As filed with the Securities and Exchange Commission on December 7, 2006March 6, 2009
Registration No. 333-137961
333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
Under
THE SECURITIES ACT OF 1933
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
(Exact name of registrant as specified in its charter)
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Delaware | | 43-1698480 |
Delaware | | 43-1742520 |
Delaware | | 43-169848043-1698481 |
Delaware | | | | 14-1866671 |
(State or other jurisdiction of incorporation | | or organization) | | (I.R.S. Employer Identification No.) |
or organization) | | | | |
7500 College Boulevard, Suite 1000, Overland Park, KSKansas 66210
(913) 661-1500(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive office)
Kevin T. KellyJ. Ryan VanWinkle
Senior Vice President and Chief Financial Officer
Ferrellgas, Inc.
7500 College Boulevard, Suite 1000, Overland Park, KSKansas 66210
(913) 661-1500
(Name, address, including zip code, and telephone number, including area code,
of registrant’s agent for service)
Copies to:to:
David L. Ronn
Mayer, Brown, Rowe & MawGreenberg Traurig LLP
7001000 Louisiana Street Suite 3400
Houston, Texas 77002
(713) 238-2661374 3500
Approximate date of commencement of proposed sale to the public:From time to time after the effective date of this registration statement.statement, as determined in light of market conditions and other factors.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.o
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following
box.þ
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.o
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.o
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box.o
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerþ | | Accelerated filero | | Non-accelerated filer o (Do not check if a smaller reporting company) | | Smaller Reporting Companyo |
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 THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
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| | | | | | | Proposed maximum | | | Proposed maximum | | | | |
| Title of each class of | | | Amount to be | | | offering price per | | | aggregate offering | | | Amount of | |
| securities to be registered | | | Registered | | | security(1) | | | price(1)(2) | | | registration fee(3)(4) | |
| Common Units, Senior Units, Deferred Participation Units, Debt Securities and Warrants | | | — | | | — | | | $750,000,000 | | | $22,477.16 | |
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(1) | | The proposed maximum offering price per security will be determined from time-to-time by the registrant in connection with the issuance of the securities registered by this registration statement. |
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(2) | | There is being registered hereunder such number of common units, senior units, deferred participation units, debt securities and warrants as will result in aggregate proceeds of $750,000,000 or, if any debt securities are issued at an original issue discount, such greater amount as shall result in net proceeds of $750,000,000 to the registrant. |
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(3) | | This amount is estimated solely for the purpose of calculating the registration pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Rule 457(o) permits the registration fee to be calculated on the basis of the maximum offering price of all of the securities listed and, therefore, the table does not specify by each class information as to the amount to be registered, the maximum offering price per unit or the proposed maximum aggregate offering price. |
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(4) | | The filing fee of $29,475 is calculated in accordance with Rule 457(p) of the Securities Act of 1933. The registration fee of $29,475 due for this offering is offset against the unused registration fees of $6,997.84 that has been paid in respect of securities that were previously registered pursuant to Registration Statement No. 333-132337 and were not sold thereunder. Pursuant to Rule 457(p), such unutilized filing fee may be applied to the filing fees payable with respect to this Registration Statement. |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 7, 2006MARCH 6, 2009
PROSPECTUS
PROSPECTUS
$200,000,000
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
Ferrellgas Finance Corp.
Common Units
This prospectus relates to up to $200,000,000 of common units representing limited partner interests in us that we may offer for sale in connection with our direct purchase and distribution reinvestment plan. Our direct purchase and distribution reinvestment plan is designed to provide investors with a convenient and economical way to purchase our common units. Under our direct purchase and distribution reinvestment plan, participants may:
| • | | purchase their first common units by making an initial cash investment of at least $1,000.00 and up to $10,000.00; |
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| • | Common Units | | purchase additional common units by making optional cash investments at any time of at least $100.00 per payment and up to a maximum of $10,000.00 per month; |
Debt Securities |
| • | Senior Units | | make optional cash investments in excess of $10,000.00 per month, but only after submission of a written request for waiver has been made to us and after we have given our written approval, which we may grant or refuse to grant in our sole discretion; |
Warrants |
| • | Deferred Participation Units | | on investments in excess of $10,000.00 that we approve, purchase newly-issued common units at a discount of up to 5%, as we may determine from time to time in our sole discretion; and |
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| • | | increase their holdings in us by reinvesting their cash distributions. |
Please readWE WILL PROVIDE THE SPECIFIC TERMS OF THE SECURITIES OFFERED IN SUPPLEMENTS TO THIS PROSPECTUS. YOU SHOULD READ THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT CAREFULLY BEFORE YOU INVEST.
This prospectus provides you with a general description of the securities we may offer from time to time up to an aggregate offering price of $750,000,000. Ferrellgas Partners, L.P. may offer common units, senior units, deferred participation units, warrants and debt securities. Ferrellgas, L.P. may offer only nonconvertible investment grade debt securities. Ferrellgas Partners Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas Partners, L.P. and Ferrellgas Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas, L.P. Each time we sell securities we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus.
We may offer the securities from time to time through public or private transactions, directly or through underwriters, agents or dealers and in the case of our common units, on or off the New York Stock Exchange at prevailing market rates or at privately negotiated prices. For additional information on the method of sale, you should refer to the section entitled “Plan of Distribution” in this prospectus and in its entirety forthe applicable prospectus supplement. If any underwriters are involved in the sale of any securities with respect to which this prospectus is delivered, the names of such underwriters and any applicable discounts or commissions, and any over-allotment options will be set forth in a more detailed description of our direct purchaseprospectus supplement. The price to the public and distribution reinvestment plan and its features.the net proceeds we expect to receive from such sale will also be set forth in the prospectus supplement.
