formation, other than with respect to goodwill that was amortizable by the
General Partners. Property subsequently acquired or constructed by the
Partnership may be depreciated using accelerated methods permitted by the Code.
If the Partnership disposes 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
136
the nature of the property) may be subject to the recapture rules and taxed as
ordinary income rather than capital gain. Similarly, a partner who has taken
cost recovery or depreciation deductions with respect to property owned by the
Partnership may be required to recapture such deductions as ordinary income upon
a sale of his interest in the Partnership. See ' -- Allocation of Partnership
Income, Gain, Loss and Deduction' and ' -- Disposition of Common
Units -- Recognition of Gain or Loss.'
Costs incurred in organizing the Partnership may be amortized over any
period selected by the Partnership not shorter than 60 months. The costs
incurred in promoting the issuance of Units must be capitalized and cannot be
deducted currently, ratably or upon termination of the Partnership. There are
uncertainties regarding the classification of costs as organization expenses,
which may be amortized, and as syndication expenses, which may not be amortized.
For example, under recently proposed regulations, the Underwriter's spread would
be treated as a syndication cost.
SECTION 754 ELECTION
The Partnership will make the election permitted by Section 754 of the
Code. That election is irrevocable without the consent of the IRS. The election
will generally permit the Partnership to adjust a Common Unit purchaser's basis
in the Partnership's assets ('inside basis') pursuant to Section 743(b) of the
Code to reflect his purchase price. The Section 743(b) adjustment belongs to the
purchaser and not to other partners. (For purposes of this discussion, a
partner's inside basis in the Partnership's assets will be considered to have
two components: (1) his share of the Partnership's basis in such assets ('Common
Basis') and (2) his Section 743(b) adjustment to that basis.)
Proposed Treasury Regulation Section 1.168-2(n) generally requires the
Section 743(b) adjustment attributable to recovery property to be depreciated as
if the total amount of such adjustment were attributable to newly-acquired
recovery property placed in service when the purchaser acquires the Unit.
Similarly, the legislative history of Section 197 indicates that the Section
743(b) adjustment attributable to an amortizable Section 197 intangible (such as
goodwill) should be treated as a newly-acquired asset placed in service in the
month when the purchaser acquires the Unit. Under Treasury Regulation Section
1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property subject
to depreciation under Section 167 of the Code rather than cost recovery
deductions under Section 168 is generally required to be depreciated using
either the straight-line method or the 150% declining balance method. The
depreciation and amortization methods and useful lives associated with the
Section 743(b) adjustment, therefore, may differ from the methods and useful
lives generally used to depreciate the Common Basis in such properties. Pursuant
to the Partnership Agreement, the Partnership is authorized to adopt a
convention to preserve the uniformity of Units even if such convention is not
consistent with Treasury Regulation Section 1.167(c)-1(a)(6), Proposed Treasury
Regulation Section 1.168-2(n) or the legislative history of Section 197 of the
Code. See ' -- Uniformity of Units.'
Although Counsel is unable to opine as to the validity of such an approach,
the Partnership intends to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property
including goodwill (to the extent of any unamortized Book-Tax Disparity) using a
rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the Common Basis of such
property, despite its inconsistency with Proposed Treasury Regulation Section
1.168-2(n), Treasury Regulation Section 1.167(c)-l(a)(6) (neither of which is
expected to directly apply to a material portion of the Partnership's assets) or
the legislative history of Section 197 of the Code. To the extent such Section
743(b) adjustment is attributable to appreciation in excess of the unamortized
book-tax disparity, the Partnership will apply the rules described in the
Regulations and legislative history. As a consequence, it is not expected that a
subsequent holder will be entitled to any significant amortization deductions
with respect to goodwill. If the Partnership determines that such position
cannot reasonably be taken, the Partnership may adopt a depreciation or
amortization convention under which all purchasers acquiring Units in the same
month would receive depreciation or amortization, whether attributable to Common
Basis or Section 743(b) adjustment, based upon the same applicable rate as if
they had purchased a direct interest in the Partnership's assets. Such an
aggregate approach may result in lower annual depreciation or amortization
deductions than would otherwise be allowable to certain Unitholders. See
' -- Uniformity of Units.'
137
The allocation of the Section 743(b) adjustment must be made in accordance
with the Code. The IRS may seek to reallocate some or all of any Section 743(b)
adjustment not so allocated by the Partnership to goodwill, which, as an
intangible asset, would be amortizable over a longer period of time than the
Partnership's tangible assets.
A Section 754 election is advantageous if the transferee's basis in his
Units is higher than such Units' share of the aggregate basis to the Partnership
of the Partnership's assets immediately prior to the transfer. In such a case,
as a result of the election, the transferee would have a higher basis in his
share of the Partnership's assets for purposes of calculating, among other
items, his depreciation and depletion deductions and his share of any gain or
loss on a sale of the Partnership's assets. Conversely, a Section 754 election
is disadvantageous if the transferee's basis in such Units is lower than such
Unit's share of the aggregate basis of the Partnership's assets immediately
prior to the transfer. Thus, the fair market value of the 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 the Partnership on the basis of certain assumptions as to the value
of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership will not be successfully challenged by
the IRS and that the deductions resulting from them will not be reduced or
disallowed altogether. Should the IRS require a different basis adjustment to be
made, and should, in the Partnership's opinion, the expense of compliance exceed
the benefit of the election, the Partnership may seek permission from the IRS to
revoke the Section 754 election for the Partnership. If such permission is
granted, a subsequent purchaser of Units may be allocated more income than he
would have been allocated had the election not been revoked.
ALTERNATIVE MINIMUM TAX
Each Unitholder will be required to take into account his distributive
share of any items of Partnership income, gain, deduction, or loss for purposes
of the alternative minimum tax.
A Unitholder's alternative minimum taxable income derived from the
Partnership may be higher than his share of Partnership net income because the
Partnership may use accelerated methods of depreciation for purposes of
computing federal taxable income or loss. The minimum tax rate for noncorporate
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 Units on their liability for the
alternative minimum tax.
VALUATION OF PARTNERSHIP PROPERTY AND BASIS OF PROPERTIES
The federal income tax consequences of the ownership and disposition of
Units will depend in part on estimates by the Partnership of the relative fair
market values, and determinations of the initial tax basis, of the assets of the
Partnership. Although the Partnership may from time to time consult with
professional appraisers with respect to valuation matters, many of the relative
fair market value estimates will be made by the Partnership. These estimates and
determinations of basis are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value or determinations of
basis are subsequently found to be incorrect, the character and amount of items
of income, gain, loss or deductions previously reported by Unitholders might
change, and Unitholders might be required to adjust their tax liability for
prior years.
TREATMENT OF SHORT SALES
A Unitholder whose Units are loaned to a 'short seller' to cover a short
sale of Units may be considered as having disposed of ownership of those Units.
If so, he would no longer be a partner with respect to those Units during the
period of the loan and may recognize gain or loss from the disposition. As a
result, during this period, any Partnership income, gain, deduction or loss with
respect to those Units would not be reportable by the Unitholder, any cash
distributions received by the Unitholder with respect to those Units would be
fully taxable and all of such distributions would appear to be treated as
ordinary income. Unitholders desiring to assure their status as partners and
avoid the risk of gain
138
recognition should modify any applicable brokerage account agreements to
prohibit their brokers from borrowing their Units. The IRS has announced that it
is actively studying issues relating to the tax treatment of short sales of
partnership interests. (See ' -- Tax Rates and Changes in Federal Income Tax
Laws').
DISPOSITION OF COMMON UNITS
RECOGNITION OF GAIN OR LOSS
Gain or loss will be recognized on a sale of Units equal to the difference
between the amount realized and the Unitholder's tax basis for the 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 his share of Partnership
nonrecourse liabilities. Because the amount realized includes a Unitholder's
share of Partnership nonrecourse liabilities, the gain recognized on the sale of
Units could result in a tax liability in excess of any cash received from such
sale.
Prior Partnership distributions 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 the Common Unit is sold at
or above original cost (and may partially become taxable income even if the
Common Unit is sold below original cost).
Gain or loss recognized by a Unitholder (other than a 'dealer' in Units) on
the sale or exchange of a Unit held for more than one year will generally be
taxable as long-term capital gain or loss. A portion of this gain or loss (which
could be substantial), however, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Code to the extent attributable
to assets giving rise to depreciation recapture or other 'unrealized
receivables' or to 'substantially appreciated inventory' owned by the
Partnership. The term 'unrealized receivables' includes potential recapture
items, including depreciation recapture. Inventory is considered to be
'substantially appreciated' if its value exceeds 120% of its adjusted basis to
the Partnership. Ordinary income attributable to unrealized receivables,
substantially appreciated inventory and depreciation recapture may exceed net
taxable gain realized upon the sale of the Unit and may be recognized even if
there is a net taxable loss realized on the sale of the Unit. Thus, a Unitholder
may recognize both ordinary income and a capital loss upon a disposition of
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. 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. The ruling is unclear as to how the
holding period of these interests is determined once they are combined. If this
ruling is applicable to the holders of Common Units, a Common Unitholder will be
unable to select high or low basis Common Units to sell as would be the case
with corporate stock. It is not clear whether the ruling applies to the
Partnership, because, similar to corporate stock, interests in the Partnership
are evidenced by separate certificates. Accordingly Counsel is unable to opine
as to the effect such ruling will have on the Unitholders. In addition, under
the financial product provisions of the Revenue Reconciliation Act of 1996, in
the case of partnership interests in publicly traded partnerships which are
substantially identical, the basis of such interests and any adjustments to
basis, would be determined on an average basis, and a taxpayer would be treated
as selling such interests on a first-in, first-out basis. A Unitholder
considering the purchase of additional Common Units or a sale of Common Units
purchased in separate transactions should consult his tax advisor as to the
possible consequences of such ruling and subsequent legislation.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES
In general, the Partnership's taxable income and losses will be determined
annually, will be prorated on a monthly basis and subsequently apportioned among
the Unitholders in proportion to the number of Units owned by each of them as of
the opening of the NYSE on the first business day of the month (the 'Allocation
Date'). However, gain or loss realized on a sale or other disposition of
Partnership assets other than in the ordinary course of business will be
allocated among the Unitholders
139
on the Allocation Date in 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, Counsel is unable to opine on the validity of this
method of allocating income and deductions between the transferors and the
transferees of 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), taxable income or losses of the Partnership might be reallocated
among the Unitholders. The Partnership is authorized to revise its method of
allocation between transferors and transferees (as well as among partners whose
interests otherwise vary during a taxable period) to conform to a method
permitted under future Treasury Regulations.
A Unitholder who owns Units at any time during a quarter and who disposes
of such Units prior to the record date set for a cash distribution with respect
to such quarter will be allocated items of Partnership income, gain, loss and
deductions attributable to such quarter but will not be entitled to receive that
cash distribution.
NOTIFICATION REQUIREMENTS
A Unitholder who sells or exchanges Units is required to notify the
Partnership 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. The Partnership is
required to notify the IRS of that transaction and to furnish certain
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 Unit will be required
to furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that set forth the amount
of the consideration received for the Unit that is allocated to goodwill or
going concern value of the Partnership. Failure to satisfy these reporting
obligations may lead to the imposition of substantial penalties.
CONSTRUCTIVE TERMINATION
The Partnership and the Operating Partnership will be considered to have
been terminated if there is a sale or exchange of 50% or more of the total
interests in Partnership capital and profits within a 12-month period. A
termination results in the closing of a Partnership's taxable year for all
partners and the Partnership's assets are regarded as having been distributed to
the partners and reconveyed to the Partnership, which is then treated as a new
partnership. A termination of the Partnership will cause a termination of the
Operating Partnership and any Subsidiary Partnership. Such a termination could
also result in penalties or loss of basis adjustments under Section 754 of the
Code if the Partnership were unable to determine that the termination had
occurred. (Under the 1995 Proposed Legislation, termination of a large
partnership, such as the Partnership would not occur by reason of the sale or
exchange of interests in the partnership.)
In the case of a Unitholder reporting on a taxable year other than a fiscal
year ending December 31, the closing of the tax year of the Partnership may
result in more than 12 months' taxable income or loss of the Partnership being
includable in his taxable income for the year of termination. In addition, each
Unitholder will realize taxable gain to the extent that any money deemed as a
result of the termination to have been distributed to him exceeds the adjusted
basis of his Units. New tax elections required to be made by the Partnership,
including a new election under Section 754 of the Code, must be made subsequent
to a constructive termination. A termination could also result in a deferral of
Partnership deductions for depreciation. Finally, a termination might either
accelerate the application of or subject the Partnership to any tax legislation
enacted prior to the termination.
140
ENTITY-LEVEL COLLECTIONS
If the Partnership is required or elects under applicable law to pay any
federal, state or local income tax on behalf of any Unitholder or any General
Partners or any former Unitholder, the Partnership is authorized to pay those
taxes from Partnership funds. Such payment, if made, will be treated as a
distribution of cash to the partner on whose behalf the payment was made. If the
payment is made on behalf of a person whose identity cannot be determined, the
Partnership is authorized to treat the payment as a distribution to current
Unitholders. Alternatively, the Partnership may elect to treat an amount paid on
behalf of the General Partners and Unitholders as an expenditure of the
Partnership if the amount paid on behalf of the General Partners is not
substantially greater than 4% of the total amount paid. The Partnership is
authorized to amend the Partnership Agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of Units and to adjust
subsequent distributions, so that after giving effect to such distributions, the
priority and characterization of distributions otherwise applicable under the
Partnership Agreement is maintained as nearly as is practicable. Payments by the
Partnership as described above could give rise to an overpayment of tax on
behalf of an individual partner in which event the partner could file a claim
for credit or refund.
UNIFORMITY OF UNITS
Because the Partnership cannot match transferors and transferees of Units,
uniformity of the economic and tax characteristics of the Units to a purchaser
of such 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. A lack of uniformity can result from a
literal application of Proposed Treasury Regulation Section 1.168-2(n) and
Treasury Regulation Section 1.167(c)-1(a)(6) or the legislative history of
Section 197 and from the application of the 'ceiling limitation' on the
Partnership's ability to make allocations to eliminate book-tax disparities
attributable to Contributed Properties and Partnership property that has been
revalued and reflected in the partners capital accounts ('Adjusted Properties').
Any non-uniformity could have a negative impact on the value of the Units. See
' -- Tax Treatment of Operations -- Section 754 Election.'
The Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of Contributed
Property or Adjusted Property (to the extent of any unamortized Book-Tax
Disparity) using a rate of depreciation or amortization derived from the
depreciation or amortization method and useful life applied to the Common Basis
of such property, despite its inconsistency with Proposed Treasury Regulation
Section 1.168-2(n) and Treasury Regulation Section 1.167(c)-l(a)(6) (neither of
which is expected to directly apply to a material portion of the Partnership's
assets) or the legislative history of Section 197. See ' -- Tax Treatment of
Operations Section 754 Election.' To the extent such Section 743(b) adjustment
is attributable to appreciation in excess of the unamortized Book-Tax Disparity,
the Partnership will apply the rules described in the Regulations and
legislative history. If the Partnership determines that such a position cannot
reasonably be taken, the Partnership may adopt a depreciation and amortization
convention under which all purchasers acquiring Units in the same month would
receive depreciation and amortization deductions, whether attributable to common
basis or Section 743(b) basis, based upon the same applicable rate as if they
had purchased a direct interest in the Partnership's property. If such an
aggregate approach is adopted, it may result in lower annual depreciation and
amortization deductions than would otherwise be allowable to certain Unitholders
and risk the loss of depreciation and amortization deductions not taken in the
year that such deductions are otherwise allowable. This convention will not be
adopted if the Partnership determines that the loss of depreciation and
amortization deductions will have a material adverse effect on the Unitholders.
If the Partnership chooses not to utilize this aggregate method, the Partnership
may use any other reasonable depreciation and amortization convention to
preserve the uniformity of the intrinsic tax characteristics of any Units that
would not have a material adverse effect on the Unitholders. The IRS may
challenge any method of depreciating the Section 743(b) adjustment described in
this paragraph. If such a challenge were sustained, the uniformity of Units
might be affected.
141
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of 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 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 certain related sources. It is not
anticipated that any significant amount of the Partnership's gross income will
include that type of income.
Non-resident aliens and foreign corporations, trusts or estates which hold
Units will be considered to be engaged in business in the United States on
account of ownership of Units. As a consequence they will be required to file
federal tax returns in respect of their share of Partnership income, gain, loss
or deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a Partnership is required to pay a withholding tax on the
portion of the Partnership's income which is effectively connected with the
conduct of a United States trade or business and which is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, the Partnership will withhold (currently at the rate of 39.6%) on
actual cash distributions made quarterly to foreign Unitholders. Each foreign
Unitholder must obtain a taxpayer identification number from the IRS and submit
that number to the Transfer Agent of the Partnership on a Form W-8 in order to
obtain credit for the taxes withheld. A change in applicable law may require the
Partnership to change these procedures.
Because a foreign corporation which owns Units will be treated as engaged
in a United States trade or business, such a 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 the Partnership's 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 Code.
Under a ruling of the IRS, a foreign Unitholder who sells or otherwise
disposes of a Unit will be subject to federal income tax on gain realized on the
disposition of such 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 Unit if
that foreign Unitholder has held less than 5% in value of the Units during the
five-year period ending on the date of the disposition and if the Units are
regularly traded on an established securities market at the time of the
disposition.
ADMINISTRATIVE MATTERS
PARTNERSHIP INFORMATION RETURNS AND AUDIT PROCEDURES
The Partnership intends to furnish to each Unitholder, within 90 days after
the close of each calendar year, certain tax information, including a Schedule
K-1, which sets forth each Unitholder's allocable share of the Partnership's
income, gain, loss and deduction for the preceding Partnership taxable year. In
preparing this information, which will generally not be reviewed by counsel, the
Partnership will use various accounting and reporting conventions, some of which
have been mentioned in the previous discussion, to determine the Unitholder's
allocable 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 Code, regulations or administrative interpretations of the IRS. The
Partnership
142
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 the Units. The
federal income tax information returns filed by the Partnership may be audited
by the IRS. 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 of non-Partnership as well as Partnership items.
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 Code provides for one partner to
be designated as the 'Tax Matters Partner' for these purposes. The Partnership
Agreement appoints the Managing General Partner as the Tax Matters Partner of
the Partnership.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to Partnership
items. The Tax Matters Partner may bind a Unitholder with less than a 1% profits
interest in the Partnership 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 the profits of the
Partnership 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 his federal income tax return that is not consistent with the
treatment of the item on the Partnership's return. Intentional or negligent
disregard of the consistency requirement may subject a Unitholder to substantial
penalties. Under the 1995 Proposed Legislation, partners in electing large
partnerships would be required to treat all Partnership items in a manner
consistent with the Partnership return.