OurThe common units are traded on the New York Stock Exchange under the symbol “FGP.” On October 10, 2006,March 4, 2009, the last reported sales price for ourthe common units as reported on the NYSE Composite Transactions tape was $22.71$13.34 per common unit.
INVESTING IN OUR COMMON UNITS INVOLVES RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may not be used to offer or sell any securities unless accompanied by a prospectus supplement.
Investing in our securities involves risk. See “Risk Factors” beginning on page 5 of this prospectus, on page 10 of our Annual Report onForm 10-K for our fiscal year ended July 31, 2008 and on page 44 of our Quarterly Report onForm 10-Q for our fiscal quarter ended October 31, 2008. See “Where You Can Find More Information” on page 46 of this prospectus.
The date of this prospectus is , 2009.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with SEC, utilizing a “shelf” registration process. Under this shelf registration process, Ferrellgas Partners may sell the common units, senior units, deferred participation units, warrants and debt securities described in this prospectus and Ferrellgas, L.P. may sell the debt securities described in this prospectus:
| • | | from time to time and in one or more offerings; |
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| • | | in one or more series; and |
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| • | | in any combination thereof, |
up to a maximum aggregate principal amount of $750,000,000. Ferrellgas, L.P. may offer only nonconvertible investment grade debt securities. Ferrellgas Partners Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas Partners and Ferrellgas Finance Corp. may be the co-obligor on any debt securities issued by Ferrellgas, L.P.
This prospectus provides you with a general description of our business and the securities we may offer. Each time we sell securities under this shelf registration, we will provide a prospectus supplement that will contain specific information about the terms of the applicable offering. The prospectus supplement may also add, change, or update information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement.
This prospectus summarizes documents and other information in a manner we believe to be accurate, but we refer you to the actual documents for a more complete understanding of the information we discuss in this prospectus. In making an investment decision, you must rely on your own examination of such documents, our business and the terms of the offering and the securities, including the merits and risks involved.
We make no representation to you that the securities are a legal investment for you. You should not consider any information contained or incorporated by reference in this prospectus to be legal, business or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in the securities. The delivery of this prospectus or any sale made hereunder does not imply that there has been no change in our affairs or that the information set forth or incorporated by reference herein is correct as of any date after the date of this prospectus. We are not making an offer to sell the securities in any jurisdiction except where an offer or sale is permitted.
You should base your decision to invest in the securities solely on information contained or incorporated by reference in this prospectus. You should contact us with any questions about this offering or if you require additional information to verify the information contained or incorporated by reference in this prospectus. See “Where You Can Find More Information” on page 46.
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Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of We will not use this prospectus to offer and sell securities unless it is , 2006.
ABOUT THIS PROSPECTUS
Neither this prospectus nor any accompanying prospectus supplement contains or will contain, as applicable, all of the information included in the registration statement, as permitted by the rules and regulations of the SEC. To understand fully the terms of the common units we are offering with this prospectus, you should carefully read this entire prospectus and any applicable prospectus supplement, as well as the documents we have incorporated by reference. We are subject to the informational requirements of the Exchange Act and therefore file reports and other information with the SEC. Statements contained in this prospectus and any accompanying prospectus supplement about the provisions or contents of any agreement or other document are only summaries. If SEC rules or regulations require that any agreement or document be filed as an exhibit to the registration statement, you should refer to that agreement or document for its complete contents. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date on the front of each document.offering.
YOU SHOULD CAREFULLY READ THIS PROSPECTUS AND THE INFORMATION WE HAVE INCORPORATED BY REFERENCE AS DESCRIBED UNDER THE SECTION ENTITLED “WHERE YOU CAN FIND MORE INFORMATION.”WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR SALE IS NOT PERMITTED.
The information in this prospectus is accurate as of, 2006. You should rely only on the information contained in this prospectus and the information we have incorporated by reference. We have not authorized anyone to provide you with different information. You should not assume that the information provided by this prospectus or the information we have incorporated by reference is accurate as of any date other than the date of the respective document or information, as applicable. If information in any of the documents we have incorporated by reference conflicts with information in this prospectus, you should rely on the most recent information. If information in an incorporated document conflicts with information in another incorporated document, you should rely on the information in the most recent incorporated document.2009.
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PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important to you. You should carefully read this entire prospectus and the other information incorporated by reference toTo fully understand fully the terms of our common units being offered hereunder,the securities we are offering with this prospectus, as well as the material tax and other considerations that may be important to you in making yourdetermining whether an investment decision.in any of the securities being offered is appropriate for you, you should carefully read this entire prospectus and the documents we have incorporated by reference. You should pay special attention to the section entitled “Risk Factors” beginning on page 35 of this prospectus, on page 10 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2008 and on page 44 of our Quarterly Report for the quarter ended October 31, 2008 to determine whether an investment in our common unitsthe securities is appropriate for you. See “Where You Can Find More Information” beginning on page 4246 of this prospectus. Our fiscal year end is July 31.
In this prospectus, unless the context indicates otherwise:
| • | | “us,when we refer to “us,” “we,” “our,” or “ours,” refer towe generally mean Ferrellgas Partners, L.P. together with its consolidated subsidiaries, including Ferrellgas Partners Finance Corp., Ferrellgas, L.P. and Ferrellgas Finance Corp., except when used in connection with “common units,” “senior units,” and “debt securities,” in which case these terms refer to the applicable issuer of those securities; |
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| • | | when we refer to “operating partnership” we mean Ferrellgas, L.P., together with its consolidated subsidiaries, including Ferrellgas Finance Corp.; |
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| • | | when we refer to “Ferrellgas Partners” we mean Ferrellgas Partners, L.P., without its consolidated subsidiaries; |
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| • | | “when we refer to our “general partner” we mean Ferrellgas, Partners” refers toInc., as general partner of Ferrellgas Partners L.P., without its consolidated subsidiaries; |
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| • | | “general partner” refers toand Ferrellgas, Inc.; |
L.P. |
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| • | | “operating partnership” refersthe common units, senior units, deferred participation units, warrants and debt securities described in this prospectus are sometimes collectively referred to Ferrellgas, L.P., together with its consolidated subsidiaries; |
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| • | | “qualified employees” refers to executive officers of usas the “securities;” and our general partner, as well as to non-executive employees of us and our general partner who participate in the plan through payroll deductions; and |
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| • | | “unitholders”the term “unitholder” generally refers to holders of common units of Ferrellgas Partners. |
Ferrellgas Partners, L.P. is a Delaware limited partnership. Its common units are listed on the New York Stock Exchange under the symbol “FGP.” Ferrellgas Partners is a holding entity that conducts no operations and has two direct subsidiaries, Ferrellgas Partners Finance Corp., a Delaware corporation, and its operating partnership, Ferrellgas, L.P., a Delaware limited partnership. Ferrellgas Partners’ activities are primarily conducted through the operating partnership. Ferrellgas Partners’ only significant assets are its approximate 99% limited partnership interest in the operating partnership and its 100% equity interest in Ferrellgas Partners Finance Corp. Ferrellgas Partners is the sole limited partner of the operating partnership.
We are a leading distributor of propane and related equipment and supplies to customers primarily in the United States.States and conduct our business as a single reportable operating segment. We believe that we are the second largest retail marketer of propane in the United States, includingand the largest national provider of propane by portable tank exchange, as measured by our propane sales volumes in fiscal 2005.2008.
We serve approximately one million residential, industrial/commercial, portable tank exchange, agricultural and other customers in all 50 states, the District of Columbia and Puerto Rico. Our operations primarily include the distribution and sale of propane and related equipment and supplies with concentrations in the Midwest, Southeast, Southwest and Northwest regions of the United States. Our propane distribution business consists principally of transporting propane purchased from third parties to propane distribution locations and then to tanks on customers’ premises or to portable propane tanks delivered to nationwide and local retailers. Our portable tank exchange operations, nationally branded under the name Blue Rhino, are conducted through a network of independent and partnership-owned distribution outlets. Our market areas for our residential and agricultural customers are generally rural, but also include urban areas for industrial applications. Our market area for our industrial/commercial and portable tank exchange customers is generally urban.
In the residential and industrial/commercial markets, propane is primarily used for space heating, water heating, cooking and other propane fueled appliances. In the portable tank exchange market, propane is used primarily for outdoor cooking using gas grills. In the agricultural market, propane is primarily used for crop drying, space heating, irrigation and weed control. In addition, propane is used for a variety of industrial applications, including as an engine fuel which is burned in internal combustion engines that power vehicles and forklifts, and as a heating or energy source in manufacturing and drying processes.
Our Operations
We utilize marketing programs targeting both new and existing customers by emphasizing:
| • | | our efficiency in delivering propane to customers; |
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| • | | our employee training and safety programs; |
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| • | | our enhanced customer service, facilitated by our technology platform and our 24 hours a day, seven days a week retail customer call support capabilities; and |
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our national distributor network for our commercial and portable tank exchange customers.
The distribution of propane to residential customers generally involves large numbers of small volume deliveries. Our retail deliveries of propane are typically transported from our retail propane distribution locations to our customers by our fleet of bulk delivery trucks, which are generally fitted with a 3,000 gallon tank. Propane storage tanks located on our customers’ premises are then filled from these bulk delivery trucks. We also deliver propane to our industrial/commercial and portable tank exchange customers using our fleet of portable tank and portable tank exchange delivery trucks, truck tractors and portable tank exchange delivery trailers.
A substantial majority of our gross margin from propane and other gas liquids sales is derived from the distribution and sale of propane and related risk management activities. Our gross margin from the distribution of propane and other gas liquids sales is primarily based on the cents-per-gallon difference between the sales price we charge our customers and our costs to purchase and deliver propane to our propane distribution locations. Our residential and portable tank exchange customers typically provide us a greater cents-per-gallon margin than our industrial/commercial, agricultural, wholesale and other customers. The wholesale propane price per gallon is subject to various market conditions and may fluctuate based on changes in demand, supply and prices of other energy commodities, primarily crude oil and natural gas as propane prices tend to correlate with the fluctuations of these underlying commodities. We employ risk management activities that attempt to mitigate risks related to the purchasing, selling, storing and transporting of propane.
Residential customers typically rent their storage tanks from their distributors. Approximately 68% of our residential customers rent their tanks from us. Our rental terms and the fire safety regulations in some states require rented bulk tanks to be filled only by the propane supplier owning the tank. The cost and inconvenience of switching bulk tanks helps minimize a customer’s tendency to switch suppliers of propane on the basis of minor variations in price, helping us minimize customer loss.
In addition, we generally lease tanks to independent distributors involved with our delivery of propane by portable tank exchange operations. Our owned and independent distributors provide portable tank exchange customers with a national delivery presence that is generally not available from our competitors.
Some of our propane distribution locations also conduct the retail sale of propane appliances and related parts and fittings, as well as other retail propane related services and consumer products. We also sell gas grills, patio heaters, fireplace and garden accessories, mosquito traps and other outdoor products through our subsidiary, Blue Rhino Global Sourcing, Inc.