Under the reporting provisions of the 1995 Proposed Legislation, each
partner of an electing large partnership would take into account separately his
share of the following items, determined at the partnership level: (1) taxable
income or loss from passive loss limitation activities; (2) taxable income or
loss from other activities (such as portfolio income or loss); (3) net capital
gains to the extent allocable to passive loss limitation activities and other
activities; (4) tax exempt interest; (5) a net alternative minimum tax
adjustment separately computed for passive loss limitation activities and other
activities; (6) general credits; (7) low-income housing credit; (8)
rehabilitation credit; (9) foreign income taxes; (10) credit for producing fuel
from a nonconventional source; and (11) any other items the Secretary of
Treasury deems appropriate. The House version of the 1995 Proposed Legislation
would also make a number of changes to the tax compliance and administrative
rules relating to partnerships. One provision would require that each partner in
a large partnership, such as the Partnership, take into account his share of any
adjustments to partnership items in the year such adjustments are made. Under
current law, adjustments relating to partnership items for a previous taxable
year are taken into account by those persons who were partners in the previous
taxable year. Alternatively, under the 1995 Proposed Legislation, a partnership
could elect to or, in some circumstances, could be required to, directly pay the
tax resulting from any such adjustments. In either case, therefore, Unitholders
could bear significant economic burdens associated with tax adjustments relating
to periods predating their acquisition of Units.
It cannot be predicted whether or in what form the 1995 Proposed
Legislation, or other tax legislation that might affect Unitholders, will be
enacted. However, if tax legislation is enacted which includes provisions
similar to those discussed above, a Unitholder might experience a reduction in
cash distributions.
143
NOMINEE REPORTING
Persons who hold an interest in the Partnership as a nominee for another
person are required to furnish to the Partnership (a) the name, address and
taxpayer identification number of the beneficial owner and the nominee; (b)
whether the beneficial owner is (i) a person that is not a United States person,
(ii) a foreign government, an international organization or any wholly-owned
agency or instrumentality of either of the foregoing, or (iii) a tax-exempt
entity; (c) the amount and description of Units held, acquired or transferred
for the beneficial owner; and (d) certain 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 certain information on
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 Code
for failure to report such information to the Partnership. The nominee is
required to supply the beneficial owner of the Units with the information
furnished to the Partnership.
REGISTRATION AS A TAX SHELTER
The 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 Code are extremely broad. It is arguable that the
Partnership will not be subject to the registration requirement on the basis
that it will not constitute a tax shelter. However, the Managing General
Partner, as a principal organizer of the Partnership, has registered the
Partnership as a tax shelter with the IRS in the absence of assurance that the
Partnership will not be subject to tax shelter registration and in light of the
substantial penalties which might be imposed if registration is required and not
undertaken. The Partnership has applied for a tax shelter registration number
with the IRS. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN
INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED,
EXAMINED OR APPROVED BY THE IRS. The Partnership must furnish the registration
number to the Unitholders, and a Unitholder who sells or otherwise transfers a
Unit in a subsequent transaction must furnish the registration number to the
transferee. The penalty for failure of the transferor of a Unit to furnish the
registration number to the transferee is $100 for each such failure. The
Unitholders must disclose the tax shelter registration number of the Partnership
on Form 8271 to be attached to the tax return on which any deduction, loss or
other benefit generated by the Partnership is claimed or income of the
Partnership is included. A Unitholder who fails to disclose the tax shelter
registration number on his 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.
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 certain listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the 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 (i)
with respect to which there is, or was, 'substantial authority' or (ii) as to
which there is a reasonable basis and the pertinent facts of such position are
disclosed on the return. Certain more stringent rules apply to 'tax shelters,' a
term that in this context does not appear to include the Partnership. If any
Partnership item of 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, the Partnership intends to disclose the
pertinent facts on its return. In addition, the Partnership will make a
144
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 of the
correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
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 the Partnership does business or owns property, Although
an analysis of those various taxes is not presented here, each prospective
Unitholder should consider their potential impact on his investment in the
Partnership. The Partnership will initially own property and conduct business in
New York, Florida, Michigan and 22 other states. A Unitholder will be required
to file state income tax returns and to pay state income taxes in some or all of
these states and may be subject to penalties for failure to comply with those
requirements. Based on 1995 revenues, the Managing General Partner currently
anticipates that substantially all of the Partnership's income will be generated
in Arkansas, Arizona, Colorado, Connecticut, Florida, Iowa, Illinois,
Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Mexico, New
York and Wisconsin. Each of the states, other than Florida, in which the
Managing General Partner currently anticipates that a substantial portion of the
Partnership's income will be generated currently imposes a personal income tax.
In certain states, tax losses may not produce a tax benefit in the year incurred
(if, for example, the Partnership has 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 the Partnership, or the Partnership 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 the Partnership. See ' -- Disposition of Common Units -- Entity-Level
Collections.' Based on current law and its estimate of future Partnership
operations, the Partnership anticipates that any amounts required to be withheld
will not be material.
It is the responsibility of each Unitholder to investigate the legal and
tax consequences, under the laws of pertinent states and localities, of his
investment in the Partnership. Accordingly, each prospective Unitholder should
consult, and must depend upon, his 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 federal, tax returns that may be required of
such Unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in the Partnership.
145
INVESTMENT IN THE PARTNERSHIP BY EMPLOYEE BENEFIT PLANS
An investment in the Partnership by an employee benefit plan is subject to
certain additional considerations because the investments of such plans are
subject to the fiduciary responsibility and prohibited transaction provisions of
the Employee Retirement Income Security Act of 1974 as amended ('ERISA'), and
restrictions imposed by Section 4975 of the Code. As used herein, the term
'employee benefit plan' includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or Individual Retirement Accounts established
or maintained by an employer or employee organization: Among other things,
consideration should be given to (a) whether such investment is prudent under
Section 404(a)(i)(B) of ERISA; (b) whether in making such investment, such plan
will satisfy the diversification requirement of Section 404(a)(1)(C) of ERISA;
and (c) whether such investment will result in recognition of unrelated business
taxable income by such plan and, if so, the potential after-tax investment
return. See 'Tax Considerations -- Uniformity of Units -- Tax-Exempt
Organizations and Certain Other Investors.' The person with investment
discretion with respect to the assets of an employee benefit plan (a
'fiduciary') should determine whether an investment in the Partnership is
authorized by the appropriate governing instrument and is a proper investment
for such plan.
Section 406 of ERISA and Section 4975 of the Code (which also applies to
Individual Retirement Accounts that are not considered part of an employee
benefit plan) prohibit an employee benefit plan from engaging in certain
transactions involving 'plan assets' with parties that are 'parties in interest'
under ERISA or 'disqualified persons' under the Code with respect to the plan.
In addition to considering whether the purchase of Common Units is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether such plan will, by investing in the Partnership, be deemed to own an
undivided interest in the assets of the Partnership, with the result that the
General Partners also would be fiduciaries of such plan and the operations of
the Partnership would be subject to the regulatory restrictions of ERISA,
including its prohibited transaction rules, as well as the prohibited
transaction rules of the Code.
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 certain circumstances. Pursuant to
these regulations, an entity's assets would not be considered to be 'plan
assets' if, among other things, (a) the equity interest acquired by employee
benefit plans are publicly offered securities -- i.e., the equity interests are
widely held by 100 or more investors independent of the issuer and each other,
freely transferable and registered pursuant to certain provisions of the federal
securities laws, (b) the entity is an 'operating company' -- i.e., 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 (c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the value of each
class of equity interest (disregarding certain interests held by the General
Partner, its affiliates, and certain other persons) is held by the employee
benefit plans referred to above, Individual Retirement Accounts and other
employee benefit plans not subject to ERISA (such as governmental plans). The
Partnership's assets should not be considered 'plan assets' under these
regulations because it is expected that the investment will satisfy the
requirements in (a) and (b) above and may also satisfy the requirements in (c).
Plan fiduciaries contemplating a purchase of Common Units should consult
with their own counsel regarding the consequences under ERISA and the Code in
light of the serious penalties imposed on persons who engage in prohibited
transactions or other violations.
146
THE SELLING UNITHOLDER
As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the Selling Unitholder, held, in addition to the 400,000 Common
Units to which this prospectus relates, 1,250 Common Units in discretionary
customer accounts. Such Common Units represent in the aggregate approximately
6.0% of the Common Units outstanding on such date. Because the Selling
Unitholder may offer all, or a portion of or none of the Common Units offered
hereby, no estimate can be given as to the number of Common Units that will be
held by the Selling Unitholder upon termination of such offering. The Selling
Unitholder acted as co-managing underwriter of the IPO and co-placement agent
with respect to the First Mortgage Notes and provided related investment banking
services regarding the IPO and the Transactions and received customary
underwriting discounts, commissions and fees in connection therewith. The
Selling Unitholder from time to time has provided and will provide other
investment banking services to Triarc and its affiliates. See 'The IPO and
Additional Transactions' and 'Units Eligible for Future Sale'.
PLAN OF DISTRIBUTION
This Prospectus, as appropriately amended or supplemented, may be used by
the Selling Unitholder or any transferee affiliated with the Selling Unitholder
in connection with the offering of up to 400,000 Common Units in transactions in
which they and any broker-dealer through whom such Common Units are sold may be
deemed to be underwriters within the meaning of the Securities Act. The
Partnership will receive none of the proceeds from any such sales. There
presently are no arrangements or understandings, formal or informal, pertaining
to the distribution of the Common Units described herein. Upon the Partnership
being notified by the Selling Unitholder that any material arrangement has been
entered into with a broker-dealer for the sale of Common Units bought through a
block trade, special offering, exchange distribution or secondary distribution,
a supplemented Prospectus will be filed, pursuant to Rule 424(b) under the
Securities Act, setting forth (i) the name of the person offering such Common
Units and the participating broker-dealer(s), (ii) the number of Common Units
involved, (iii) the price at which the Common Units were sold, (iv) the
commission paid or the discount allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out in this Prospectus and (vi) other facts material
to the transaction.
The Selling Unitholder or any transferee affiliated with the Selling
Unitholder may sell the Common Units being offered hereby from time to time in
transactions (which may involve crosses and block transactions) on the NYSE, in
the over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of the sale or at negotiated prices. The Selling
Unitholder or such transferees may sell some or all of the Common Units in
transactions involving broker-dealers, who may act solely as agent and/or may
acquire Common Units as principal. Broker-dealers participating in such
transactions as agent may receive commissions from the Selling Unitholder (and,
if they act as agent for the purchaser of such Common Units, from such
purchaser), such commissions may be at negotiated rates where permissible.
Participating broker-dealers may agree with the Selling Unitholder or such
transferees to sell a specified number of Common Units at a stipulated price per
Common Unit and, to the extent such broker-dealer is unable to do so acting as
an agent for the Selling Unitholder, to purchase as principal any unsold Common
Units at the price required to fulfill the broker-dealer's commitment to the
Selling Unitholder. In addition or alternatively, Common Units may be sold by
the Selling Unitholder, such transferees and/or by or through other
broker-dealers in special offerings, exchange distributions or secondary
distributions pursuant to and in compliance with the governing rules of the
NYSE, and in connection therewith commissions in excess of the customary
commission prescribed by such governing rules may be paid to participating
broker-dealers, or, in the case of certain secondary distributions, a discount
or concession from the offering price may be allowed to participating
broker-dealers in excess of the customary commission. Broker-dealers who acquire
Common Units as principal may thereafter resell such Common Units from time to
time in transactions (which may involve crosses and block transactions and which
may involve sales to or through other broker-dealers, including transactions of
the nature described in the preceding two sentences) on the NYSE, in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive commissions from the purchaser of such
Common Units.
147
The Partnership has agreed to indemnify the Selling Unitholder against
certain liabilities, including liabilities arising under the Securities Act. The
Selling Unitholder may indemnify any broker-dealer that participates in
transactions involving sales of the Common Units against certain liabilities,
including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the Common Units offered hereby will be passed upon for the
Partnership by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
Certain other matters will be passed upon for the Partnership by Andrews & Kurth
L.L.P., New York, New York. Members of Paul, Weiss, Rifkind, Wharton & Garrison
own an aggregate of 1,100 shares of Triarc's Class A Common Stock and 260 Common
Units.
EXPERTS
The financial statements of National Propane Corporation and its
consolidated subsidiaries as of December 31, 1994 and 1995 and for the ten
months ended December 31, 1993 and for the years ended December 31, 1994 and
1995 (except Public Gas Company for the ten months ended December 31, 1993)
included in this prospectus have been audited by Deloitte & Touche LLP as stated
in their reports appearing herein. The financial statements of Public Gas
Company for the ten months ended December 31, 1993 (consolidated with those of
National Propane and not separately included herein) have been audited by Arthur
Andersen LLP, as stated in their report included herein. Such financial
statements are included herein in reliance upon the respective reports of such
firms given upon their authority as experts in accounting and auditing. Both of
the foregoing firms are independent auditors.
148
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
'Commission'). Such reports, proxy statements and other information filed by the
Partnership can be inspected and copied at the prescribed rates, at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 W. Madison Street, Chicago, Illinois 60661. The Partnership's Common
Stock is traded on the NYSE. Reports and other information concerning the
Partnership may be inspected at the principal office of the NYSE at 20 Broad
Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Partnership with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto, in accordance with the rules
and regulations of the Commission. For further information concerning the
Partnership and the securities offered hereby, reference is hereby made to the
Registration Statement and the exhibits and schedules filed therewith, which may
be inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and copies of which may be obtained from the
Commission at prescribed rates. The Commission maintains a World Wide Web Site
(http://www.sec.gov) that contains such material regarding issuers that file
electronically with the Commission. The Registration Statement has been so filed
and may be obtained at such site. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
149
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Pro Forma Financial Statements:
National Propane Partners, L.P. (Successor to National Propane Corporation and Subsidiaries) Unaudited
Pro Forma Condensed Consolidated Financial Statements:
Unaudited Pro Forma Condensed Consolidated Statement of Operations --
Year Ended December 31, 1995................................................................... F-2
Nine Months Ended September 30, 1996........................................................... F-3
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations..................... F-4
Historical Financial Statements:
National Propane Corporation:
Independent Auditors' Reports.................................................................... F-5
Consolidated Balance Sheets -- December 31, 1994 and 1995........................................ F-7
Consolidated Statements of Operations -- Ten months ended December 31, 1993, years ended December
31, 1994 and 1995 and three months ended March 31, 1995 and 1996................................. F-8
Consolidated Statements of Additional Capital -- Ten months ended December 31, 1993, years ended
December 31, 1994 and 1995 and three months ended March 31, 1996................................. F-9
Consolidated Statements of Cash Flows -- Ten months ended December 31, 1993, years ended December
31, 1994 and 1995 and three months ended March 31, 1995 and 1996................................. F-10
Notes to Consolidated Financial Statements....................................................... F-12
National Propane Partners, L.P. (Successor to National Propane Corporation and Subsidiaries):
Unaudited Condensed Consolidated Balance Sheets -- December 31, 1995 and September 30, 1996...... F-28
Unaudited Condensed Consolidated Statements of Operations -- Three months ended September 30,
1995 and 1996; nine months ended September 30, 1995 and 1996..................................... F-29
Unaudited Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 1995
and 1996......................................................................................... F-30
Notes to Condensed Consolidated Financial Statements............................................. F-31
F-1
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
In connection with the Conveyance, the Partnership became the successor to
the businesses of National Propane. The entity representative of both the
operations of (i) National Propane prior to the Conveyance and the Transactions
and (ii) the Partnership subsequent to the Conveyance and the Transactions, is
referred to herein as 'National.'
The following unaudited pro forma condensed consolidated statements of
operations of National have been prepared by adjusting the consolidated
statements of operations for the year ended December 31, 1995 and the nine
months ended September 30, 1996 appearing on page F-8 and F-29, respectively
herein, to give effect to the Transactions and the Private Placement as if they
had occurred on January 1, 1995. The pro forma adjustments are described in the
accompanying notes to the pro forma condensed consolidated statements of
operations which should be read in conjunction with such unaudited pro forma
condensed consolidated statements of operations. Such pro forma statements
should also be read in conjunction with National's consolidated financial
statements and notes thereto included elsewhere herein. The following unaudited
pro forma condensed consolidated statements of operations do not purport to be
indicative of the actual results of National that would have occurred had the
Transactions and Private Placement actually been consummated on January 1, 1995
or of future results of operations which will be obtained as a result of the
consummation of the Transactions.
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
Operating revenues.................................................. $ 148,983 $ -- $ 148,983
---------- ----------- -----------
Operating costs and expenses:
Cost of sales.................................................. 109,059 -- 109,059
Selling, general and administrative expenses (other than
management fees charged by parent)........................... 22,423 1,500(a) 23,923
Management fees charged by parent.............................. 3,000 (3,000)(b) --
---------- ----------- -----------
134,482 (1,500) 132,982
---------- ----------- -----------
Operating profit............................................... 14,501 1,500 16,001
---------- ----------- -----------
Other income (expense):
Interest expense............................................... (11,719) 169(c) (11,550)
Interest income from Triarc.................................... -- 5,500(d) 5,500
Other income, net.............................................. 904 -- 904
---------- ----------- -----------
(10,815) 5,669 (5,146)
---------- ----------- -----------
Income before income taxes.......................................... 3,686 7,169 10,855
Provision for income taxes.......................................... 4,291 (4,091)(e) 200
---------- ----------- -----------
Net income (loss)................................................... $ (605) $11,260 $ 10,655
---------- ----------- -----------
---------- ----------- -----------
General partners' interest in net income(f)......................... $ 426
-----------
-----------
Unitholders' interest in net income(f).............................. $ 10,229
-----------
-----------
Net income per Unit(f).............................................. $ 0.91
-----------
-----------
Weighted average number of Units outstanding(f)..................... 11,235,188
-----------
-----------
See notes to unaudited pro forma condensed consolidated statements of
operations.
F-2
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
Operating revenues.................................................. $ 116,018 $ -- $ 116,018
---------- ----------- -----------
Operating costs and expenses:
Cost of sales.................................................. 89,097 -- 89,097
Selling, general and administrative expenses (other than
management fees charged by parent)........................... 17,009 750(a) 17,759
Management fees charged by parent.............................. 1,500 (1,500)(b) --
---------- ----------- -----------
107,606 (750) (106,856)
---------- ----------- -----------
Operating profit............................................... 8,412 750 9,162
---------- ----------- -----------
Other income (expense):
Interest expense............................................... (9,067) 573(c) (8,494)
Interest income from Triarc.................................... 1,370 2,750(d) 4,120
Other income, net.............................................. 662 -- 662
---------- ----------- -----------
(7,035) 3,323 (3,712)
---------- ----------- -----------
Income before income taxes and extraordinary charge................. 1,377 4,073 5,450
Provision for income taxes.......................................... 1,922 (1,772)(e) 150
---------- ----------- -----------
Income (loss) before extraordinary charge........................... $ (545) $ 5,845 $ 5,300
---------- ----------- -----------
---------- ----------- -----------
General partners' unsubordinated interest in income before
extraordinary charge(f)........................................... $ 212
-----------
-----------
Unitholders' interest in income before extraordinary charge(f)...... $ 5,088
-----------
-----------
Income before extraordinary charge per Unit(f)...................... $ 0.45
-----------
-----------
Weighted average number of Units outstanding(f)..................... 11,235,188
-----------
-----------
See notes to unaudited pro forma condensed consolidated statements of
operations.