Recent Developments
On February 24, 2009, the board of directors of our general partner declared a second quarter cash distribution of $0.50 per common unit, or $2.00 per common unit on an annualized basis, payable on March 17, 2009 to unitholders of record as of March 10, 2009.
Our Business Strategy
Maximize operating efficiencies through utilization of our technology platform.
Our technology platform allows us to efficiently route and schedule our customer deliveries, customer administration and operational workflow for the retail sale and delivery of bulk propane. Currently we operate a retail distribution network using a structure of 157 service centers and 688 service units. Each service center is staffed to provide oversight and management to multiple distribution locations, referred to as service units. The service unit locations utilize hand-held computers and satellite technology to communicate with management personnel who are typically located at the associated service center. We believe this structure and our technology platform, allow us to more efficiently route and schedule customer deliveries and significantly reduce the need for daily on-site management.
The efficiencies gained from operating our new technology platform allow us to consolidate our management teams at fewer locations, quickly adjust the sales prices to our customers and manage our personnel and vehicle costs more effectively.
The technology platform has substantially improved the forecasting of our customers’ demand and our routing and scheduling. We also utilize a call center to accept customer calls 24 hours a day seven days a week. These combined capabilities provide us cost savings while improving customer service by reducing customer inconvenience associated with multiple, unnecessary deliveries.
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Capitalize on our national presence and economies of scale.
We believe our national presence of 871 propane distribution locations in the United States as of July 31, 2008 gives us advantages over our smaller competitors. These advantages include economies of scale in areas such as:
| • | | product procurement; |
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| • | | transportation; |
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| • | | fleet purchases; |
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| • | | propane customer administration; and |
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| • | | general administration. |
We believe that our national presence allows us to be one of the few propane distributors that can competitively serve commercial and portable tank exchange customers on a nationwide basis, including the ability to serve such propane customers through leading home-improvement centers, mass merchants and hardware, grocery and convenience stores. In addition, we believe that our national presence provides us opportunities to make acquisitions of other propane distribution companies whose operations overlap with ours, providing economies of scale and significant cost savings in these markets.
We also believe that investments in technology similar to ours require both a large scale and a national presence, in order to generate sustainable operational savings to produce a sufficient return on investment. For this reason, we believe our technology platforms provide us with an on-going competitive advantage.
Expand our operations through disciplined acquisitions and internal growth.
We expect to continue the expansion of our propane customer base through the acquisition of other propane distributors. We intend to concentrate on acquisition activities in geographical areas within or adjacent to our existing operating areas, and on a selected basis in areas that broaden our geographic coverage. We also intend to focus on acquisitions that can be efficiently combined with our existing propane operations to provide an attractive return on investment after taking into account the economies of scale and cost savings we anticipate will result from those combinations. Our goal is to improve the operations and profitability of the businesses we acquire by integrating them into our established national organization and leveraging our technology platforms to help reduce costs and enhance customer service. We believe that our enhanced operational synergies, improved customer service and ability to better track the financial performance of acquired operations provide us a distinct competitive advantage and better analysis as we consider future acquisition opportunities.
We believe that we are positioned to successfully compete for growth opportunities within our existing operating regions. Our efforts will be focused on adding density to our existing customer base, providing propane and complementary services to national accounts and other product offerings to existing customer relationships. We also intend to continue expanding our propane distribution operations into several areas to which we have not historically provided propane service. This continued expansion will give us new growth opportunities by leveraging the capabilities of our operating platforms.
Align employee interests with our investors through significant employee ownership.
In 1998, we established an employee benefit plan that we believe aligns the interests of our employees with those of our investors. Through the Ferrell Companies, Inc. Employee Stock Ownership Trust, our employees beneficially own approximately 30% of our outstanding common units, allowing them to participate directly in our overall success. We believe this plan is unique in the propane distribution industry and that the entrepreneurial culture fostered by employee-ownership provides us with another distinct competitive advantage.
Our History
Ferrellgas Partners’Partners and the operating partnership are Delaware limited partnerships that were formed in 1994 in connection with the initial public offering of Ferrellgas Partners. Our operations began in 1939 as a single location propane retailer in Atchison, Kansas. Since 1986, we have acquired approximately 175 propane distributors, expanding our operations from coast to coast.
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Ferrellgas Partners Finance Corp. and Ferrellgas Finance Corp.
Ferrellgas Partners Finance Corp. is a Delaware corporation and a wholly-owned subsidiary of Ferrellgas Partners. Ferrellgas Finance Corp. is a Delaware corporation and a wholly-owned subsidiary of the operating partnership. Both of these entities have nominal assets and do not, and will not in the future, conduct any operations or have any employees. Ferrellgas Partners Finance Corp. is expected to act as co-obligor of future issuances of debt securities of Ferrellgas Partners and Ferrellgas Finance Corp. is expected to act as co-obligor of future issuances of debt securities of the operating partnership, in both cases, so as to allow investment in those debt securities by institutional investors that may not otherwise be able to make such an investment by reason of our structure and the legal investment laws of their states of organization or their charters. You should not expect either Ferrellgas Partners Finance Corp. or Ferrellgas Finance Corp. to have the ability to service obligations on those debt securities we may offer in a prospectus supplement.
Our Structure
The operating partnership accounts for substantially all of our consolidated assets, sales and operating earnings. Ferrellgas Partners is the sole limited partner of the operating partnership with an approximate 99% limited partner interest. Our general partner, Ferrellgas, Inc., performs all of the management functions for us and our subsidiaries, including the operating partnership, Ferrellgas Partners Finance Corp. and its subsidiaries, andFerrellgas Finance Corp. Ferrellgas, Inc. holds a 1% general partner interest in Ferrellgas Partners and also owns an approximate 1% general partner interest in the operating partnership. TheOur general partner does not receive any management fee in connection with its management of Ferrellgas Partnersus or itsour subsidiaries, and does not receive any remuneration for its services as theour general partner of Ferrellgas Partners and the operating partnership, other than reimbursement for all direct and indirect expenses it incurs in connection with Ferrellgas Partners’our operations and those of itsour subsidiaries.
Our Offices
The parent companyaddress of the general partner, Ferrell Companies, Inc., beneficially owns approximately 32%each of our outstanding common units. Ferrell Companiesprincipal offices is owned 100% by an employee stock ownership trust, established in 1998 for the benefit of the employees of Ferrell Companies and the general partner.
For additional information regarding our business, we refer you to our filings with the SEC incorporated by reference in this prospectus. See “Where You Can Find More Information.”
Our executive offices are located at 7500 College Boulevard, Suite 1000, Overland Park, KSKansas 66210 and ourthe telephone number for each is (913) 661-1500.
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RISK FACTORS
Before you invest in our common units, youYou should be aware that there are various risks. In addition toconsider carefully the risk factors listed below, please seediscussed within the section entitled “Item 1. Business — Risk“Risk Factors” beginning on page 10 of our most recently-filed Annual Report on Form 10-K for the year ended July 31, 2008 and beginning on page 44 of our Quarterly Report on Form 10-Q for the period ended October 31, 2008, which are incorporated by reference in this prospectus supplement, for a discussion of particular factors you should consider before determining whether an investment in our common unitsany of the securities is appropriate for you. See “Where You Can Find More Information” beginning on page 42 of this prospectus.
Risks Inherent to ParticipationInvesting in Our Direct Purchase and Distribution Reinvestment Plan
If you wish to sell your common units, you must bear the market risk associated with fluctuations in the price of our common units.
Because the administrator of our direct purchase and distribution reinvestment plan will arrange for any sale of common units under the plan, neither we nor you will have the authority or power to control either the timing or the pricing of common units sold. Therefore, you will not be able to time precisely your sales through our direct purchase and distribution reinvestment plan, and you will bear the market risk associated with fluctuations in the price of our common units. That is, if you send in a request to sell your common units through our direct purchase and distribution reinvestment plan, the market price of our common units could go up or down before the sale is completed.
We cannot assure you that there will be a profit or that you will be able to prevent a loss on common units that you purchase or sell under our direct purchase and distribution reinvestment plan.
The value of common units that you purchase under our direct purchase and distribution reinvestment plan is subject to fluctuations in market price. If the market price decreases after you make your investment, then you will suffer a loss on the common units that you purchase under our direct purchase and distribution reinvestment plan.
We cannot assure you of the source of the common units that you elect to purchase under our direct purchase and distribution reinvestment plan.
We may, without giving you prior notice, change our determination as to whether the administrator of our direct purchase and distribution reinvestment plan will purchase common units directly from us, in the open market or in privately-negotiated transactions from third parties. This could increase the purchase price of your common units due to the application of fees associated with purchases in the open market.
We may elect to set a minimum price on the common units that may be sold to you under our direct purchase and distribution reinvestment plan, and we may not disclose that minimum price to you.
We may, in our sole discretion, establish a minimum, “threshold” price at or above which we will allow the sale of our common units pursuant to requests for waiver during a pricing period. While we will notify our plan administrator of any threshold price that we establish for an applicable pricing period, we may not disclose that minimum price to you. Generally, this means that, for an applicable pricing period, if the market price for our common units is lower than our established minimum threshold price, then the average purchase price for our common units in that pricing period will exclude any of the dayssecurities is speculative and involves significant risk. Any of the risks described in which our common units traded lower thanAnnual Report on Form 10-K for the fiscal year ended July 31, 2008 or in our established minimum price. You may therefore not know, prior to purchase,Quarterly Report on Form 10-Q for the actual numberperiod ended October 31, 2008 could materially and adversely impair our business, financial condition and operating results. In such case, the trading price, if any, of common units purchased for your account under our direct purchase and distribution reinvestment plan,the securities could decline or the precise method by which we calculated the number of common units purchased.
We cannot assure you that the common units purchased for you on the open market under our direct purchase and distribution reinvestment plan will be at the best price then available.
Because the investment price may represent an average of numerous market prices, the actual price at which you purchase common units may actually exceed the price at which you could have purchased common units in the open market on the applicable investment date.lose all or part of your investment.
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We cannot assure you that any discount on newly-issued common units acquired under our direct purchase and distribution reinvestment plan will be available againRATIO OF EARNINGS TO FIXED CHARGES
In connection with the registration of debt securities of Ferrellgas Partners, Ferrellgas’ Partners’ historical ratio of earnings to fixed charges for any future period.
On purchases in excess of $10,000.00 that we approve, you may not be able to depend on the availability of a discount on newly-issued common units acquired under our direct purchase and distribution reinvestment plan. While we may establish a discount from market prices of up to 5% for a particular period, a discount for one period will not ensure the availabilityeach of the same discount or any discountperiods indicated below is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Six months ended |
| | Year ended July 31, | | January 31, |
| | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | 2007 | | 2008 |
Historical | | | 1.2 | | | | 0.9 | | | | 1.3 | | | | 1.4 | | | | 1.3 | | | | 0.0 | | | | 0.4 | |
In connection with the registration of senior units of Ferrellgas Partners, Ferrellgas Partners’ historical ratio of earnings to combined fixed charges and preference distributions for future periods.