F-3
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) To reflect the estimated stand-alone general and administrative costs
associated with the Partnership for the period prior to July 2, 1996, the
date the Partnership commenced operations, as costs incurred after July 2,
1996 are reflected in the operations of the Partnership. The following are
primarily based on actual quotes for third party services and salary levels
commensurate with the market:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------------
Cost of tax return preparation and recordkeeping....................... $ 250 $ 125
Investor relations..................................................... 200 100
Insurance.............................................................. 200 100
Audit and legal services............................................... 250 125
Registrar and stock exchange fees...................................... 125 62
Direct charges from Triarc............................................. 175 88
Other.................................................................. 300 150
------------ ------
$1,500 $ 750
------------ ------
------------ ------
(b) To reflect the elimination of the management services fee allocated by
Triarc for the period prior to July 2, 1996, the date the Partnership
commenced operations.
(c) Represents adjustments to interest expense as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------------
Interest expense on the Former Credit Facility.................... $ 9,641 $ 5,318
Interest expense on Other Former Indebtedness..................... 458 276
Amortization of deferred financing costs associated with the
Former Credit Facility.......................................... 1,305 597
Interest expense on the First Mortgage Notes (interest rate of
8.54%).......................................................... (10,675) (5,338)
Amortization of deferred financing costs associated with the First
Mortgage Notes.................................................. (560) (281)
------------ --------
$ 169 $ 573
------------ --------
------------ --------
(d) To reflect interest income at 13.5% on the $40,700 Partnership Loan.
(e) To reflect the reduction of the provision for income taxes as income taxes
will be borne by the partners and not the Partnership, except for corporate
income taxes relative to the Partnership's wholly owned subsidiary which
conducts certain of the Partnership's operations.
(f) The General Partners' allocation of net income is based on their combined
General Partner 4% interest in the Partnership (excluding the Subordinated
Units). The General Partners' 4% allocation of net income has been deducted
before calculating the net income per unit. The allocation of net income for
Common Units and Subordinated Units is based on the terms of the Partnership
Agreement and assumes that 6,701,550 Common Units and 4,533,638 Subordinated
Units were outstanding at all times during the periods indicated.
F-4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
NATIONAL PROPANE CORPORATION:
We have audited the accompanying consolidated balance sheets of National
Propane Corporation (the 'Company') (75.7% owned by NPC Holdings, Inc. and 24.3%
owned by PGC Holdings, Inc., both of which are wholly-owned by Triarc Companies,
Inc.) and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, additional capital and cash flows for the
ten months ended December 31, 1993 and the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of the Company and Public Gas Company, which
has been accounted for as a combination of entities under common control in a
manner similar to a pooling of interests as described in Notes 1 and 3 to the
consolidated financial statements. We did not audit the financial statements of
Public Gas Company for the ten months ended December 31, 1993, which statements
(not shown separately herein) reflect total revenues of $23,394,000. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Public Gas
Company for the ten months ended December 31, 1993, is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company and subsidiaries at
December 31, 1994 and 1995, and the results of their operations and their cash
flows for the ten months ended December 31, 1993 and the years ended December
31, 1994 and 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 13, 1996
F-5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To PUBLIC GAS COMPANY:
We have audited the statements of income and retained earnings and cash
flows for the ten months ended December 31, 1993 of Public Gas Company. These
financial statements (not presented herein) are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
herein) present fairly, in all material respects, the results of operations and
cash flows of Public Gas Company for the ten months ended December 31, 1993 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 14, 1994.
F-6
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
DECEMBER 31,
---------------------
1994 1995
--------- --------
ASSETS
Current assets:
Cash................................................................................ $ 3,983 $ 2,825
Receivables, net (Notes 5 and 19)................................................... 17,065 16,391
Inventories......................................................................... 10,182 10,543
Other current assets (Note 11)...................................................... 3,556 4,340
--------- --------
Total current assets (Note 10)................................................. 34,786 34,099
Properties, net (Notes 7, 10 and 14)..................................................... 82,176 83,214
Unamortized costs in excess of net assets of acquired companies (Notes 8, 12, 14, 18 and
19).................................................................................... 13,481 15,161
Other assets (Note 9).................................................................... 7,138 6,638
--------- --------
$ 137,581 $139,112
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 10)......................................... $ 12,298 $ 11,278
Accounts payable.................................................................... 6,759 7,836
Due to a parent and another affiliate (Note 11)..................................... 8,736 9,972
Accrued interest.................................................................... 1,657 2,233
Accrued insurance................................................................... 1,010 2,961
Other accrued expenses.............................................................. 4,957 4,176
--------- --------
Total current liabilities...................................................... 35,417 38,456
--------- --------
Long-term debt (Note 10)................................................................. 98,711 124,266
Deferred income taxes (Notes 11 and 14).................................................. 20,761 22,878
Customer deposits........................................................................ 2,194 2,112
Commitments and contingencies (Notes 2, 11, 16 and 17)
Stockholders' equity (deficit) (Note 10):
Preferred stock, 221,900 shares authorized, no shares issued or outstanding (Note
12)................................................................................ -- --
Common stock, $1 par value; 1,000 and 3,000 shares authorized, 1,000 and 1,360
shares issued and outstanding in 1994 and 1995, respectively (Notes 3 and 19)...... 1 1
Additional paid-in capital.......................................................... 32,164 36,270
Retained earnings (accumulated deficit)............................................. 61,663 (3,479)
Due from parents (Note 13).......................................................... (113,330) (81,392)
--------- --------
Total stockholders' deficit.................................................... (19,502) (48,600)
--------- --------
$ 137,581 $139,112
--------- --------
--------- --------
See accompanying notes to consolidated financial statements.
F-7
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
TEN MONTHS YEAR ENDED
ENDED DECEMBER 31,
DECEMBER 31, --------------------
1993 1994 1995
------------ -------- --------
Revenues.................................................................. $119,249 $151,651 $148,983
------------ -------- --------
Costs and expenses:
Cost of sales (including charges from related parties of $4,020 in
the ten months ended December 31, 1993 -- Note 19)................. 92,301 109,683 109,059
Selling, general and administrative expenses (including charges from
related parties of $884 in the ten months ended December 31, 1993)
(Notes 17, 18 and 20).............................................. 16,501 18,657 22,423
Management fees charged by parents (Note 19)......................... 3,485 4,561 3,000
Facilities relocation and corporate restructuring (including charges
from related parties of $2,821) (Note 20).......................... 8,429 -- --
------------ -------- --------
120,716 132,901 134,482
------------ -------- --------
Operating profit (loss)......................................... (1,467) 18,750 14,501
------------ -------- --------
Other income (expense):
Interest expense..................................................... (9,949) (9,726) (11,719)
Interest income from Triarc Companies, Inc. (Note 13)................ 10,360 9,751 --
Other income, net (Notes 6 and 20)................................... 1,727 1,169 904
------------ -------- --------
2,138 1,194 (10,815)
------------ -------- --------
Income before income taxes and extraordinary charge............. 671 19,944 3,686
Provision for income taxes (Note 11)...................................... 1,018 7,923 4,291
------------ -------- --------
Income (loss) before extraordinary charge............................ (347) 12,021 (605)
Extraordinary charge (Note 15)............................................ -- (2,116) --
------------ -------- --------
Net income (loss).................................................... $ (347) $ 9,905 $ (605)
------------ -------- --------
------------ -------- --------
See accompanying notes to consolidated financial statements.
F-8
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
(IN THOUSANDS)
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED DUE FROM TREASURY
CAPITAL DEFICIT) PARENTS STOCK
---------- ------------ --------- --------
Balance at February 28, 1993................................... $ 21,505 $ 95,866 $ (27,430) $ (638)
Net loss.................................................. -- (347) -- --
Dividends paid............................................ -- (1,886) -- --
Capital contribution from deferred gain on sale of
interests in Southeastern Public Service Company
('SEPSCO') and CFC Holdings Corp. to Triarc Companies,
Inc. ('Triarc') (Note 6)................................ 2,255 -- -- --
Increase in due from SEPSCO classified in equity (Note
13)..................................................... -- -- (1,605) --
---------- ------------ --------- --------
Balance at December 31, 1993................................... 23,760 93,633 (29,035) (638)
Net income................................................ -- 9,905 -- --
Dividends paid (including $40,030 in cash) (Note 10)...... -- (41,875) -- --
Repurchases of preferred stock (Note 12).................. (62) -- -- (234)
Cancellation of preferred stock (Note 12)................. 378 -- -- 872
Reclassification of due from Triarc to equity (Note 13)... -- -- (81,392) --
Increase in SEPSCO's basis in Public Gas Company ('Public
Gas') resulting from the repurchase of the 28.9%
minority interest in SEPSCO (Note 14)................... 8,088 -- -- --
Increase in due from SEPSCO classified in equity.......... -- -- (2,903) --
---------- ------------ --------- --------
Balance at December 31, 1994................................... 32,164 61,663 (113,330) --
Net loss.................................................. -- (605) -- --
Dividends paid (Note 10).................................. -- (30,000) -- --
Increase in due from SEPSCO classified in equity (Note
13)..................................................... -- -- (2,599) --
Dividend of due from SEPSCO (Note 13)..................... -- (34,537) 34,537 --
Capital contribution (Note 19)............................ 4,240 -- -- --
Repurchase of the 0.3% minority interest in Public Gas
(Note 3)................................................ (134) -- -- --
---------- ------------ --------- --------
Balance at December 31, 1995................................... $ 36,270 $ (3,479) $ (81,392) $ --
---------- ------------ --------- --------
---------- ------------ --------- --------
See accompanying notes to consolidated financial statements.
F-9
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TEN MONTHS YEAR ENDED DECEMBER
ENDED 31,
DECEMBER 31, ----------------------
1993 1994 1995
------------ --------- ---------
Cash flows from operating activities:
Net income (loss).................................................... $ (347) $ 9,905 $ (605)
Adjustments to reconcile net income (loss) to net cash and
equivalents provided by (used in) operating activities:
Depreciation and amortization of properties..................... 6,917 9,427 9,546
Amortization of original issue discount and deferred financing
costs......................................................... 1,046 1,077 1,305
Amortization of costs in excess of net assets of acquired
companies..................................................... 33 261 617
Other amortization.............................................. -- 336 482
Write-off of deferred financing costs and original issue
discount...................................................... -- 3,498 --
Interest income from Triarc accrued and not collected........... (10,360) (9,751) --
Provision for (benefit from) deferred income taxes.............. (880) 1,773 1,995
Provision for doubtful accounts................................. 661 685 848
Provision for facilities relocation and corporate
restructuring................................................. 8,429 -- --
Payments on facilities relocation and corporate restructuring... (1,678) (4,115) --
Equity in net loss of affiliate................................. 430 -- --
Other, net...................................................... (639) 2,061 (79)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable................. 1,801 (1,305) (56)
Increase in inventories.................................... (2,248) (1,229) (286)
Increase in other current assets........................... (237) (1,278) (662)
Increase (decrease) in accounts payable and accrued
expenses................................................. (6,163) (624) 2,823
------------ --------- ---------
Net cash provided by (used in) operating activities... (3,235) 10,721 15,928
------------ --------- ---------
Cash flows from investing activities:
Business acquisitions................................................ (693) (5,203) (373)
Capital expenditures................................................. (7,457) (6,436) (8,082)
Proceeds from sales of properties.................................... 1,452 1,375
Proceeds from sale of investments, net of tax........................ 2,424 -- --
Decrease in finance-type lease receivables from affiliates........... 25,670 1,458 32
Decrease in due from affiliates...................................... 982 7,754 --
Decrease (increase) in due from parents.............................. 46,909 (6,007) (1,643)
------------ --------- ---------
Net cash provided by (used in) investing activities........ 69,287 (7,059) (9,467)
------------ --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt......................................... 6,234 100,781 32,729
Repayments of long-term debt......................................... (76,997) (60,678) (9,532)
Dividends............................................................ (41) (40,030) (30,000)
Repurchase of National Propane Corporation preferred stock........... -- (234) --
Repurchase of Public Gas Company preferred stock..................... -- (704) --
Payment of deferred financing costs.................................. -- (5,390) (816)
------------ --------- ---------
Net cash used in financing activities...................... (70,804) (6,255) (7,619)
------------ --------- ---------
(table continued on next page)
F-10
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
(table continued from previous page)
TEN MONTHS YEAR ENDED DECEMBER
ENDED 31,
DECEMBER 31, ----------------------
1993 1994 1995
------------ --------- ---------
Net decrease in cash...................................................... (4,752) (2,593) (1,158)
Cash at beginning of period............................................... $ 11,328 $ 6,576 $ 3,983
------------ --------- ---------
Cash at end of period..................................................... $ 6,576 $ 3,983 $ 2,825
------------ --------- ---------
------------ --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 10,771 $ 11,110 $11,158
------------ --------- ---------
------------ --------- ---------
Income taxes (net of refunds)................................... $ 1,309 $ 1,163 $ 1,261
------------ --------- ---------
------------ --------- ---------
Supplemental schedule of noncash investing and financing activities:
Capital expenditures:
Total capital expenditures...................................... $ 10,588 $ 7,900 $ 8,966
Amounts representing capitalized leases......................... (3,131) (1,464) (884)
------------ --------- ---------
Capital expenditures paid in cash............................... $ 7,457 $ 6,436 $ 8,082
------------ --------- ---------
------------ --------- ---------
Due to their non-cash nature, the following are also not reflected in the
respective consolidated statements of cash flows:
During the ten months ended December 31, 1993 and the year ended
December 31, 1994, the Company offset 'Due from Triarc Companies, Inc.'
('Triarc') with amounts otherwise payable for (i) $1,845,000 and
$1,845,000, respectively, in dividends payable to Triarc and (ii)
$1,622,000 and $790,000, respectively, in amounts due to Triarc under a
management services agreement.
In April 1994 Triarc acquired the 28.9% minority interest in its
subsidiary, Southeastern Public Service Company ('SEPSCO'), that it did not
already own through the issuance of its common stock. SEPSCO's increased
basis in Public Gas Company ('Public Gas') (its then wholly-owned
subsidiary) resulting from this transaction was 'pushed down' to Public Gas
resulting in increases to 'Unamortized costs in excess of net assets of
acquired companies' of $5,483,000, 'Properties' of $4,255,000, 'Deferred
income taxes' of $1,650,000 with an offsetting increase to 'Additional
paid-in capital' of $8,088,000. See Note 14 to the consolidated financial
statements for further discussion.
In connection with Public Gas' repurchase of its convertible preferred
stock, SEPSCO's increased basis in Public Gas resulting from this
transaction was 'pushed down' to Public Gas resulting in an increase of
$642,000 in 'Unamortized costs in excess of net assets of acquired
companies' and a charge to 'Additional paid-in capital' of $62,000 with an
offsetting increase in receivables from SEPSCO.
In June 1995 aggregate receivables from SEPSCO of $34,537,000 were
dividended to SEPSCO prior to a merger of Public Gas with and into National
Propane Corporation (see Notes 3 and 13).
In August 1995 the stock of a subsidiary of Triarc which held the
stock of two related entities engaged in the liquefied petroleum gas
distribution business was contributed to National Propane Corporation by
Triarc in September, 1995 resulting in an increase to 'Additional paid-in
capital' of $4,240,000. See Note 19 to the consolidated financial
statements for further discussion.
See accompanying notes to consolidated financial statements.
F-11
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of National
Propane Corporation (referred to herein alone or with its wholly-owned
subsidiaries as the 'Company') and its wholly-owned subsidiaries. The Company is
75.7% owned by NPC Holdings, Inc. ('NPC Holdings') and 24.3% owned by PGC
Holdings, Inc., ('PGC Holdings'), a wholly-owned subsidiary of Southeastern
Public Service Company ('SEPSCO'). NPC Holdings and SEPSCO are wholly-owned
subsidiaries of Triarc Companies, Inc. ('Triarc'). All significant intercompany
balances and transactions have been eliminated in consolidation. In June 1995
Public Gas Company ('Public Gas') was merged (the 'Merger') with and into the
Company as more fully described in Note 3 below. Since the Merger was a transfer
of assets and liabilities in exchange for shares among a controlled group of
companies, it has been accounted for in a manner similar to a pooling of
interests and, accordingly, all prior periods have been restated to reflect the
Merger. 'National Propane' is used herein to refer to National Propane
Corporation, excluding the accounts of Public Gas, prior to the Merger.
INVENTORIES
Inventories, all of which are classified as finished goods, are stated at
the lower of cost (first-in, first-out basis) or market.
PROPERTIES AND DEPRECIATION
Properties are carried at cost less accumulated depreciation. Depreciation
of properties is computed on the straight-line method over their estimated
useful lives of 20 to 45 years for buildings and improvements, 4 to 30 years for
equipment and customer installation costs, 3 to 10 years for office furniture
and fixtures and 3 to 8 years for automotive and transportation equipment.
Leased assets capitalized are amortized over the shorter of their estimated
useful lives or the terms of the respective leases. Gains and losses arising
from disposals are included in current operations.
UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Costs in excess of net assets of acquired companies ('Goodwill') arising
after November 1, 1970 are being amortized on the straight-line basis
principally over 15 to 30 years; Goodwill of $3,560,000 arising prior to that
date is not being amortized. The amount of impairment, if any, in unamortized
Goodwill is measured based on projected future results of operations. To the
extent future results of operations of those acquired companies to which the
Goodwill relates through the period such Goodwill is being amortized are
sufficient to absorb the related amortization, the Company has deemed there to
be no impairment of Goodwill.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective October 1, 1995 the Company adopted Statement of Financial
Accounting Standards No. 121, 'Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of.' This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard had no effect on the Company's consolidated results of
operations or financial position.
AMORTIZATION OF DEFERRED FINANCING COSTS AND DEBT DISCOUNT
Deferred financing costs and original issue debt discount are being
amortized as interest expense over the lives of the respective debt using the
interest rate method.
F-12
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED INSURANCE
Accrued insurance includes reserves for incurred but not reported claims.