A portion of each of your cash investments in our direct purchase and distribution reinvestment plan may neither be invested in common units nor earn interest.the period indicated below is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Six months ended |
| | Year ended July 31, | | January 31, |
| | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | 2007 | | 2008 |
Historical | | | 1.1 | | | | 0.8 | | | | 1.3 | | | | 1.4 | | | | 1.3 | | | | 0.0 | | | | 0.4 | |
You will not receive interestIn connection with the registration of debt securities of the operating partnership, the operating partnership’s historical ratio of earnings to fixed charges for each of the periods indicated below is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Six months ended |
| | Year ended July 31, | | January 31, |
| | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | 2007 | | 2008 |
Historical | | | 1.4 | | | | 1.1 | | | | 1.7 | | | | 1.9 | | | | 1.7 | | | | (0.3 | ) | | | 0.2 | |
The computations above for Ferrellgas Partners include the operating partnership on any funds:a consolidated basis. For all of the ratios set forth above, “earnings” is the amount resulting from the sum of:
| • | | held by the administrator of our direct purchasepre-tax income from continuing operations; and distribution reinvestment plan pending investment or reinvestment; |
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| • | | returned if we suspendfixed charges; |
less:
The term “fixed charges” means the sum of:
| • | | interest expensed or terminate our direct purchase and distribution reinvestment plan;capitalized; |
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| • | | returned if your investment exceeds $10,000.00amortized discounts and is not approved by us; orcapitalized expenses related to indebtedness; and |
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| • | | returned if we have approved your investment in excessan estimate of $10,000.00 and our minimum threshold price is not met on any day in the applicable pricing period.interest within lease expense. |
The term “combined fixed charges and preference distributions” means the sum of fixed charges and the distribution to the holder of our senior units, if any.
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USE OF PROCEEDS
Unless we indicate otherwise in an applicable prospectus supplement, we willFerrellgas Partners and the operating partnership expect to use the net proceeds from the sale of the common unitsour securities for general business purposes, including but not limited to:which, among other things, may include the following:
| • | | the repayment of our debt;outstanding indebtedness; |
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| • | | future acquisitions;the redemption of any senior units or other securities (other than common units) previously issued; |
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| • | | working capital; |
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| • | | capital expenditures; and |
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| • | | working capital. |
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COMMON QUESTIONS ABOUT OUR DIRECT PURCHASE AND DISTRIBUTION REINVESTMENT PLAN
The following question and answer section is qualified in its entirety by reference to the full text of our direct purchase and distribution reinvestment plan contained in this prospectus. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan” beginning on page 10 of this prospectus. Capitalized terms not defined in this section have the respective meanings given to them in our plan.
1. | | What is the purpose of our plan? |
Our plan is intended to provide investors with a simple, convenient and economical method to purchase our common units and to reinvest all or a portion of their cash distributions in additional Ferrellgas Partners common units. In turn, our plan may provide us with an economical and flexible mechanism to raise equity capital through sales of our common units. To the extent our common units are purchased directly from us under our plan, we will receive proceeds that we will use for our general business purposes. We will not, however, receive any proceeds from sales of our common units that Computershare Trust Company, N.A., our plan administrator, may purchase, at our discretion, in the open market or in negotiated transactions with third parties to supply common units issued to participants under our plan.
2. | | Who is eligible to participate in our plan? |
The persons eligible to participate in our plan include:
| • | | all U.S. citizens, corporations, partnerships or other entities incorporated or domiciled in the United States; |
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| • | | our existing unitholders; and |
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| • | | under certain circumstances, persons who are not U.S. citizens. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Enrollment” beginning on page 11 of this prospectus. |
3. | | How do I enroll in the plan? |
If you do not currently own any of our common units, you can join our plan via the Internet at www.computershare.com/equiserve and following the instructions provided or by completing an initial enrollment form, indicating your initial investment, and returning it to the plan administrator:
| • | | with an initial cash investment of at least $1,000.00,acquisitions. or |
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| • | | by authorizing, on the initial enrollment form, a minimum of ten (10) consecutive monthly automatic deductions of at least $100.00 per month from your U.S. bank account. |
If you already own our common units and are a unitholder of record on our books, you may join our plan by:
| • | | completing an enrollment form, and returning it to the plan administrator, or |
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| • | | enrolling online through the plan administrator’s website at www.computershare.com/equiserve and following the instructions provided. |
If you currently own our common units through a broker, bank or other intermediary account, and you want to participate directly in the plan, you should instruct your broker, bank or trustee to register some or all of your Ferrellgas Partners common units directly in your name. You can choose whether to receive a physical unit certificate for your units or to have your units re-registered in your name through the Direct Registration System of
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The Depository Trust Company by instructing your broker to electronically transfer them to an account that will be set up for you with our transfer agent.
You also may arrange to have your broker, bank or other nominee participate in the plan on your behalf. In this case, your participation may be on terms and conditions that may differ from the terms and conditions of this plan and you will be limited to the distribution reinvestment feature of the plan only. The terms and conditions also will be subject to the terms and conditions of your bank, broker or nominee.
See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Enrollment” beginning on page 11 of this prospectus.
4. | | May I automatically reinvest distributions on my common units under the plan? |
Yes. You may elect to reinvest all, part or none of the distributions on your Ferrellgas Partners common units for the purchase of additional Ferrellgas Partners common units. You must select one of the three distribution options on the enrollment form. If you complete and return an enrollment form without selecting a distribution option, your distributions will automatically be fully reinvested to purchase additional Ferrellgas Partners common units.
| | |
Full distribution reinvestment
| | If you select full distribution reinvestment, cash distributions paid on all of your Ferrellgas Partners common units in our plan will automatically be reinvested to purchase additional Ferrellgas Partners common units. |
| | |
Partial distribution reinvestment
| | If you select partial distribution reinvestment, a portion of your cash distribution will be paid to you in cash, and the remainder will automatically be reinvested to purchase additional Ferrellgas Partners common units. To do this, you must specify the number of whole units with respect to which you wish to receive cash distributions. You may choose to have these cash distributions directly deposited to your designated U.S. bank account or sent to you by check. |
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All cash (no distribution reinvestment)
| | If you select all cash (no distribution reinvestment), all of your distribution will be paid to you in cash. You may choose to have these cash distributions directly deposited to your designated U.S. bank account or sent to you by check. |
To have your distributions directly deposited in your designated bank account, you must complete and return an authorization for electronic direct deposit form. You can request a copy of an authorization for electronic direct deposit form from our plan administrator at 1-800-730-6001. You can also authorize the direct deposit of distributions when you enroll online or access your account online at www.computershare.com/equiserve.
5. | | May I change my distribution option under the plan from time to time? |
Yes. You may change your distribution participation option at any time by contacting our plan administrator. You may make such a request by:
| • | | accessing your account through the plan administrator’s website at www.computershare.com/equiserve; |
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| • | | telephoning our plan administrator at 1-800-730-6001; or |
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| • | | writing to the plan administrator at the address appearing in “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Plan Administration” beginning on page 10 of this prospectus. |
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6. | | May I purchase additional common units through the plan from time to time? |
Yes. You may invest up to $10,000.00 each month in common units. If you do not currently own any of our common units, the minimum initial cash investment is $1,000.00. Any subsequent optional cash investment, once you have enrolled in our plan, must be no less than $100.00. Optional investments in excess of $10,000.00 per month may be made only after submission to us of a written request, which we refer to as a “request for waiver,” and after we have given our written approval, which we may grant or refuse to grant in our sole discretion. You may make optional investments occasionally or at regular intervals, as you desire. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Optional Cash Investments” beginning on page 12 of this prospectus.
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7. | | May our employees and directors participate in the plan? |
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Yes. If you are an employee or director of us or our general partner, you may participate in the plan. All non-executive employees must participate in the plan through payroll deductions to qualify for any waivers of minimum payments, fees or commissions related to the plan. Our plan administrator will waive the initial purchase minimum amount of $1,000.00 and the subsequent investment minimum amount of $100.00 per investment for qualified employees and directors. Our plan administrator will also waive most plan fees for qualified employees and directors. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan - Optional Cash Investments” beginning on page 12 of this prospectus.
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8. | | Does our plan allow the purchase of fractional common units? |
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No. Our partnership agreement does not allow us to issue fractional common units. Your initial cash investments and any optional cash investments will purchase only whole common units. Your account will be credited with the appropriate number of whole common units, but it will not be credited with any record or beneficial ownership of fractional common units. Rather, any cash that remains after the payment for those whole common units will represent only the right to a specified fraction of the dollar value of a whole common unit, based on the then-current market price of our common units.
For illustration, assume an initial investment of $1,000 and a purchase price for our common units of $23.00. Your $1,000 investment would be able to purchase approximately 43.4783 common units. However, because we cannot issue fractional common units, your plan account would be credited with ownership of 43 common units and a right to a cash payment equal to the value of .4783 common units, based on the then-current market price for our common units. Your statement from the plan administrator would simply reflect 43.4783 common units in your account. However, because we cannot issue fractional common units, this means that, on any given date, upon a withdrawal of all of your 43.4783 common units in our plan, you would generally be entitled to:
| • | | a certificate representing 43 common units, and |
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| • | | a cash payment equal to the value of .4783 common units, based on the then-current trading price of our common units on the sale date, less any applicable fees, taxes and any other costs of sale. |
You would not in any event be entitled to receive a fractional .4783 common unit or any certificate therefor. A credit of a fractional common unit to your account will not by itself entitle you to any rights as a limited partner in us; rather, you will have rights as a limited partner only to the extent that your account reflects ownership of whole common units. Settlement of a fractional interest in our common units can occur only in cash.
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9. | | Does our plan provide a “safekeeping” service? |
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Yes. You may deposit certificates representing our common units into your plan account for “safekeeping,” so that the common units will instead be accounted for in book-entry form. You can elect this service without participating in any other feature of our plan. There is no fee for this service. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Safekeeping of Unit Certificates in Book-Entry Form” beginning on page 19 of this prospectus.
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10. | | May I sell the common units I hold in the plan? |
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Yes. You may sell any of the common units that are credited to your plan account. A service fee, a processing fee and any required tax withholdings or transfer taxes will be deducted from the proceeds that you receive from a sale. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Sale of Common Units” beginning on page 18 of this prospectus.
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11. | | May I gift or transfer common units from my plan account? |
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Yes. You may transfer any of the common units in your plan account to another person, whether or not that person is a participant in our plan. There is no fee for this service. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Gifts or Transfers of Common Units” beginning on page 19 of this prospectus.
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12. | | Will I receive a statement of my account? |
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Yes. You will receive a statement shortly after every transaction in your plan account. Plan account transactions include, but are not limited to, initial or optional cash investments, distribution reinvestments and deposits, transfers or withdrawals of common units. You may also request a statement for your account at any time by contacting the plan administrator. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Statements of Account” beginning on page 20 of this prospectus.
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13. | | What are the fees when I participate in the plan? |
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Our directors and qualified employees will pay no service fees in connection with their respective plan accounts. If the plan administrator satisfies the requirements of plan participants by purchasing common units in the open market, our directors and qualified employees will pay a processing fee of $0.03 per common unit (which includes brokerage commissions) for any common units so purchased for their respective plan accounts. If any of our directors or qualified employees sell common units held in their respective plan accounts, our plan administrator will deduct from net proceeds owing to them a processing fee of $0.12 per common unit (which includes brokerage commissions), as well as any required tax withholdings.