Such reserves are based on actuarial studies using historical loss experience.
Adjustments to estimates recorded resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known.
INCOME TAXES
The Company is included in the consolidated Federal income tax return filed
by Triarc except that, prior to April 14, 1994, Public Gas was included in the
consolidated Federal income tax return of SEPSCO. Under a tax sharing agreement
with Triarc, the Company provides for Federal income taxes on the same basis as
if it filed a separate consolidated return. All Federal income tax payments or
refunds are made through Triarc. Deferred income taxes are provided to recognize
the tax effect of temporary differences between the bases of assets and
liabilities for tax and financial statement purposes.
REVENUE RECOGNITION
The Company records sales of liquefied petroleum gas ('propane') when
inventory is delivered to the customer.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
NATURE OF OPERATIONS
The Company is engaged primarily in the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and resellers. The Company also markets propane related supplies and
equipment including home and commercial appliances. The Company's operations are
concentrated in the midwest, northeast, southeast and southwest regions of the
United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SIGNIFICANT ESTIMATES
The Company's significant estimates are for costs related to (i) insurance
loss reserves (see Note 1), (ii) income tax examinations (see Note 11) and (iii)
an environmental contingency (see Note 17).
CERTAIN RISK CONCENTRATIONS
The Company's significant risk concentration arises from propane being its
principal product. Both sales levels and costs of propane are extremely
sensitive to weather conditions, particularly in the residential home heating
market. The Company's profitability depends on the spread between its cost for
propane and the selling price. The Company generally is able to pass on cost
increases to the customer in the form of higher selling prices. However, where
increases cannot be passed on, margins can be adversely affected. The Company is
also impacted by the competitive nature of the propane industry, as well as by
competition from alternative energy sources such as natural gas, oil and
electricity.
F-13
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PUBLIC GAS MERGER
Effective June 29, 1995, Public Gas, previously a wholly-owned subsidiary
of SEPSCO engaged in the LP gas business, was merged with and into National
Propane, with National Propane continuing as the surviving corporation. In
consideration for their investments in Public Gas and National Propane, PGC
Holdings received 330 shares of the merged corporation representing 24.8% of its
issued and outstanding common stock and NPC Holdings continued to hold 1,000
shares representing 75.2% of the stock of the merged corporation (see Note 19
for discussion of subsequent issuance of 30 shares of the Company). Such
percentages were based upon the relative fair values of Public Gas and National
Propane prior to the Merger. In June 1995 prior to the Merger, Public Gas
acquired the 0.3% of its common stock that SEPSCO did not own for approximately
$134,000.
The following sets forth summary operating results of the combined
entities:
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1993 1994 1995
------------ ----------------------- -----------------------
(IN THOUSANDS)
Operating revenues:
National Propane...................................... $ 95,911 $ 123,588 $ 133,456(a)
Public Gas............................................ 23,394 28,110 15,542(b)
Eliminations.......................................... (56) (47) (15)
------------ ----------- -----------
$119,249 $ 151,651 $ 148,983
------------ ----------- -----------
------------ ----------- -----------
Income (loss) before extraordinary charge:
National Propane...................................... $ (1,433) $ 10,072 $ (2,287)(a)
Public Gas............................................ 1,086 1,949 1,682(b)
------------ ----------- -----------
$ (347) $ 12,021 $ (605)
------------ ----------- -----------
------------ ----------- -----------
Net income (loss):
National Propane...................................... $ (1,433) $ 7,956 $ (2,287)(a)
Public Gas............................................ 1,086 1,949 1,682(b)
------------ ----------- -----------
$ (347) $ 9,905 $ (605)
------------ ----------- -----------
------------ ----------- -----------
- ------------
(a) Reflects the results of National Propane prior to the Merger and the
combined Company after the Merger.
(b) Reflects the results of Public Gas prior to the Merger.
(4) CHANGE IN FISCAL YEAR
In October 1993 National Propane's fiscal year ended April 30 and Public
Gas' fiscal year ended February 28 were changed to a calendar year ended
December 31. In order to conform the reporting periods of the combining entities
and to select a period deemed to meet the Securities and Exchange Commission
requirement for filing financial statements for a period of one year, the
ten-month period ended December 31, 1993 ('Transition 1993') has been presented
in the accompanying consolidated financial statements. As used herein, '1994'
and '1995' refer to the years ended December 31, 1994 and 1995, respectively.
F-14
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) RECEIVABLES
The following is a summary of the components of receivables:
DECEMBER 31,
------------------
1994 1995
------- -------
(IN THOUSANDS)
Receivables:
Trade........................................................................ $17,896 $16,939
Other........................................................................ 241 432
------- -------
18,137 17,371
Less allowance for doubtful accounts (trade)...................................... 1,072 980
------- -------
$17,065 $16,391
------- -------
------- -------
The following is an analysis of the allowance for doubtful accounts for the
periods ended December 31, 1993, 1994 and 1995:
TRANSITION
1993 1994 1995
---------- ------ ------
(IN THOUSANDS)
Balance at beginning of period........................................... $1,552 $1,343 $1,072
Provision for doubtful accounts.......................................... 661 685 848
Uncollectible accounts written off....................................... (870) (956) (940)
---------- ------ ------
Balance at end of period................................................. $1,343 $1,072 $ 980
---------- ------ ------
---------- ------ ------
(6) INVESTMENTS IN AFFILIATES
On April 23, 1993 the Company sold to Triarc all of its ownership in the
common stock of CFC Holdings and in SEPSCO for an aggregate of $3,900,000, or
$3,731,000 in excess of the net book value of the investments of $169,000 at
that date. The $3,731,000 excess less related income taxes of $1,476,000 was
accounted for as a deferred gain and reported as a capital contribution in the
accompanying consolidated financial statements for Transition 1993 since it
resulted from a transaction among a controlled group of companies. The Company's
equity in net loss of affiliates of $430,000 is included in 'Other income, net'
in the accompanying consolidated statement of operations for Transition 1993.
(7) PROPERTIES
The following is a summary of the components of properties:
DECEMBER 31,
--------------------
1994 1995
-------- --------
(IN THOUSANDS)
Land............................................................................ $ 5,357 $ 5,303
Buildings and improvements...................................................... 11,498 11,760
Equipment and customer installation costs....................................... 112,576 119,614
Office furniture and fixtures................................................... 4,596 4,947
Automotive and transportation equipment......................................... 19,199 21,937
Leased assets capitalized....................................................... 1,584 1,655
-------- --------
154,810 165,216
Less accumulated depreciation and amortization.................................. 72,634 82,002
-------- --------
$ 82,176 $ 83,214
-------- --------
-------- --------
F-15
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The following is a summary of the components of unamortized costs in excess
of net assets of acquired companies:
DECEMBER 31,
------------------
1994 1995
------- -------
(IN THOUSANDS)
Costs in excess of net assets of acquired companies............................... $14,745 $16,712
Less accumulated amortization..................................................... 1,264 1,551
------- -------
$13,481 $15,161
------- -------
------- -------
(9) OTHER ASSETS
The following is a summary of the components of other assets:
DECEMBER 31,
----------------
1994 1995
------ ------
(IN THOUSANDS)
Deferred financing costs............................................................. $5,390 $6,206
Non-compete agreements............................................................... 1,429 1,929
Long-term receivables, net of unearned interest income............................... 645 300
Other................................................................................ 355 544
------ ------
7,819 8,979
------ ------
Less accumulated amortization:
Deferred financing costs........................................................ 204 1,509
Non-compete agreements.......................................................... 459 761
Other........................................................................... 18 71
------ ------
681 2,341
------ ------
$7,138 $6,638
------ ------
------ ------
The Company's wholly-owned leasing subsidiary, NPC Leasing Corp. ('NPC
Leasing'), leases vehicles and other equipment to companies that are or were
affiliates of the Company under long-term lease obligations which are accounted
for as finance-type leases and are included in long-term receivables above.
Lease billings by NPC Leasing to current and former affiliates, other than the
Company, which included interest and principal, during Transition 1993, 1994 and
1995 were $8,213,000, $168,000 and $47,000, respectively. Such amounts include
interest of $1,676,000, $25,000 and $3,000 in Transition 1993, 1994 and 1995,
respectively, which are included in 'Revenues' in the accompanying consolidated
statements of operations.
F-16
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) LONG-TERM DEBT
Long-term debt consisted of the following:
DECEMBER 31,
--------------------
1994 1995
-------- --------
(IN THOUSANDS)
Bank Facility:
Term notes, Tranche A, weighted average interest rate of 8.53% at December
31, 1995, due through March 31, 2000..................................... $ 60,000 $ 34,333
Term notes, Tranche B, weighted average interest rate of 8.72% at December
31, 1995, due through March 31, 2002..................................... 30,000 29,750
Term note, Tranche C, bearing interest at 9.44% at December 31, 1995, due
through March 31, 2003................................................... -- 20,000
Revolving loans, weighted average interest rate of 8.09% at December 31,
1995, due March 31, 2000................................................. 10,500 43,229
-------- --------
Total Bank Facility................................................... 100,500 127,312
Equipment notes, bearing interest at rates of 7% to 12%, due through 2002....... 4,239 2,917
Acquisition notes, bearing interest at rates of 6% to 10%, due through 2004..... 5,090 4,060
Capital lease obligations....................................................... 1,180 1,255
-------- --------
Total debt............................................................ 111,009 135,544
Less current portion of long-term debt.......................................... 12,298 11,278
-------- --------
$ 98,711 $124,266
-------- --------
-------- --------
The aggregate annual maturities of long-term debt are as follows as of
December 31, 1995:
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- -----------
1996................................................................................. $ 11,278
1997................................................................................. 10,591
1998................................................................................. 13,375
1999................................................................................. 13,494
2000................................................................................. 37,489
Thereafter........................................................................... 49,317
--------------
$135,544
--------------
--------------
Bank Facility -- In October 1994 the Company entered into a revolving
credit and term loan agreement with a group of banks (the 'Bank Facility'). The
$150,000,000 Bank Facility, as amended, consists of a revolving credit facility
with a current maximum availability as of December 31, 1995 of $57,167,000 and
three tranches of term loans with an original availability of $90,000,000 and
outstanding amounts aggregating $84,083,000 (net of repayments through December
31, 1995 of $5,917,000) as of December 31, 1995. Approximately $13,900,000 of
the revolving credit facility is restricted for niche acquisitions by the
Company (the 'Acquisition Sublimit'); however, the Company is not currently able
to borrow under the Acquisition Sublimit due to debt covenant limitations.
Accordingly, the Company has no availability under the Bank Facility as of
December 31, 1995. Any outstanding borrowings under the Acquisition Sublimit
convert to term loans in October 1997; such term loans would be due in equal
installments from December 1997 through December 2000. Borrowings under the Bank
Facility bear interest, at the Company's option, at rates based either on 30,
60, 90 or 180-day LIBOR (ranging from 5.53% to 5.72% at December 31, 1995) or an
alternate base rate (the 'ABR'). The ABR represents the higher of the prime rate
(8 1/2% at December 31, 1995) or 1/2% over the Federal funds rate (6% at
December 31, 1995). Revolving loans bear interest at 2 1/4% over LIBOR or 1%
over ABR. The aggregate availability of revolving loans (assuming full
availability under the Acquisition Sublimit)
F-17
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reduces by $3,000,000 in 1996, $15,896,000 in 1997, $3,958,000 in 1998,
$4,042,000 in 1999 with the remaining availability of $30,271,000 maturing in
March 2000. The term loans bear interest at rates ranging from 2 1/2% to 3 1/2%
over LIBOR or 1 1/4% to 2 1/4% over ABR, respectively, and the $84,083,000
outstanding amount of such loans at December 31, 1995 amortizes $6,250,000 in
1996, $6,417,000 in 1997, $8,167,000 in 1998, $8,333,000 in 1999, $10,291,000 in
2000 and $44,625,000 thereafter through 2003. In connection with the closing of
the Bank Facility, the Company paid a cash dividend to Triarc of $40,000,000 in
October 1994.
The Bank Facility contains various covenants which (a) require meeting
certain financial amount and ratio tests; (b) limit, among other items, (i) the
incurrence of indebtedness, (ii) the retirement of certain debt prior to
maturity, (iii) investments, (iv) asset dispositions, (v) capital expenditures
and (vi) affiliate transactions other than in the normal course of business; and
(c) restrict the payment of dividends to Triarc. As of December 31, 1995 the
Company had $5,000,000 available for the payment of dividends; however, the
Company is effectively prevented from paying dividends due to the restrictions
of the financial amount and ratio tests noted above. The Company's debt under
the Bank Facility is guaranteed by Triarc.
On December 27, 1995 the Company borrowed $30,000,000 under the revolving
credit facility, and dividended such amount to Triarc ($22,721,000) and SEPSCO
($7,279,000) in proportion to their respective percentage ownership of the
Company. The use of the proceeds of the $30,000,000 borrowing was restricted to
the redemption of the $45,000,000 outstanding principal amount of SEPSCO's
11 7/8% senior subordinated debentures due February 1, 1998; such redemption
occurred on February 22, 1996.
Equipment Notes -- Certain of the equipment notes are issued by the
Company's wholly-owned leasing subsidiary, NPC Leasing, and are collateralized
by vehicles and other equipment which NPC Leasing leases to current and former
affiliates. The equipment notes bear interest at rates which range from 1% to 2%
above the prime rate in effect at the time the obligations are incurred
(combined weighted average rate of 9.1% and 8.6% at December 31, 1994 and 1995,
respectively), and are payable in both equal monthly and quarterly installments
over varying terms of up to 60 months. Payments under certain of the notes are
guaranteed by the Company and/or Triarc.
Under the Company's various debt agreements, substantially all of the
Company's assets and the Company's outstanding common stock are pledged as
collateral.
The fair values of the revolving loans and the term loans under the Bank
Facility at December 31, 1994 and 1995 approximated their carrying values due to
their floating interest rates. The fair values of all other long-term debt were
assumed to reasonably approximate their carrying amounts since the interest
rates approximate current levels.
(11) INCOME TAXES
The provision for income taxes before extraordinary charge for the ten
months ended December 31, 1993 and the years ended December 31, 1994 and 1995
consists of the following components:
TEN MONTHS YEAR ENDED DECEMBER 31,
ENDED DECEMBER 31, --------------------------------------------------
1993 1994 1995
------------------ ----------------------- -----------------------
(IN THOUSANDS)
Current:
Federal........................................ $1,562 $ 5,099 $ 1,890
State.......................................... 336 1,051 406
------- ------- -------
1,898 6,150 2,296
------- ------- -------
Deferred:
Federal........................................ (724) 1,456 2,114
State.......................................... (156) 317 (119)
------- ------- -------
(880) 1,773 1,995
------- ------- -------
$1,018 $ 7,923 $ 4,291
------- ------- -------
------- ------- -------
F-18
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the reported tax provision and a computed tax
provision based on income before income taxes and extraordinary charge at the
statutory Federal income tax rate of 35% is reconciled as follows:
TEN MONTHS YEAR ENDED DECEMBER 31,
ENDED DECEMBER 31, --------------------------------------------------
1993 1994 1995
------------------ ----------------------- -----------------------
(IN THOUSANDS)
Income taxes computed at Federal statutory tax
rate.............................................. $ 235 $ 6,980 $ 1,290
Increase (decrease) in taxes resulting from:
Provision for income tax contingencies......... -- -- 2,500
State income taxes, net of Federal income tax
benefit...................................... 117 889 187
Change in the statutory Federal income tax
rate......................................... 301 -- --
Nondeductible consulting agreement (Note 20)... 352 -- --
Amortization of non-deductible goodwill........ 12 29 126
Other, net..................................... 1 25 188
------- ------- -------
$1,018 $ 7,923 $ 4,291
------- ------- -------
------- ------- -------
The net current deferred income tax asset (included in 'Other current
assets') and the net noncurrent deferred income tax liability are comprised of
the following components:
DECEMBER 31,
------------------
1994 1995
------- -------
(IN THOUSANDS)
Allowance for doubtful accounts................................................... $ 424 $ 384
Accrued employee benefit costs.................................................... 300 224
Accrued interest for income tax matters........................................... 198 198
Accrued environmental costs....................................................... 158 171
Casualty insurance loss reserves.................................................. -- 213
Other, net........................................................................ 114 126
------- -------
Net current deferred income tax asset............................................. $ 1,194 $ 1,316
------- -------
------- -------
Accelerated depreciation and other properties basis differences................... $20,922 $20,546
Reserve for income tax contingencies.............................................. -- 2,500
Other, net........................................................................ (161) (168)
------- -------
Net noncurrent deferred income tax liability...................................... $20,761 $22,878
------- -------
------- -------
As of December 31, 1994 and 1995, accrued income taxes payable to Triarc
are included in 'Due to a parent and another affiliate' in the accompanying
consolidated balance sheets and amounted to $2,657,000 and $3,815,000,
respectively.
The Internal Revenue Service (the 'IRS') is currently examining Triarc's
Federal income tax returns for the tax years 1989 through 1992 and has issued to
date notices of proposed adjustments relating to the Company. Such notices
propose increasing the Company's taxable income by approximately $19,000,000, of
which $6,600,000 represent temporary differences and $12,400,000 represent
permanent differences, which will be contested by Triarc, the tax effect of
which has not yet been determined. The temporary items, if settled as proposed,
will result in deductions from taxable income in periods subsequent to the year
to which the adjustment relates, and therefore would not result in additional
tax expense. During 1995 the Company provided $2,500,000 included in 'Provision
for income taxes' relating to the Company's estimate of the tax effect upon
settlement of the
F-19
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,400,000 of permanent differences and interest, net of tax benefit, relative
to the settlement of both the permanent and temporary differences. Such
provision was based on the Company's experience with settling prior audits,
discussions with the IRS regarding these adjustments, as well as evaluating the
current issues with outside counsel. The amount and timing of any payments
required as a result of such proposed adjustments cannot presently be
determined. However, the Company believes that adequate provisions have been
made for any income tax liabilities that may result from the resolution of such
proposed adjustments. As such the Company does not believe it is reasonably
possible that the tax contingency will result in a settlement at an amount
substantially in excess of the $2,500,000 provided.
(12) PREFERRED STOCK
COMPANY
On June 20, 1994 the Company repurchased for treasury stock 9,206 shares of
its $21 par value preferred stock (the 'Preferred Stock') and 1,637 shares of
its $25 par value Second Preferred Stock (the 'Second Preferred Stock') at par
value aggregating $234,000 representing all of the remaining issued and
outstanding preferred shares. Such preferred shares, were subsequently cancelled
resulting in an increase to 'Additional paid-in capital' of $378,000.
A summary of the changes in the aggregate number of shares of Preferred
Stock and Second Preferred Stock held in treasury for Transition 1993 and 1994
is as follows:
TRANSITION
1993 1994
---------- -------
(IN THOUSANDS)
Number of shares at beginning of period........................................... 47,780 47,780
Repurchase of preferred stock..................................................... -- 10,843
Cancellation of preferred stock................................................... -- (58,623)
---------- -------
Number of shares at end of period................................................. 47,780 --
---------- -------
---------- -------
A summary of the changes in the aggregate number of issued shares of
Preferred Stock and Second Preferred Stock for Transition 1993 and 1994 is as
follows:
TRANSITION
1993 1994
---------- -------
(IN THOUSANDS)
Number of shares at beginning of period........................................... 58,623 58,623
Cancellation of preferred stock................................................... -- (58,623)
---------- -------
Number of shares at end of period................................................. 58,623 --
---------- -------
---------- -------
PUBLIC GAS
On June 21, 1994 Public Gas repurchased 70,369 shares of its $1.00 par
value convertible preferred stock (the 'Public Gas Preferred Stock'),
representing all of the then issued and outstanding preferred shares of Public
Gas for $704,000. The carrying value of the Public Gas Preferred Stock of
$62,000 was charged to 'Additional paid-in capital' and the $642,000 excess of
the purchase price over the carrying value represented the reacquisition of a
minority interest in Public Gas at SEPSCO and, as such, was 'pushed down' to
Public Gas and recorded as 'Unamortized costs in excess of net assets of
acquired companies' in the accompanying consolidated balance sheets.
F-20
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) DUE FROM PARENTS
Due from Parents, which has been reflected as a component of stockholders'
equity (deficit) consisted of the following:
DECEMBER 31,
-------------------
1994 1995
-------- -------
(IN THOUSANDS)
Interest-bearing advances to Triarc........................................................ $ 81,392 $81,392
Noninterest-bearing advances to SEPSCO..................................................... 31,938 --
-------- -------
$113,330 $81,392
-------- -------
-------- -------
The receivables from Triarc and SEPSCO have been classified as a component
of stockholders' equity because they were not expected to be repaid except
through equity transactions and with respect to Triarc, its liquidity position
is not sufficient to enable it to repay the advances. The receivable from SEPSCO
(including additional advances during 1995 of $2,599,000) was dividended to
SEPSCO prior to the Merger (see Note 3). The receivable from Triarc was
reclassified to a component of stockholders' equity at November 30, 1994 at
which time it was determined Triarc's liquidity position may not enable it to
repay the advances. Concurrent with the reclassification, the Company ceased
accruing interest on the receivable. Prior thereto interest income was recorded
on the advances at 8.9% subsequent to October 6, 1994 and at 16.5% prior thereto
except that prior to April 23, 1993 the first $30,000,000 of the receivable bore
interest at 11.75%. Such interest rates represented the Company's cost of debt
capital. Interest income on such advances aggregated $10,360,000 and $9,751,000
during Transition 1993 and 1994, respectively.
(14) SEPSCO MERGER
On April 14, 1994, SEPSCO's shareholders other than Triarc approved an
agreement and plan of merger between Triarc and SEPSCO (the 'SEPSCO Merger')
pursuant to which on that date a subsidiary of Triarc was merged into SEPSCO
whereby each holder of shares of SEPSCO's common stock (the 'SEPSCO Common
Stock') other than Triarc, aggregating a 28.9% minority interest in SEPSCO,
received in exchange for each share of SEPSCO common stock, 0.8 shares of
Triarc's class A common stock or an aggregate of 2,691,824 shares. Following the
SEPSCO Merger, SEPSCO became a wholly-owned subsidiary of Triarc and its
subsidiaries.
The fair value as of April 14, 1994 of the 2,691,824 shares of Triarc's
class A common stock issued in the SEPSCO Merger, net of certain related costs,
aggregated $52,105,000 (the 'Merger Consideration'). Triarc had an excess of
$23,888,000 of Merger Consideration over Triarc's minority interest in SEPSCO.
The SEPSCO Merger has been accounted for by Triarc and SEPSCO in accordance with
the 'pushdown' method of accounting and in accordance therewith, $17,004,000 of
such $23,888,000 excess was 'pushed down' to SEPSCO (the remaining $6,884,000
was 'pushed down' to an affiliated subsidiary) reflecting Triarc's increased
basis in SEPSCO. SEPSCO, in turn, 'pushed down' $8,088,000 to Public Gas as an
increase in SEPSCO's basis in Public Gas. Such amount increased the 'Additional
paid-in capital' of the Company reflecting Triarc's and SEPSCO's increased bases
in Public Gas and was assigned as follows:
(IN THOUSANDS)
Goodwill................................................................................ $ 5,483
Properties.............................................................................. 4,255
Deferred income taxes................................................................... (1,650)
--------------
Additional paid-in capital.............................................................. $ 8,088
--------------
--------------
F-21
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) EXTRAORDINARY CHARGE
In connection with the early extinguishment of the Company's 13 1/8%
Debentures in October 1994, the Company recognized an extraordinary charge of
$2,116,000 consisting of the write-off of previously unamortized deferred
financing costs of $875,000 and previously unamortized original issue discount
of $2,623,000, net of income tax benefit of $1,382,000.
(16) RETIREMENT AND INCENTIVE COMPENSATION PLANS
The Company maintains a 401(k) defined contribution plan (the 'Plan') which
covers all employees meeting certain eligibility requirements including active
eligible employees of Public Gas (whose account balances were transferred into
the Plan) subsequent to the Merger discussed in Note 3. Prior to becoming
participants in the Plan, such Public Gas employees participated in a mirror
plan maintained by SEPSCO (the 'SEPSCO Plan'). The Plan allows eligible
employees to contribute up to 15% of their compensation and the Company makes
matching contributions of 25% of employee contributions up to the first 5% of an
employee's contribution. The Company also makes an annual contribution equal to
1/4 of 1% of employee's compensation. In connection with these employer
contributions, the Company provided $147,000, $157,000 and $142,000, in
Transition 1993, 1994 and 1995, respectively.
Under certain union contracts, the Company is required to make payments to
the unions' pension funds based upon hours worked by the eligible employees. In
connection with these union plans, the Company provided $1,079,000, $726,000 and
$669,000 in Transition 1993, 1994 and 1995, respectively. Information from the
administrators of the union plans is not available to permit the Company to
determine its proportionate share of unfunded vested benefits, if any.
(17) LEGAL MATTERS
In May 1994 the Company was informed of coal tar contamination which was
discovered at one of its properties in Wisconsin. The Company purchased the
property from a company which had purchased the assets of a utility which had
previously owned the property. The Company believes that the contamination
occurred during the use of the property as a coal gasification plant by such
utility. In order to assess the extent of the problem the Company engaged
environmental consultants who began work in August 1994. In December 1994 the
environmental consultants provided a report to the Company which indicated the
estimated range of potential remediation costs to be between approximately
$415,000 and $925,000 depending upon the actual extent of impacted soils, the
presence and extent, if any, of impacted groundwater and the remediation method
actually required to be implemented. Since no amount within this range was
determined to be a better estimate, the Company provided a charge in the fourth
quarter of 1994 of $415,000, the minimum gross amount (with no expected
recovery) within the range, which amount was included in 'Selling, general and
administrative expenses' in the accompanying 1994 consolidated statement of
operations. In February 1996, based upon new information, the Company's
environmental consultants provided a second report which presented the two most
likely remediation methods and revised estimates of the costs of such methods.
The range of estimated costs for the first method, which involves treatment of
groundwater and excavation, treatment and disposal of contaminated soil, is from
$1,600,000 to $3,300,000. The range for the second method, which involves only
treatment of groundwater and the building of a soil containment wall, is from
$432,000 to $750,000. Based on discussion with the Company's environmental
consultants both methods are acceptable remediation plans. The Company, however,
will have to agree on a final plan with the State of Wisconsin. Since receiving
notice of the contamination, the Company has engaged in discussions of a general
nature concerning remediation with the State of Wisconsin. The discussions are
ongoing and there is no indication as yet of the time frame for a decision by
the State of Wisconsin on the method of remediation. Accordingly, it is unknown
which remediation method will be used. Since no amount within the ranges can be
determined to be a better estimate, the Company
F-22
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accrued an additional $41,000 in December 1995 in order to provide for the
minimum costs estimated for the second remediation method and legal fees and
other professional costs. The provisions through December 31, 1995 aggregate
$456,000 and payments through December 31, 1995 amounted to $24,000 resulting in
a remaining accrual of $432,000 at that date. The Company is also engaged in
ongoing discussions of a general nature with a successor to the utility that
operated a coal gasification plant on the property. There is as yet no
indication that a successor owner will share the costs of remediation. The
Company, if found liable for any of such costs, would attempt to recover such
costs from the successor owner. The ultimate outcome of this matter cannot
presently be determined and, depending upon the cost of remediation required,
may have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Company is involved in ordinary claims, litigation and administrative
proceedings and investigations of various types in several jurisdictions
incidental to its business. In the opinion of management of the Company, the
outcome of any such matter, or all of them combined, will not have a material
adverse effect on the Company's consolidated financial condition or results of
operations.
(18) ACQUISITIONS
During Transition 1993, 1994 and 1995 the Company acquired several
companies engaged in the sale of propane and related merchandise. The purchase
prices (including debt issued and assumed) aggregated $1,382,000, $8,967,000 and
$373,000, and resulted in increases in Goodwill of $475,000, $3,096,000 and
$116,000 in Transition 1993, 1994 and 1995, respectively. (See Note 19 for
discussion of Triarc's 1995 acquisition on behalf of the Company).
(19) TRANSACTIONS WITH AFFILIATES
In August 1995 Triarc, through a wholly owned subsidiary, acquired all of
the outstanding stock of two companies engaged in the propane distribution
business. The aggregate purchase price was $4,240,000 (including the assumption
of certain existing indebtedness). In September 1995 the stock of the subsidiary
which acquired the two companies was contributed by Triarc to NPC Holdings
which, in turn, contributed such stock to the Company. Such contribution
resulted in increases in the Company's 'Additional paid-in capital' of
$4,240,000 and Goodwill of $2,181,000. In consideration for such contribution,
NPC Holdings received an additional 30 shares of the Company's common stock,
increasing its ownership of the Company to 75.7% from 75.2%.
In the fourth quarter of 1995 the Company sold certain of its accounts
receivable to Triarc for cash of $3,809,000. As collections on such accounts
receivable are received by the Company they are remitted to Triarc on a periodic
basis. As of December 31, 1995, such remittances aggregated $1,412,000. Under
the agreement pursuant to which the receivables were sold, the Company is
obligated to repurchase any receivables which are determined to be
uncollectible, up to a maximum of 10% of the face amount originally sold. The
Company believes that its allowance for doubtful accounts is adequate to allow
for any repurchases that may be required.
The Company receives from Triarc certain management services including
legal, accounting, tax, insurance, financial and other management services.
Effective April 23, 1993 National Propane (and Triarc's other principal
subsidiaries, including SEPSCO) entered into a new management services agreement
(the 'New Management Services Agreement') with Triarc which revised the
allocation method for those costs which cannot be directly allocated. As
revised, such costs are allocated based upon the greater of (i) the sum of
earnings before income taxes, depreciation and amortization and (ii) 10% of
revenues, as a percentage of Triarc's corresponding consolidated amount. Prior
to the Merger, a portion of the costs allocated to SEPSCO under the New
Management Services Agreement were allocated to Public Gas based on the relative
portion of Public Gas' revenues to SEPSCO's consolidated revenues (the 'SEPSCO
Allocation Method'). Prior to the Merger, Public Gas also received from SEPSCO
operating management services the costs of which were charged to Public Gas
F-23
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
also in accordance with the SEPSCO Allocation Method. Prior to April 23, 1993,
the costs of management services were allocated by Triarc to its subsidiaries
under a former management services agreement (the 'Former Management Services
Agreement') based first directly on the cost of the services provided and then,
for those costs which could not be directly allocated, based upon the relative
revenues and tangible assets as a percentage of Triarc's corresponding
consolidated amounts. Management of the Company believes that all allocation
methods referred to above are reasonable. The Company understands Triarc is a
holding company with no independent operations of its own and substantially all
of the expenses it incurs are for services on behalf of its affiliated companies
and, accordingly, are chargeable to such companies in accordance with management
services agreements including the Former and New Management Services Agreements.
However, the Company believes that the allocated costs discussed above exceed
those which would have been, and are expected to be, incurred by the Company on
a standalone basis. Such costs for services provided by Triarc (including a
portion of the charges allocated by Triarc to SEPSCO and, in turn, from SEPSCO
to the Company) would have approximated amounts not in excess of $1,250,000,
$1,500,000 and $1,500,000 for Transition 1993, 1994 and 1995, respectively. It
is not practicable, however, to estimate the costs that Public Gas would have
incurred on a standalone basis for services provided by SEPSCO in Transition
1993 and 1994. Additionally, in Transition 1993 the Company was allocated
certain costs representing uncollectible amounts owed to Triarc for similar
management services by certain affiliates or former affiliates. The Company's
portion of such allocation under the Former Management Services Agreement
amounted to $98,000 for Transition 1993. These costs were allocated principally
on the same basis as the costs of management services, an allocation method
management of the Company believes was reasonable. Such costs to the Company
would have been lower if the Company had operated as an unaffiliated entity of
Triarc to the extent the cost of such services would not have been incurred had
services not been provided to the entities unable to pay. A summary of the costs
charged to the Company for management services is as follows:
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1993 1994 1995
------------ ---------- ------------
(IN THOUSANDS)
Costs allocated by Triarc to the Company under the New
Management Services Agreement............................. $1,827 $3,000 $3,000
Costs related to the New Management Services Agreement
allocated by SEPSCO to Public Gas......................... 447 -- --
Costs of management services provided by SEPSCO to Public
Gas....................................................... 783 1,561 --
Costs allocated to National Propane and Public Gas under the
Former Management Services Agreement...................... 428 -- --
------------ ---------- ------------
$3,485 $4,561 $3,000
------------ ---------- ------------
------------ ---------- ------------
Until January 31, 1994 the Company, through Triarc and SEPSCO, leased
office space from a trust for the benefit of Victor Posner and his children (the
'Posner Lease'). Rent allocated by Triarc to the Company (including Public Gas
through SEPSCO) amounted to $277,000 for Transition 1993 and is included in
'Selling, general and administrative expenses' in the accompanying consolidated
statement of operations. During Transition 1993, the Company also recorded a
provision of $1,814,000 included in 'Facilities relocation and corporate
restructuring' in the accompanying consolidated statement of operations for its
allocated share of the remaining payments on the Posner Lease due to its
cancellation effective January 31, 1994 (see Note 20). Prior to April 23, 1993
the rent was allocated based on direct square footage utilized and the
allocation methods previously described under the Former Management Services
Agreement. Subsequent to April 23, 1993 the rent allocation method was changed
and was based on direct square footage utilized and the allocation methods of
the New Management Services
F-24
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement. Management of the Company believes such methods are reasonable and
the rent charged for direct usage approximated the rent the Company would have
incurred on a stand-alone basis.
Chesapeake Insurance Company Limited ('Chesapeake Insurance'), an indirect
subsidiary of Triarc, provided certain insurance coverage and reinsurance of
certain risks to the Company until October 1993 at which time Chesapeake
Insurance ceased writing all insurance and reinsurance. The net premium expense
incurred was $4,064,000 in Transition 1993. Such amount is included in 'Cost of
sales' ($3,971,000) and 'Selling, general and administrative expenses' ($93,000)
in the accompanying consolidated statement of operations. Such costs have been
allocated based upon the relative loss experience after consultation with the
Company's insurance broker. Management of the Company believes such allocation
method was reasonable and resulted in insurance charges to the Company which
approximated those the Company would have received directly in the open market.
Insurance and Risk Management, Inc. ('IRM'), which was an affiliate of the
Company until April 23, 1993, acted as agent or broker in connection with
insurance coverage obtained by the Company and provided claims processing
services to the Company. The commissions and payments incurred for such services
were approximately $49,000 in Transition 1993. Such amount is included in 'Cost
of sales' in the accompanying consolidated statement of operations. The
arrangement with IRM was terminated in connection with the change in control
discussed in Note 20.
Also, see Note 9 relative to certain transactions of NPC Leasing and Note
20 relative to certain charges, primarily related to facilities relocation and
corporation restructuring, allocated to the Company by Triarc.
(20) SIGNIFICANT TRANSITION 1993 CHARGES
The results of operations for Transition 1993 included certain significant
charges summarized below:
(IN THOUSANDS)
Estimated costs allocated to the Company by Triarc to terminate the lease on its
existing corporate facilities (Note 19)............................................... $ 1,814
Estimated costs associated with conforming subsidiaries' identifications to 'National
Propane'.............................................................................. 2,000
Estimated costs associated with systems installation necessitated by National Propane's
new operating strategy................................................................ 1,500
Estimated costs associated with certain employee terminations and related severance
payments.............................................................................. 1,050
Estimated costs to relocate and reorganize the Company's corporate headquarters......... 1,058
Total costs allocated to the Company by Triarc related to a five-year consulting
agreement between Triarc and the former Vice Chairman of Triarc....................... 1,007
--------------
Total facilities relocation and corporate restructuring charges.................... 8,429(a)
Estimated costs allocated to the Company by Triarc for compensation paid to the Special
Committee of the Board of Directors of Triarc......................................... 514(b)
Income tax benefit relating to the above charges........................................ (3,489)
Equity in significant charges of affiliate, net of taxes................................ 281(c)
--------------
$ 5,735
--------------
--------------
(a) Included in 'Facilities relocation and corporate restructuring.'
(b) Included in 'Selling, general and administrative expenses.'
(c) Included in 'Other income, net.'
------------------------
These charges relate to the change in control (the 'Change in Control') of
the Company and Triarc that resulted from the closing on April 23, 1993 of
transactions contemplated by a stock purchase
F-25
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement between DWG Acquisition Group, L.P. ('DWG Acquisition'), the sole
general partners of which are Nelson Peltz and Peter W. May, the Chairman of the
Board and Chief Executive Officer and the President and Chief Operating Officer,
respectively, of Triarc and directors of the Company, and Victor Posner, the
then Chairman and Chief Executive Officer of the Company and certain entities
controlled by him, whereby DWG Acquisition acquired control of Triarc from
Victor Posner.
As part of the Change in Control, the Board of Directors of Triarc was
reconstituted. At the April 24, 1993 meeting of the reconstituted Triarc Board
of Directors, based on a report and recommendations from a management consulting
firm that had conducted an extensive review of Triarc's operations and
management structure, the Triarc Board of Directors approved a plan of
decentralization and restructuring which entailed, among other matters, the
following features: (i) the strategic decision to manage Triarc in the future on
a decentralized, rather than on a centralized, basis; (ii) the hiring of new
executive officers for Triarc and the hiring of new chief executive officers and
new senior management teams for certain subsidiaries of Triarc, including the
Company; (iii) the termination of a significant number of employees as a result
of both the new management philosophy and the hiring of an almost entirely new
management team; and (iv) the relocation of the corporate headquarters of Triarc
and of all of its subsidiaries whose headquarters were located in South Florida,
including NPC Leasing and SEPSCO. Accordingly, the Company's allocable share of
the cost to relocate its corporate headquarters and terminate the lease on its
existing corporate facilities, which extended through April 1997, of $1,814,000,
and estimated corporate restructuring charges of $5,608,000 including personnel
relocation costs and employee severance costs, all stemmed from the
decentralization and restructuring plan formally adopted at the April 24, 1993
meeting of Triarc's reconstituted Board of Directors.
Prior to the Change in Control, the Company's business was operated under
various names in different locations throughout the United States. As a part of
the strategy of centralizing the Company's operations, new management ('New
Management') which began with the Change in Control made the decision at the
time of the Change in Control to refocus National Propane's identity by
operating substantially all of its entities and marketing its product under the
name 'National Propane'. Since this decision was made at the time of the Change
in Control, National Propane accrued the estimated costs of implementing the
decision of $2,000,000 in the accompanying Transition 1993 statement of
operations. Such costs consist principally of repainting and replacing decals on
the Company's vehicles and equipment with the 'National Propane' colors and
logo.
New Management also identified various new operating strategies in order to
refocus the Company's direction and manage the Company on a centralized basis.
New Management determined that the management information systems which were in
place at the time of the Change in Control were inadequate to support the
implementation of the new strategies including the centralization of the
Company's operations from six regional centers and two corporate facilities to
one new corporate headquarters. Since the decision to change such systems was
made at the time of the Change in Control, the estimated costs of implementation
of $1,500,000, primarily related to retraining personnel, were accrued in the
accompanying Transition 1993 consolidated statement of operations.
In connection with the Change in Control, Victor Posner and Steven Posner,
the then Vice Chairman of the Company, resigned as officers and directors of
Triarc and its subsidiaries. In order to induce Steven Posner to resign, Triarc
entered into a consulting agreement with him extending through April 1998. The
Company's allocable share of costs of $1,007,000 related to the consulting
agreement was recorded as a charge in Transition 1993 because the consulting
agreement does not require any substantial services and Triarc has not received
nor did it expect to receive any services that will have substantial value to
Triarc and its subsidiaries.
The Company's equity in net loss of affiliates included similar significant
charges which were allocated by Triarc to CFC Holdings amounting to $281,000 and
is included in 'Other income, net' in the accompanying Transition 1993
consolidated statement of operations.
F-26
NATIONAL PROPANE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(21) INITIAL PUBLIC OFFERING OF COMMON UNITS AND OTHER TRANSACTIONS
On March 13, 1996 National Propane Partners, L.P. (the 'Partnership') was
formed to acquire, own and operate the Company's propane business and
substantially all of the related assets of the Company. The Partnership's
activities will be conducted through an operating partnership, National Propane
L.P. (the 'Operating Partnership'), the limited partner in which will be the
Partnership. The Company and National Propane SGP, Inc., a wholly owned
subsidiary of the Company (the 'Special General Partner') intend to convey
substantially all of their propane-related assets and liabilities other than
amounts due from parent ($81,392,000 as of December 31, 1995), deferred
financing costs ($4,697,000 as of December 31, 1995) and net deferred income tax
liabilities ($21,562,000 as of December 31, 1995) to the Operating Partnership.
The Partnership intends to issue 6,190,476 Common Units, representing
limited partner interests in the Partnership, pursuant to a public offering and
to concurrently issue 4,533,638 Subordinated Units, representing subordinated
general partner interests in the Partnership, to the Company. In addition, the
Company and the Special General Partner will each receive a 2% general partner
interest in the Partnership and the Operating Partnership, on a combined basis.
In connection therewith the Partnership will issue $125,000,000 of first
mortgage notes to institutional investors and repay all of its outstanding
borrowings under the Bank Facility ($127,312,000 as of December 31, 1995) and
$6,732,000 (as of December 31, 1995) of other debt. The early redemption of the
Bank Facility will result in an extraordinary charge for the writeoff of
unamortized deferred financing costs, net of income tax benefit, which as of
December 31, 1995 would have approximated $2,800,000. Concurrently with the
Offering, the Company will also pay a cash dividend to Triarc of $59,300,000 and
the Operating Partnership will provide a loan to Triarc of $40,700,000. There
can be no assurance, however, that the Company will be able to consummate these
transactions.
F-27
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995(A) 1996
------------ -------------
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,825 $ 4,671
Receivables, net.............................................................. 16,391 10,258
Finished goods inventories.................................................... 10,543 14,197
Interest receivable from Triarc Companies, Inc. .............................. -- 1,370
Due from Triarc and other current assets...................................... 4,340 1,526
------------ -------------
Total current assets..................................................... 34,099 32,022
Due from Triarc Companies, Inc. ................................................... -- 40,700
Properties, net.................................................................... 83,214 81,178
Unamortized costs in excess of net assets of acquired companies.................... 15,161 14,760
Other assets....................................................................... 6,638 7,015
------------ -------------
$139,112 $ 175,675
------------ -------------
------------ -------------
LIABILITIES AND PARTNERS' CAPITAL/STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt............................................. $ 11,278 $ 315
Accounts payable.............................................................. 7,836 6,986
Due to Triarc Companies, Inc. and another affiliate........................... 9,972 --
Accrued expenses.............................................................. 9,370 12,838
------------ -------------
Total current liabilities................................................ 38,456 20,139
Long-term debt..................................................................... 124,266 126,968
Deferred income taxes.............................................................. 22,878 --
Customer deposits.................................................................. 2,112 2,026
Commitments and contingencies......................................................
Partners' capital/Stockholders' deficit:
Stockholders' deficit......................................................... (48,600) --
Common unitholders' capital................................................... -- 14,816
General partners' capital -- including subordinated units..................... -- 11,726
------------ -------------
Total Partners' capital/Stockholders' deficit............................ (48,600) 26,542
------------ -------------
$139,112 $ 175,675
------------ -------------
------------ -------------
- ------------
(A) Derived from the audited consolidated financial statements as of December
31, 1995
See accompanying notes to condensed consolidated financial statements
F-28
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------------
1995 1996 1995 1996
------------- ---------- ------------- -------------
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
(UNAUDITED)
Revenues.................................................. $25,736 $ 27,720 $ 102,461 $ 116,018
------------- ---------- ------------- -------------
Cost of sales:
Cost of product -- propane and appliances............ 10,961 13,253 43,814 55,066
Other operating expenses applicable to revenues...... 10,419 11,578 33,727 34,031
------------- ---------- ------------- -------------
Gross profit.................................... 4,356 2,889 24,920 26,921
Selling, general and administrative....................... 5,626 4,756 15,506 17,009
Management fees........................................... 750 -- 2,250 1,500
------------- ---------- ------------- -------------
Operating income (loss)......................... (2,020) (1,867) 7,164 8,412
------------- ---------- ------------- -------------
Other income (expense):
Interest expense..................................... (2,906) (2,825) (8,731) (9,067)
Interest income from Triarc Companies, Inc. ......... -- 1,370 -- 1,370
Other income, net.................................... 209 152 698 662
------------- ---------- ------------- -------------
(2,697) (1,303) (8,033) (7,035)
------------- ---------- ------------- -------------
Income (loss) before income taxes and
extraordinary charge.......................... (4,717) (3,170) (869) 1,377
Provision for (benefit from) income taxes................. (1,839) -- (264) 1,922
------------- ---------- ------------- -------------
Loss before extraordinary charge................ (2,878) (3,170) (605) (545)
Extraordinary charge...................................... -- (2,631) -- (2,631)
------------- ---------- ------------- -------------
Net loss........................................ $(2,878) $ (5,801) $ (605) $ (3,176)
------------- ---------- ------------- -------------
------------- ---------- ------------- -------------
General partners' interest in:
Loss before extraordinary charge..................... $ (127)
Extraordinary charge................................. (2,631)
----------
Net loss........................................ $ (2,758)
----------
----------
Unitholders' interest in net loss......................... $ (3,043)
----------
----------
Net loss per unit......................................... $ (0.28)
----------
----------
Weighted average number of units outstanding.............. 10,809,834
----------
----------
See accompanying notes to condensed consolidated financial statements
F-29
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
------- ---------
(IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................................................. $ (605) $ (3,176)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization of properties..................................... 6,070 7,489
Amortization of costs in excess of net assets of acquired companies............. 373 540
Amortization of deferred financing costs........................................ 958 710
Other amortization.............................................................. 245 270
Write-off of deferred financing costs........................................... -- 4,126
Provision for doubtful accounts................................................. 577 947
Deferred income tax benefit..................................................... (1,222) (2,520)
Gain on sales of properties..................................................... (135) (39)
Other, net...................................................................... (568) (73)
Changes in operating assets and liabilities:
Decrease in receivables.................................................... 7,271 5,187
Increase in inventories.................................................... (3,938) (3,636)
Decrease in prepaid expenses and other current assets...................... 611 104
Increase (decrease) in accounts payable and accrued expenses............... (2,171) 3,154
------- ---------
Net cash provided by operating activities....................................... 7,466 13,229
------- ---------
Cash flows from investing activities:
Capital expenditures................................................................. (6,615) (4,997)
Business acquisitions................................................................ (290) (1,030)
Proceeds from sales of properties.................................................... 426 237
------- ---------
Net cash used in investing activities........................................... (6,479) (5,790)
------- ---------
Cash flows from financing activities:
Repayments of long-term debt......................................................... (13,157) (137,302)
Proceeds of First Mortgage Notes..................................................... -- 125,000
Proceeds from other long-term debt................................................... 8,500 3,800
Payment of dividend to Triarc Companies, Inc......................................... -- (59,300)
Net proceeds of initial public offering.............................................. -- 117,933
(Increase) decrease in due to/from Triarc Companies, Inc. and another affilate....... 1,244 (50,611)
Deferred financing costs............................................................. (812) (5,087)
Other................................................................................ -- (26)
------- ---------
Net cash used in financing activities........................................... (4,225) (5,593)
------- ---------
Net increase (decrease) in cash........................................................... (3,238) 1,846
Cash and cash equivalents at beginning of period.......................................... 3,983 2,825
------- ---------
Cash and cash equivalents at end of period................................................ $ 745 $ 4,671
------- ---------
------- ---------
See accompanying notes to condensed consolidated financial statements
F-30
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
National Propane Partners, L.P. (the 'Partnership') was formed on March 13,
1996 as a Delaware limited partnership. The Partnership and its subsidiary
partnership National Propane, L.P (the 'Operating Partnership') were formed to
acquire, own and operate the propane business and substantially all the assets
and liabilities (principally all assets and liabilities other than amounts due
from a parent, deferred financing costs and income tax liabilities) of National
Propane Corporation and subsidiaries ('National Propane', and referred to
subsequent to the initial public offering (described below) as the 'Managing
General Partner'), a wholly-owned subsidiary of Triarc Companies, Inc.
('Triarc'). In addition, National Sales & Service, Inc. ('NSSI'), a subsidiary
of the Operating Partnership, was formed to acquire and operate the service work
and appliance and parts sales business of National Propane. The Partnership, the
Operating Partnership and NSSI are collectively referred to hereinafter as the
'Partnership Entities'. The Partnership Entities consummated in July, 1996, an
initial public offering, (the 'Offering'), of 6,301,550 common units
representing limited partner interests in the Partnership (the 'Common Units')
for an offering price of $21.00 per Common Unit aggregating $132,333,000 before
$14,400,000 of underwriting discounts and commissions and other expenses related
to the Offering. On July 2, 1996 the Managing General Partner issued in a
private placement $125,000,000 of 8.54% First Mortgage Notes due June 30, 2010
(the 'First Mortgage Notes'). The Operating Partnership assumed the Managing
General Partner's obligation under the First Mortgage Notes in connection with
the conveyance on July 2, 1996 (the 'Partnership Conveyance') by the Managing
General Partner and National Propane SGP Inc., a subsidiary of the Managing
General Partner (the 'Special General Partner' and, together with the Managing
General Partner, referred to as the 'General Partners'), of substantially all of
their assets and liabilities (which did not include an existing $81,392,000
intercompany note from Triarc, $59,300,000 of the net proceeds from the issuance
of the First Mortgage Notes which was used to make a dividend to Triarc and
certain net liabilities of the General Partners). On November 6, 1996 the
Partnership sold an additional 400,000 Common Units through a private placement
at a price of $21.00 per Common Unit aggregating $8,400,000 before fees and
estimated expenses of $1,033,000, resulting in net proceeds to the Partnership
of $7,367,000.
The General Partners own general partner interests representing an
aggregate 4% unsubordinated general partner interest in the Partnership and the
Operating Partnership on a combined basis. In addition, the Managing General
Partner owns 4,533,638 subordinated units (the 'Subordinated Units')
representing a 40.2% (38.7% after the November 6, 1996 sale of 400,000 Common
Units) subordinated general partner interest in the Partnership Entities. The
Common Units and the Subordinated Units together represent the limited partners'
interest (the 'Limited Partners' Interest').
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
presented herein reflect the effects of the Partnership Conveyance and the
Offering, in which the Partnership Entities became the successor to the
businesses of National Propane. Because the Partnership Conveyance was a
transfer of assets and liabilities in exchange for partnership interests among a
controlled group of companies, it has been accounted for in a manner similar to
a pooling of interests, resulting in the presentation of the Partnership
Entities as the successor to the continuing businesses of National Propane. The
entity representative of both the operations of (i) National Propane prior to
the Partnership Conveyance, the Offering and related transactions which occurred
on July 2, 1996 and (ii) the Partnership Entities subsequent to such
transactions, is referred to herein as 'National'. Those assets and liabilities
not conveyed to the Partnership were retained by the Managing General Partner.
Such condensed consolidated financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and
Exchange Commission and, therefore, do not include
F-31
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of National, however, the
accompanying condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly National's financial position, results of operations and cash
flows.
The condensed consolidated financial statements including the nine months
ended September 30, 1995 reflect the effects of the June 1995 merger (the
'Merger') of Public Gas Company with and into National. Prior thereto Public Gas
was an indirect wholly-owned subsidiary of Triarc. Because the Merger was a
transfer of assets and liabilities in exchange for shares among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests and, accordingly, the aforementioned 1995 period has been restated
to reflect the Merger.
NOTE 3 -- PROPERTIES
The following is a summary of the components of properties, net:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(IN THOUSANDS)
Properties, at cost............................................ $165,216 $ 170,441
Less accumulated depreciation.................................. 82,002 89,263
------------ -------------
$ 83,214 $ 81,178
------------ -------------
------------ -------------
NOTE 4 -- LONG TERM DEBT AND EXTRAORDINARY CHARGE
First Mortgage Notes -- National issued $125,000,000 of First Mortgage
Notes in a private placement, and prepaid $128,469,000 of existing indebtedness,
resulting in an extraordinary charge, net of income taxes, of $2,631,000
relating primarily to the write-off of $4,126,000 of deferred financing costs
applicable to such early extinguishment of debt. The First Mortgage Notes bear
interest at a fixed annual rate of 8.54% payable semi-annually in arrears and
amortize in eight equal annual installments of $15,625,000 beginning June 30,
2003 through June 30, 2010.
Bank Credit Facility -- Concurrent with the Offering, National entered into
a $55 million bank credit facility (the 'Bank Credit Facility') with a group of
banks. The Bank Credit Facility includes a $15 million working capital facility
(the 'Working Capital Facility') and a $40 million acquisition facility (the
'Acquisition Facility'), the use of which is restricted to business acquisitions
and capital expenditures for growth. The Bank Credit Facility bears interest, at
National's option, at either (i) the 30, 60, 90 or 180-day London Interbank
Offered Rate plus a margin generally ranging from 1% to 1.75% or (ii) the higher
of (a) the prime rate and (b) the Federal funds rate plus 0.5%, in either case,
plus a margin of up to 0.25%. The Working Capital Facility matures in full in
July 1999. However, National must reduce the borrowings under the Working
Capital Facility to zero for a period of at least 30 consecutive days in each
year between March 1 and August 31. The Acquisition Facility converts to a term
loan in July 1998 and amortizes thereafter in equal quarterly installments
through July 2001.
National's Bank Credit Facility and the First Mortgage Notes contain
certain restrictive covenants which, among other items, (i) require meeting
certain financial amount and ratio tests, (ii) limit the incurrence of certain
other additional indebtedness and certain investments, asset dispositions and
transactions with affiliates other than in the normal course of business and
(iii) restrict the payment of distributions by the Operating Partnership if
certain other covenants are not met.
F-32
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
National's obligations under both the First Mortgage Notes and the Bank
Credit Facility are secured on an equal and ratable basis by substantially all
of the assets of the Operating Partnership and are guaranteed by the Managing
General Partner.
NOTE 5 -- INCOME TAXES
National's provision for (benefit from) income taxes for each of the
periods presented varies from the Federal statutory income tax rate of 35%
principally due to (i) state income taxes, (ii) the effect of goodwill
amortization and, (iii) since July 2, 1996, the change in legal/tax status of
National to a partnership. For federal and state income tax purposes, the
earnings attributed to the Partnership and Operating Partnership are included in
the tax returns of the individual partners. As a result, no recognition of
income tax expense has been reflected in National's consolidated financial
statements relating to the earnings of the Partnership and Operating
Partnership. The earnings attributed to NSSI are subject to federal and state
income taxes. Accordingly, National's consolidated financial statements will
reflect income tax expense related to NSSI's earnings, if any. There was no
income tax provision or benefit relating to NSSI in the three months ended
September 30, 1996 since any provision or benefit would be immaterial to NSSI or
National for this three month period. In connection with the Partnership
Conveyance, all income tax liabilities were retained by the Managing General
Partner.
NOTE 6 -- ACQUISITIONS
During 1996 National acquired the assets of four unaffiliated propane
distributors for aggregate cash consideration of $1,030,000.
NOTE 7 -- CONTINGENCIES
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company which had purchased the assets of a utility which
had previously owned the property. National Propane believes that the
contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem National
Propane engaged environmental consultants who began work in August 1994. In
February 1996, National Propane's environmental consultants provided a report
which presented the two most likely remediation methods and estimates of the
costs of such methods. The range of estimated costs for the first method, which
involves treatment of groundwater and excavation, treatment and disposal of
contaminated soil, is from $1,600,000 to $3,300,000. The range for the second
method, which involves only treatment of groundwater and the building of a soil
containment wall, is from $432,000 to $750,000. Based on discussion with
National Propane's environmental consultants both methods are acceptable
remediation plans. National Propane, however, will have to agree on a final plan
with the State of Wisconsin. Since receiving notice of the contamination,
National Propane has engaged in discussions of a general nature concerning
remediation with the State of Wisconsin. The discussions are ongoing and there
is no indication as yet of the time frame for a decision by the State of
Wisconsin on the method of remediation. Accordingly, it is unknown which
remediation method will be used. National Propane is also engaged in ongoing
discussions of a general nature with such successor to the utility that operated
a coal gasification plant on the property. There is as yet no indication that
the prior owner will share the costs of remediation. National Propane, if found
liable for any such costs, would attempt to recover such costs from the prior
owner. In connection with the Partnership Conveyance, the Wisconsin property was
retained by the Managing General Partner. Pursuant to a lease with the Managing
General Partner relating to this facility National has agreed to be liable for
any costs of remediation in excess of amounts
F-33
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
recovered from such prior owner or from insurance. Since no amount within the
ranges can be determined to be a better estimate, National has accrued $432,000
at December 31, 1995 and September 30, 1996 in order to provide for the minimum
costs estimated for the second remediation method and incurred legal fees and
other professional costs. The ultimate outcome of this matter cannot presently
be determined and, depending on the cost of remediation required, may have a
material adverse effect on National's consolidated financial position, results
of operations or ability to make the Minimum Quarterly Distribution to all
Unitholders (see Note 12).
National is involved in ordinary claims, litigation and administrative
proceedings and investigations of various types in several jurisdictions
incidental to its business. In the opinion of management, the outcome of any
such matter, or all of them combined, will not have a material adverse effect on
National's consolidated financial condition or results of operations.
NOTE 8 -- UNAUDITED PRO FORMA SUMMARIZED OPERATING RESULTS
The following unaudited supplemental pro forma information sets forth the
operating results of National for the nine months ended September 30, 1996 and
has been adjusted as if the Partnership had been formed as of January 1, 1996 to
give effect to (i) the elimination of management fees paid to Triarc, (ii) the
addition of the estimated stand-alone general and administrative costs
associated with National's operation as a partnership, (iii) a net decrease to
interest expense to reflect the interest expense associated with the First
Mortgage Notes and to eliminate interest expense on the refinanced debt and (iv)
the elimination of the provision for income taxes, as income taxes will be borne
by the partners and not the Partnership or the Operating Partnership, except for
corporate income taxes relative to NSSI. Such following pro forma supplemental
financial information does not purport to be indicative of the actual results of
operations that would have resulted had the Partnership been formed on January
1, 1996 or of the future results of operations of National.
NINE MONTHS ENDED
SEPTEMBER 30, 1996
--------------------------------------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNT)
Revenues................................................ $116,018
Operating income........................................ 9,162
Income before income taxes and extraordinary charge..... 5,450
Income before extraordinary charge...................... 5,300
General partners' unsubordinated interest in income
before extraordinary charge........................... 212
Unitholders' interest in income before extraordinary
charge................................................ 5,088
Unitholders' income before extraordinary charge per
unit.................................................. 0.47
Weighted average number of units outstanding(a)......... 10,809,834
----------------------
(a) Such weighted average number of units outstanding do not reflect the
November 6, 1996 sale of 400,000 common units as discussed in Note 13.
NOTE 9 -- UNIT OPTION PLAN
Effective July 2, 1996, the Managing General Partner adopted the National
Propane Corporation 1996 Unit Option Plan (the 'Option Plan'), which permits the
grant of options to purchase Common Units and Subordinated Units and the grant
of Unit appreciation rights ('UARs') covering up to an aggregate of 1,250,000
Common Units and Subordinated Units (subject to adjustment in certain
circumstances) plus an additional number of Units equal to 1% of the number of
Units outstanding as of each December 31 following the Option Plan's effective
date which will be added to the total number of units that may be issued
thereafter. No options or UARS have been granted under the Option Plan
F-34
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
as of September 30, 1996. Any expenses recognized relating to the Unit Option
Plan will be allocated to the Partnership in accordance with an agreement
between the Managing General Partner and the Partnership.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Concurrent with the closing of the Offering, National made a $40,700,000
loan to Triarc. The loan bears interest at 13.5% per annum, amortizes $5,087,500
per year commencing 2003 and is secured by a pledge by Triarc of all the shares
of capital stock of the Managing General Partner that are owned by Triarc.
Interest is payable semi-annually in arrears on each June 30 and December 30.
NOTE 11 -- STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)/PARTNERS' CAPITAL
The changes in National's Stockholders' equity (deficit)/Partner's capital
for the nine months ended September 30, 1996 were as follows (in thousands):
STOCKHOLDERS'
EQUITY/
GENERAL
NOTE RECEIVABLE PARTNERS' LIMITED PARTNERS'
FROM TRIARC CAPITAL CAPITAL TOTAL
--------------- ---------------- ----------------- --------
Balance at December 31, 1995................... $ (81,392) $ 32,792 $-- $(48,600)
Assets/(liabilities) retained by the Managing
General Partner(a)........................... 81,392 (61,683) -- 19,709
Cash dividend to Triarc........................ -- (59,300) -- (59,300)
Cash dividend to Triarc for NPC Leasing
Corp......................................... -- (24) -- (24)
Net proceeds of Offering....................... -- 101,348 16,585 117,933
Net income for the period January 1, 1996 to
June 30, 1996................................ -- 2,625 -- 2,625
Net loss for the period July 1, 1996 to
September 30, 1996:
Loss before extraordinary charge.......... -- (1,401) (1,769) (3,170)
Extraordinary charge...................... -- (2,631) -- (2,631)
--------------- ---------------- ----------------- --------
Balance at September 30, 1996.................. $ -- $ 11,726 $14,816 $ 26,542
--------------- ---------------- ----------------- --------
--------------- ---------------- ----------------- --------
- ------------
(a) In connection with the Partnership Conveyance, the Managing General Partner
retained the $81,392,000 receivable from Triarc and net liabilities
totaling $19,709,000 which consist primarily of net deferred income taxes
payable. In addition, in accordance with the Partnership Conveyance, the
extraordinary charge for the early extinguishment of debt, net of income
taxes, was allocated entirely to the General Partners.
NOTE 12 -- QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Subsequent to the Offering National will distribute to its partners, on a
quarterly basis, all of its 'Available Cash' which generally means, with respect
to any fiscal quarter of National, all cash on hand at the end of such quarter
less the amount of cash reserves that is necessary or appropriate in the
discretion of the Managing General Partner to (i) provide for the proper conduct
of National's business, (ii) comply with applicable law or any Partnership debt
instrument or other agreement, or (iii) provide funds for distributions to
Unitholders and the General Partners in respect of any one or more of the next
four quarters.
F-35
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Available Cash will generally be distributed 96% to the Unitholders
(including the Managing General Partner as the holder of Subordinated Units) and
4% to the General Partners, pro rata, except that if distributions of Available
Cash exceed Target Distribution Levels above the Minimum Quarterly Distribution,
the General Partners will receive an additional percentage of such excess
distributions that will increase to up to 50% of the distributions above the
highest Target Distribution Level.
With respect to each quarter during the Subordination Period, to the extent
there is sufficient Available Cash, the holders of Common Units will have the
right to receive the Minimum Quarterly Distribution ($0.525 per Unit), plus any
Common Unit Arrearages, prior to any distribution of Available Cash to the
holders of Subordinated Units. Subordinated Units will not accrue any arrearages
with respect to distributions for any quarter.
The Subordination Period will generally extend until the first day of any
quarter beginning after June 30, 2001 in respect of which (i) distributions of
Available Cash from Operating Surplus on the Common Units and the Subordinated
Units with respect to each of the three consecutive four-quarter periods
immediately preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the outstanding Common Units and Subordinated
Units during such periods, (ii) the Adjusted Operating Surplus generated during
each of the three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the outstanding Common Units and Subordinated Units and the related distribution
on the General Partner Interests during such periods and (iii) there are no
outstanding Common Unit Arrearages.
Prior to the end of the Subordination Period, a portion of the Subordinated
Units will convert into Common Units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any quarter
ending on or after (a) June 30, 1999 (with respect to 1,133,410 Subordinated
Units, subject to adjustment as discussed below), and (b) June 30, 2000 (with
respect to 1,133,410 Subordinated Units, subject to adjustments as discussed
below) in respect of which (i) distributions of Available Cash from Operating
Surplus on the Common Units and the Subordinated Units with respect to each of
the three consecutive four-quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the
outstanding Common Units and Subordinated Units during such periods, (ii) the
Adjusted Operating Surplus generated during each of the two consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the General Partner Interests
during such periods, and (iii) there are no outstanding Common Unit Arrearages;
provided, however, that the early conversion of the second tranche of
Subordinated Units may not occur until at least one year following the early
conversion of the first tranche of Subordinated Units. Such number of units
eligible for early conversion on June 30, 1999 and June 30, 2000 shall be
subject to increase in each case by a number of Subordinated Units equal to 25%
of the total Units issued upon conversion of the Special General Partner's 2%
General Partner Interest.
Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will thereafter
participate, pro rata, with the other Common Units in distributions of Available
Cash. In addition, if the Managing General Partner is removed as a general
partner of the Partnership other than for Cause (i) the Subordination Period
will end and all outstanding Subordinated Units will immediately convert into
Common Units on a one-for-one basis, (ii) any existing Common Unit Arrearages
will be extinguished and (iii) the General Partners will have the right to
convert their remaining General Partner Interests (and the right to receive
Incentive Distributions) into Common Units or to receive cash in exchange for
such interests.
F-36
NATIONAL PROPANE PARTNERS, L.P.
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
On November 14, 1996 National paid its initial quarterly distribution of
$0.525 per Common and Subordinated Unit to Unitholders of record on November 1,
1996, with a proportionate amount for the 4% unsubordinated general partner
interest, or an aggregate of $5,924,000, including $2,616,000 paid to the
General Partners related to the Subordinated Units and the unsubordinated
general partner interest.
NOTE 13 -- SUBSEQUENT EVENT
On November 6, 1996, National sold 400,000 Common Units through a private
placement at a price of $21.00 per Common Unit aggregating $8,400,000 before the
estimated fees and expenses of $1,033,000 resulting in estimated net proceeds to
National of $7,367,000.
F-37
APPENDIX A
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ('Assignee') hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of National Propane Partners, L.P.
(the 'Partnership'), as amended, supplemented or restated to the date hereof
(the 'Partnership Agreement'), (b) represents and warrants that the Assignee has
all right, power and authority and, if an individual, the capacity necessary to
enter into the Partnership Agreement, (c) appoints the Managing General Partner
of the Partnership and, if a Liquidator shall be appointed, the Liquidator of
the Partnership as the Assignee's attorney-in-fact to execute, swear to,
acknowledge and file any document, including, without limitation, the
Partnership Agreement and any amendment thereto and the Certificate of Limited
Partnership of the Partnership and any amendment thereto, necessary or
appropriate for the Assignee's admission as a Substituted Limited Partner and as
a party to the Partnership Ageement, (d) gives the power of attorney provided
for in the Partnership Agreement, and (e) makes the waivers and gives the
consents and approvals contained in the Partnership Agreement. Capitalized terms
not defined herein have the meanings assigned to such terms in the Partnership
Agreement.
Date:.................................
Date:.................................
........................................................ ......................................................
SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE SIGNATURE OF ASSIGNEE
........................................................ ......................................................
PURCHASE PRICE INCLUDING COMMISSIONS, IF ANY NAME AND ADDRESS OF ASSIGNEE
Type of Entity (check one):
[ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify) ......................
Nationality (check one)
[ ] U.S. Citizen, Resident or Domestic Entity
[ ] Foreign Corporation [ ] Non-resident Alien
A-1
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
'Code'), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
....................................................................... .
3. My home address is .................................................... .
B. Partnership, Corporation or Other Interestholder
1. ........................................................ is not a foreign
(NAME OF INTERESTHOLDER)
corporation, foreign partnership, foreign trust or foreign estate (as
those terms are defined in the Code and Treasury Regulations).
2. The interestholder's U.S. employer identification number is ........... .
3. The interestholder's office address and place of incorporation (if
applicable) is
....................................................................... .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete and, if applicable, I further declare that I have authority to sign
this document on behalf of
.................................
NAME OF INTERESTHOLDER
.................................
SIGNATURE AND DATE
.................................
TITLE (IF APPLICABLE)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
A-2
APPENDIX B
GLOSSARY OF CERTAIN TERMS
Acquisition: Any transaction in which any member of the Partnership Group
acquires (through an asset acquisition, merger, stock acquisition or other form
of investment) control over all or a portion of the assets, properties or
business of another Person for the purpose of increasing the operating capacity
or revenues of the Partnership Group above the operating capacity or revenues of
the Partnership Group existing immediately prior to such transaction.
Adjusted Operating Surplus: With respect to any period, Operating Surplus
generated during such period, as adjusted to (a) exclude Operating Surplus
attributable to (i) any net increase in working capital borrowings during such
period and (ii) any net reduction in cash reserves for Operating Expenditures
that otherwise increased the Operating Surplus generated during such period, and
(b) include (i) any net decrease in working capital borrowings during such
period, and (ii) any net increase in cash reserves for Operating Expenditures
during such period required by any debt instrument for the repayment of
principal, interest or premium on indebtedness. Adjusted Operating Surplus does
not include that portion of Operating Surplus included in clause (a)(i) of the
definition of Operating Surplus.
Affiliate: With respect to any Person, another Person that controls, is
controlled by or is under common control with (either directly or indirectly),
such Person (including, with respect to the General Partners, without
limitation, Triarc, DWG Acquisition Group, L.P., Nelson Peltz, Peter W. May or
any of their respective Affiliates). For purposes of this definition 'control'
of a Person means the ability to direct or cause the direction of the management
and policies of such Person whether through the ownership of voting securities,
by contract or otherwise.
Audit Committee: A committee of the board of directors of the Managing
General Partner or the Special General Partner composed entirely of two or more
directors who are neither officers nor employees of such General Partner nor
officers, directors or employees of any Affiliate of such General Partner
(except that such directors may be directors of both General Partners).
Available Cash: With respect to any fiscal quarter of the Partnership,
prior to liquidation of the Partnership:
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand at the end of such quarter, and (ii) all additional cash and
cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such quarter resulting from
borrowings for working capital purposes made subsequent to the end of such
quarter, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the Managing General Partner to (i) provide
for the proper conduct of the business of the Partnership Group, (ii)
comply with applicable law or any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which any
member of the Partnership Group is a party or by which it is bound or its
assets are subject, or (iii) provide funds for distributions to Unitholders
and the General Partners in respect of any one or more of the next four
quarters; provided, however, that the Managing General Partner may not
establish cash reserves pursuant to (iii) above if the effect of such
reserves would be that the Partnership is unable to distribute the Minimum
Quarterly Distribution on all Common Units with respect to such quarter;
and provided further, that disbursements made or cash reserves established,
increased or reduced after the end of any quarter but on or before the date
on which the Partnership makes its distribution of Available Cash in
respect of such quarter shall be deemed to have been made, established,
increased or reduced for purposes of determining Available Cash within such
quarter if the Managing General Partner so determines. Notwithstanding the
foregoing, 'Available Cash' after the liquidation of the Partnership occurs
shall equal zero.
Bank Credit Facility: The $40 million acquisition facility (the
'Acquisition Facility') and the $15 million working capital facility (the
'Working Capital Facility'), both entered into by the Operating Partnership.
B-1
BTU: British thermal unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Capital Account: The capital account maintained for a Partner pursuant to
the Partnership Agreement. The Capital Account of a partner in respect of a
General Partner Interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount which
such Capital Account would be if such general partner interest, Common Unit,
Subordinated Unit, Incentive Distribution Right, or other Partnership Interest
were the only interest in the Partnership held by a Partner from and after the
date on which such general partner interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other Partnership Interest was first issued.
Capital Improvements: Additions or improvements to the capital assets owned
by any member of the Partnership Group or the acquisition of existing or the
construction of new capital assets (including, without limitation, retail
distribution outlets, propane tanks, pipeline systems, storage facilities,
appliance showrooms, training facilities and related assets), made to increase
the operating capacity of the Partnership Group over the operating capacity of
the Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
Capital Surplus: All Available Cash distributed by the Partnership from any
source will be treated as being distributed from Operating Surplus until the sum
of all Available Cash distributed since the commencement of the Partnership
equals the Operating Surplus as of the end of the quarter prior to such
distribution. Any excess Available Cash will be deemed to be from Capital
Surplus.
Cause: Means (A) a court of competent jurisdiction has entered a final,
non-appealable judgment finding the Managing General Partner liable for actual
fraud, gross negligence or willful or wanton misconduct in its capacity as a
general partner of the Partnership or (B) the Special General Partner, prior to
the Triarc Merger does not have the same directors on its Board of Directors as
the Managing General Partner.
Closing Date: The first date on which Common Units were sold by the
Partnership in the IPO.
Common Unit Arrearage: The amount by which the Minimum Quarterly
Distribution in respect of a quarter during the Subordination Period exceeds the
distribution of Available Cash from Operating Surplus actually made for such
quarter on a Common Unit, cumulative for such quarter and all prior quarters
during the Subordination Period.
Common Units: A Unit representing a fractional part of the Partnership
Interests of all partners of the Partnership and assignees of any such limited
partner's interest and having the rights and obligations specified with respect
to Common Units in the Partnership Agreement.
Conveyance, Contribution and Assumption Agreement: Collectively, the
Conveyance, Contribution and Assumption Agreement, dated the Closing Date, by
and among the Operating Partnership, the General Partners and the Partnership
and the Contribution and Assumption Agreement, dated the Closing Date, by and
among the Operating Partnership, the General Partners and NSSI, which together
provide for, among other things, the principal transaction pursuant to which
substantially all of the assets of the General Partners will be transferred and
substantially all of their liabilities will be assumed by the Operating
Partnership.
Current Market Price: With respect to any class of Units as of any date,
the average of the daily Closing Prices (as hereinafter defined) per Unit of
such class for the 20 consecutive Trading Days (as hereinafter defined)
immediately prior to such date. 'Closing Price' for any day means the last sale
price on such day, regular way, or in case no such sale takes place on such day,
the average of the closing bid and asked prices on such day, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Units of such class are listed or admitted to trading or,
if the Units of such class are not listed or admitted to trading on any national
securities exchange, the last quoted price on such day, or, if not so quoted,
the average of the high bid and low asked prices on such day in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or such other system then in use, or if on any
such day the Units of such class are not quoted by any such organization, the
average of the closing bid and asked prices on such day as
B-2
furnished by a professional market maker making a market in the Units of such
class selected by the Managing General Partner, or if on any such day no market
maker is making a market in the Units of such class, the fair value of such
Units on such day as determined reasonably and in good faith by the Managing
General Partner. 'Trading Day' means a day on which the principal national
securities exchange on which Units of any class are listed or admitted to
trading is open for the transaction of business or, if the Units of a class are
not listed or admitted to trading on any national securities exchange, a day on
which banking institutions in New York City generally are open.
Degree Day: Degree Days measure the amount by which the average of the high
and low temperature on a given day is below 65 degrees Fahrenheit. For example,
if the high temperature is 60 degrees and the low temperature is 40 degrees for
a National Oceanic and Atmospheric Administration measurement location, the
average temperature is 50 degrees and the number of Degree Days for that day is
15.
Delaware Act: The Delaware Revised Uniform Limited Partnership Act, 6 Del
C. SS17-101, et seq., as amended, supplemented or restated from time to time,
and any successor to such statute.
Departing Partner: A former General Partner from and after the effective
date of any withdrawal or removal of such former General Partner pursuant to the
provisions of the Partnership Agreement.
EBITDA: Operating income (loss) plus depreciation and amortization
(excluding amortization of deferred financing cost). As used in this Prospectus,
EBITDA is not intended to be construed as an alternative to net income (as an
indicator of operating performance), or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations).
General Partners: The Managing General Partner and the Special General
Partner and their successors or permitted assigns as general partners of the
Partnership and the Operating Partnership.
Incentive Distributions: The distributions of Available Cash from Operating
Surplus initially made to the Managing General Partner that are in excess of the
General Partners' aggregate General Partner Interests and are not related to the
Managing General Partner's ownership of Subordinated Units or Common Units. The
Managing General Partner may transfer its right to receive such distributions to
one or more Persons.
Initial Common Units: The Common Units sold in the IPO.
Initial Unit Price: $21.00 per Common Unit, the amount per Unit equal to
the initial public offering price of the Initial Common Units in the IPO.
Interim Capital Transactions: (a) Borrowings, refinancings and refundings
of indebtedness and sales of debt securities (other than for working capital
purposes and other than for items purchased on open account in the ordinary
course of business) by any member of the Partnership Group, (b) sales of equity
interests by any member of the Partnership Group (including Common Units sold to
the Underwriters pursuant to the exercise of the over-allotment option), and (c)
sales or other voluntary or involuntary dispositions of any assets of any member
of the Partnership Group (other than (i) sales or other dispositions of
inventory in the ordinary course of business, (ii) sales or other dispositions
of other current assets, including, without limitation, receivables and
accounts, in the ordinary course of business, (iii) sales or other dispositions
of assets as a part of normal retirements or replacements) or (iv) like kind
exchanges of operating assets to the extent that the operating assets received
are of equal or greater value, in each case prior to the commencement of the
dissolution and liquidation of the Partnership.
Limited Partner: Unless the context otherwise requires, any Person holding
a limited partner interest in the Partnership and having the rights and
obligations specified with respect to a Limited Partner (as such term is defined
in the Partnership Agreement).
Managing General Partner: National Propane Corporation and its successors
and permitted assigns, as managing general partner of the Partnership.
Minimum Quarterly Distribution: $0.525 per Common Unit with respect to each
quarter or $2.10 per Common Unit on an annualized basis, subject to adjustment
as described in 'Cash Distribution Policy -- Distributions from Capital Surplus'
and ' -- Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels.'
B-3
Operating Expenditures: All Partnership Group expenditures, including, but
not limited to, taxes, reimbursements of the General Partners, debt service
payments and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets, or
(ii) made in connection with the refinancing or refunding of indebtedness
with the proceeds from new indebtedness or from the sale of equity
interests. For purposes of the foregoing, at the election and in the
reasonable discretion of the Managing General Partner, any payment of
principal or premium shall be deemed to be refunded or refinanced by any
indebtedness incurred or to be incurred by the Partnership Group within 180
days before or after such payment to the extent of the principal amount of
and premium on such indebtedness.
General Partner Interests: The 4% unsubordinated general partner interest
in the Partnership and the Operating Partnership on a combined basis. This
interest applies to all distributions and allocations, except if the
over-allotment option is exercised, this interest will be entitled to a smaller
percentage of the liquidation proceeds.
(b) Operating Expenditures shall not include (i) capital expenditures made
for Acquisitions or for Capital Improvements, (ii) payment of transaction
expenses relating to Interim Capital Transactions, or (iii) distributions to
partners. Where capital expenditures are made in part for Acquisitions or
Capital Improvements and in part for other purposes, the Managing General
Partner's good faith allocation between the amounts paid for each shall be
conclusive.
Operating Partnership: National Propane, L.P., a Delaware limited
partnership, the Partnership's subsidiary operating partnership, and any
successors thereto and any other subsidiary operating partnerships and
corporations.
Operating Partnership Agreement: The Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (which is an exhibit to the
Registration Statement of which this Prospectus is a part), as it may be
amended, supplemented or restated from time to time.
Operating Surplus: At the close of any fiscal quarter of the Partnership
prior to liquidation, on a cumulative basis and without duplication:
(a) the sum of (i) $15,400,000, plus all cash and cash equivalents of
the Partnership Group as of the close of business on the Closing Date
(approximately $4.6 million), and (ii) all cash receipts of the Partnership
Group for the period beginning on the Closing Date and ending with the last
day of such period, other than cash receipts from Interim Capital
Transactions, less
(b) the sum of (i) Operating Expenditures for the period beginning on
the Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the Managing General Partner to provide funds for future
Operating Expenditures; provided however, disbursements made (including
contributions to a member of the Partnership Group or disbursements on
behalf of a member of the Partnership Group) or cash reserves established,
increased or reduced after the end of any quarter but on or before the date
on which the Partnership makes its distribution of Available Cash in
respect of such quarter shall be deemed to have been made, established,
increased or reduced for purposes of determining Operating Surplus, within
such quarter if the Managing General Partner so determines. Operating
Surplus after the liquidation of the Partnership occurs shall equal zero.
Opinion of Counsel: A written opinion of counsel (who may be regular
counsel to Triarc, the Partnership or the General Partners or any of their
Affiliates) acceptable to the Managing General Partner in its reasonable
discretion to the effect that the taking of a particular action will not result
in the loss of the limited liability of the limited partners of the Partnership
under the Delaware Act or cause the Partnership to be treated as an association
taxable as a corporation or otherwise taxed as an entity for federal income tax
purposes.
Partnership: National Propane Partners, L.P., a Delaware limited
partnership, and any successor thereto.
Partnership Agreement: The Amended and Restated Agreement of Limited
Partnership of the Partnership, as amended by Amendment No. 1 thereto (which are
exhibits to the Registration
B-4
Statement of which this Prospectus is a part), as it may be further amended,
supplemented or restated from time to time. Unless the context requires
otherwise, references to the Partnership Agreement constitute references to the
Partnership Agreement of the Partnership and the Operating Partnership
Agreement, collectively.
Partnership Group: The Partnership, the Operating Partnership and any
subsidiary of either such entity, treated as a single consolidated partnership.
Partnership Interest: An interest in the Partnership, which shall include
General Partner Interests, Common Units, Subordinated Units, rights to receive
Incentive Distributions or any other equity securities of the Partnership, or a
combination thereof or interest therein as the case may be.
Partnership Loan: The $40.7 million loan from the Operating Partnership to
Triarc made on the Closing Date.
Partnership Security: Means any class or series of Units, any option,
right, warrant or appreciation rights relating thereto, or any other type of
equity interest that the Partnership may lawfully issue, or any unsecured or
secured debt obligation of the Partnership that is convertible into any class or
series of equity interests of the Partnership.
Person: An individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, government
agency or political subdivision thereof or other entity.
Special General Partner: National Propane SGP, Inc. and its successors and
permitted assigns, as non-managing general partner of the Partnership.
Subordination Period: The Subordination Period will generally extend until
the first day of any quarter beginning after June 30, 2001 in respect of which
(i) distributions of Available Cash from Operating Surplus on the Common Units
and the Subordinated Units with respect to each of the three consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units during such periods, (ii) the Adjusted Operating Surplus
generated during each of the three consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units and
the related distribution on the General Partner Interests in the Partnership
during such periods, and (iii) there are no outstanding Common Unit Arrearages.
A portion of the Subordinated Units will convert into Common Units on the first
day after the record date established for the distribution in respect of any
quarter ending on or after (a) June 30, 1999 (with respect to 1,133,410
Subordinated Units, plus 25% of all Subordinated Units issued upon conversion of
all or a portion of the Special General Partner's General Partner Interest) and
(b) June 30, 2000 (with respect to 1,133,410 Subordinated Units, plus 25% of all
Subordinated Units issued upon conversion of all or a portion of the Special
General Partner's General Partner Interest), in respect of which (i)
distributions of Available Cash from Operating Surplus on the Common Units and
the Subordinated Units with respect to each of the three consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the Minimum Quarterly distribution on all of the outstanding Common Units and
Subordinated Units during such periods, (ii) the Adjusted Operating Surplus
generated during each of the two consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units and
the related distribution on the General Partner Interest in the Partnership
during such periods, and (iii) there are no outstanding Common Unit Arrearages;
provided, however, that the early conversion of the second tranche of
Subordinated Units may not occur until at least one year following the early
conversion of the first tranche of Subordinated Units. In addition, if the
Managing General Partner is removed as general partner of the Partnership other
than for Cause (i) the Subordination Period will end and all outstanding
Subordinated Units will immediately convert into Common Units on a one-for-one
basis, (ii) any existing Common Unit Arrearages will be extinguished and (iii)
the General Partners will have the right to convert their general partner
interests (and the right to receive Incentive Distributions) into Common Units
or to receive cash in exchange for such interests.
Subordinated Unit: A Unit representing a fractional part of the Partnership
Interests of all partners of the Partnership and assignees of any such partner's
interest and having the rights and obligations specified with respect to
Subordinated Units in the Partnership Agreement.
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Target Distribution Levels: See 'Cash Distribution Policy -- Incentive
Distributions -- Hypothetical Annualized Yield.'
Transfer Application: An application for transfer of Units in the form set
forth on the back of a certificate, substantially in the form included in this
Prospectus as Appendix B or in a form substantially to the same effect in a
separate instrument.
Unitholders: Holders of the Common Units and the Subordinated Units.
Unit Majority: During the Subordination Period, at least a majority of the
outstanding Common Units, voting as a class, and at least a majority of the
outstanding Subordinated Units, voting as a class and, thereafter, at least a
majority of the outstanding Units voting as a class.
Units: The Common Units and the Subordinated Units, collectively, but shall
not include rights to receive Incentive Distributions.
Unrecovered Capital: At any time, with respect to a Unit, the Initial Unit
Price, less the sum of all distributions theretofore made in respect of an
Initial Common Unit constituting Capital Surplus and any distributions of cash
(or the net agreed value of any distributions in kind) in connection with the
dissolution and liquidation of the Partnership theretofore made in respect of
such Unit, adjusted as the Managing General Partner determines to be appropriate
to give effect to any distribution, subdivision or combination of such Units.
B-6
____________________________________ ___________________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PARTNERSHIP. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON UNITS IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE PARTNERSHIP
SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----------
Prospectus Summary................................................................................................... 6
Risk Factors......................................................................................................... 33
The IPO and Additional Transactions.................................................................................. 46
Capitalization....................................................................................................... 48
Price Range of Common Units and Distributions........................................................................ 48
Cash Distribution Policy............................................................................................. 49
Certain Information Regarding Triarc................................................................................. 61
Selected Historical and Pro Forma Consolidated Financial and Operating Data.......................................... 67
Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 70
Business and Properties.............................................................................................. 83
Management........................................................................................................... 96
Security Ownership of Certain Beneficial Owners and Management....................................................... 105
Certain Relationships and Related Transactions....................................................................... 108
Conflicts of Interest and Fiduciary Responsibility................................................................... 110
Description of the Common Units...................................................................................... 115
The Partnership Agreement............................................................................................ 117
Units Eligible for Future Sale....................................................................................... 128
Tax Considerations................................................................................................... 129
Investment in the Partnership by Employee Benefit Plans.............................................................. 146
The Selling Unitholder............................................................................................... 147
Plan of Distribution................................................................................................. 147
Legal Matters........................................................................................................ 148
Experts.............................................................................................................. 148
Additional Information............................................................................................... 149
Index to Financial Statements........................................................................................ F-1
Form of Application for Transfer of Common Units..................................................................... Appendix A
Glossary of Certain Terms............................................................................................ Appendix B
400,000 COMMON UNITS
NATIONAL PROPANE
PARTNERS, L.P.
REPRESENTING
LIMITED PARTNER INTERESTS
------------------------------
PROSPECTUS
------------------------------
, 1997
____________________________________ ___________________________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses expected to be incurred in connection with
the issuance and distribution of the securities registered hereby. With the
exception of the Securities and Exchange Commission registration fee and the
NYSE filing fee, the amounts set forth below are estimates.
Securities and Exchange Commission registration fee............................... $ 2,470
National Association of Securities Dealers, Inc. filing fee....................... 1,315
Legal fees and expenses........................................................... 160,000
Printing expenses................................................................. 125,000
Accounting fees and expenses...................................................... 150,000
Miscellaneous expenses............................................................ 6,215
--------
Total........................................................................ $445,000
--------
--------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Section of the Prospectus entitled 'The Partnership
Agreement -- Indemnification' is incorporated herein by this reference.
Subject to any terms, conditions or restrictions set forth in the
Partnership Agreements, Section 17-108 of the Delaware Revised Limited
Partnership Act empowers a Delaware limited partnership to indemnify and hold
harmless any partner or other person from and against all claims and demands
whatsoever.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Section of the Prospectus entitled 'The Selling Unitholder' is
incorporated herein by reference.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits:
3.1(1) -- Amended and Restated Agreement of Limited Partnership of National Propane Partners, L.P. dated as of
July 2, 1996
3.2(1) -- Amended and Restated Agreement of Limited Partnership of National Propane, L.P. dated as of July 2,
1996
3.3(3) -- Amendment No. 1 dated November 1, 1996 to the Amended and Restated Agreement of Limited Partnership
of National Propane, L.P. dated as of July 2, 1996
*5.1 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the legality of the securities being
registered
*8.1 -- Opinion of Andrews & Kurth L.L.P. relating to tax matters
10.1(3) -- Purchase Agreement, dated as of November 7, 1996, among National Propane Corporation, National
Propane SGP, Inc., National Propane Partners, L.P., National Propane, L.P. and Merrill Lynch & Co.
10.2(3) -- Registration Agreement, dated as of November 7, 1996, between National Propane Partners, L.P. and
Merrill Lynch & Co.
10.3(1) -- Credit Agreement, dated as of June 26, 1996, among National Propane, L.P., The First National Bank of
Boston, as administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities,
Inc., as syndication agent
10.4(1) -- Note Purchase Agreement, dated as of June 26, 1996, among National Propane, L.P. and each of the
Purchasers listed in Schedule A thereto relating to $125 million aggregate principal amount of 8.54%
First Mortgage Notes due June 30, 2010
II-1
10.5(1) -- Conveyance, Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National
Propane, L.P., National Propane Partners, L.P., National Propane Corporation and National Propane SGP,
Inc.
10.6(1) -- Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National Propane, L.P.,
National Propane Corporation, National Propane SGP, Inc. and National Sales & Service, Inc.
10.7(1) -- Note, in the principal amount of $40.7 million, issued by Triarc Companies, Inc. to National Propane,
L.P.
10.8(1) -- National Propane 1996 Unit Option Plan
10.9(1) -- Amendment to Employment Agreement of Ronald D. Paliughi, dated as of June 10, 1996.
10.10(2) -- Employment Agreement, dated as of April 24, 1993, between National Propane Corporation and Ronald D.
Paliughi (including Amendment No. 1, dated as of December 7, 1994 and Amendment No. 2, dated as of
March 27, 1995)
10.11(2) -- Severance Agreement, dated as of December 1, 1995, between National Propane Corporation and Ronald R.
Rominiecki
10.12(2) -- Severance Agreement, dated as of March 27, 1995, between National Propane Corporation and Laurie B.
Crawford
*10.13 -- Employment Agreement, dated November 20, 1996, between National Propane Corporation and C. David
Watson
10.13(2) -- Triarc's 1993 Equity Participation Plan
10.14(2) -- Form of Non-Incentive Stock Option Agreement under Triarc's 1993 Equity Participation Plan
*21.1 -- List of Subsidiaries
*23.1 -- Consent of Deloitte & Touche LLP
*23.2 -- Consent of Arthur Andersen LLP
*23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1)
*23.4 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.1)
*24.1 -- Powers of Attorney (included on signature page)
- ------------
* Filed herewith
(1) Filed with the Partnership's Current Report on Form 8-K dated August 16,
1996 and incorporated herein by reference.
(2) Filed with the Partnership's Registration Statement on Form S-1 filed March
26, 1996 (Registration No. 333-2768) and incorporated herein by reference.
(3) Filed with the Partnership's Current Report on Form 8-K dated November 14,
1996 and incorporated herein by reference.
b. Financial Statement Schedules --
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the 'Securities Act'), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefor, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities
II-2
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(a) 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; (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.
(b) 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.
(c) 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.
(d) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a
part of this Registration Statement as of the time it was declared
effective.
(e) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on January 10, 1997.
NATIONAL PROPANE PARTNERS, L.P.
By: NATIONAL PROPANE CORPORATION
AS GENERAL PARTNER
By: /S/ RONALD R. ROMINIECKI
......................................
Name: Ronald R. Rominiecki
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Nelson Peltz and Peter
W. May and each of them, any of whom may act without the joinder of the other,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this Offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or would do in person, hereby ratifying and confirming
all that said attorney-in-fact and agents or any of them or their or his
substitute and substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AS OF JANUARY , 1997.
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
/S/ NELSON PELTZ Director of National Propane January 10, 1997
......................................... Corporation
(NELSON PELTZ)
/S/ PETER W. MAY Director of National Propane January 10, 1997
......................................... Corporation
(PETER W. MAY)
/S/ RONALD D. PALIUGHI President, Chief Executive Officer and January 10, 1997
......................................... Director of National Propane
(RONALD D. PALIUGHI) Corporation (Principal Executive Officer)
/S/ RONALD R. ROMINIECKI Senior Vice President and Chief January 10, 1997
......................................... Financial Officer of National Propane
(RONALD R. ROMINIECKI) Corporation (Principal Financial and
Accounting Officer)
/S/ FREDERICK W. MCCARTHY Director of National Propane Corporation January 10, 1997
.........................................
(FREDERICK W. MCCARTHY)
/S/ WILLIS G. RYCKMAN III Director of National Propane Corporation January 10, 1997
.........................................
(WILLIS G. RYCKMAN III)
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