For all plan participants who are not qualified employees or directors of our general partner, there may be brokerage commissions and fees for the acquisition of common units. If the plan administrator satisfies the requirements of plan participants by purchasing common units in the open market, there will be a processing fee of $0.03 per common unit. This processing fee includes brokerage commissions. For each distribution reinvestment transaction, the plan administrator will charge a service fee of 5% of the aggregate cash amount that is reinvested at any one time, up to a maximum service fee of $3.00 per distribution reinvestment transaction regardless of how many common units you actually purchase. If you sell common units held in your plan account, a processing fee of $0.12 per common unit (which includes brokerage commissions) and a service fee of $15.00 per sale, will be deducted from the net proceeds. A $5.00 service fee will be deducted from initial and optional cash investments made by check or through the Internet and a $2.50 service fee will be deducted from all initial and optional cash investments made by automatic deduction transactions. Additionally, there is a one-time enrollment fee of $10.00 per new account established. Certain other special fees, such as a $25.00 fee for returned checks, may also apply. The fees in this prospectus are current as of the date hereof. Although the plan administrator does not currently anticipate changes in those fees, they are subject to change from time to time in the plan administrator’s discretion. See “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Summary of Participation Fees” beginning on page 21 of this prospectus.
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FERRELLGAS PARTNERS, L.P. DIRECT PURCHASE AND DISTRIBUTION REINVESTMENT PLAN
This section explains and constitutes our direct purchase and distribution reinvestment plan. Please note that the information and materials found on any website referred to in our plan, except to the extent expressly described below, are not part of our plan and are not incorporated by reference into this prospectus.
Plan Administration
We have designated Computershare Trust Company, N.A. as our plan administrator for our plan. Computershare Shareholder Services, Inc., an affiliate of the plan administrator and a transfer agent registered with the SEC, will act as service agent for the plan administrator. The plan administrator will receive optional cash investments, direct the purchase and sale of common units for plan participants, keep records, send statements and perform other duties required by our plan. The plan administrator is also the transfer agent and registrar for our common units.
Inquiries: Direct Purchase and Distribution Reinvestment Plan Administrator — Computershare Trust Company, N.A.
You should contact Computershare Trust Company, N.A. with questions concerning our plan or about your account, as follows:
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Toll-free (U.S. or Canada): | | 1-800-730-6001 |
Outside U.S. or Canada: | | 1-781-575-3120 |
| | Customer service representatives are available Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m., New York City time, except on market holidays. |
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TDD (U.S. or Canada): | | 1-800-952-9245 |
Outside U.S. or Canada: | | 1-781-575-2518 |
| | A telecommunications device is available for the hearing impaired. |
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In writing: | | Ferrellgas Partners, L.P. |
| | c/o Computershare Trust Company, N.A. |
| | P.O. Box 43078 |
| | Providence, RI 02940-3078 |
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On the Internet: | | http://www.computershare.com/equiserve |
Initial and Optional Cash Investments
Send initial cash investments of at least $1,000.00, and subsequent, optional cash investments of at least $100.00 per payment, to:
Ferrellgas Partners, L.P.
c/o Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Make your check payable to “Computershare — Ferrellgas” in U.S. dollars drawn on a U.S. bank. If you are not in the United States, contact your bank to verify that it can provide you with a check that clears through a U.S. bank and that the dollar amount printed is in U.S. funds. Due to the longer clearance period, the plan administrator is unable to accept checks that clear through non-U.S. banks. For subsequent optional cash investments, please use the cash investment form attached to your statement to facilitate processing.
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Enrollment
You should review this prospectus thoroughly before enrolling in our plan.
You are eligible to participate in our plan if you are:
| • | | a U.S. citizen, corporation, partnership or other entity incorporated or domiciled in the United States, or |
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| • | | one of our existing unitholders. |
Any person who is not a U.S. citizen may also participate in our plan if there are no laws or governmental regulations that would prohibit such person from participating or that would affect the terms of our plan. We reserve the right to terminate participation of any participant if we deem it advisable under any foreign laws or regulations.
If you do not currently own any of our common units, you may enroll in our plan in any of the following ways:
| • | | via the Internet at www.computershare.com/equiserve by following the instructions provided, or |
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| • | | by completing an initial enrollment form and returning it to the plan administrator, together with a check payable to “Computershare — Ferrellgas” in the amount of at least $1,000.00 (you may also satisfy the $1,000.00 initial investment requirement by authorizing a series of ten (10) consecutive monthly automatic deductions of at least $100.00 per month from your U.S. bank account). |
Any initial investment greater than $10,000.00 will require you to submit to us a request for waiver and to receive our prior approval, which we may grant or refuse to grant in our sole discretion. See “— Optional Cash Investments — Optional Investments Over Maximum Monthly Amounts” beginning on page 13 of this prospectus. All checks must be in U.S. dollars and drawn on a U.S. bank. Other than for qualified employees and directors of our general partner who will not be charged an enrollment fee, there is a $10.00 initial enrollment fee per new account established. The plan administrator will arrange for the purchase of common units for your account but will not pay interest on any amounts held pending investment. After the initial common units are purchased, a statement will be mailed to you.
If you already own our common units and the common units are registered in your name, you may join our plan by completing an enrollment form and returning it to the plan administrator. You may also enroll in our plan through the Internet at www.computershare.com/equiserve.
If you currently own our common units through a broker, bank or other intermediary account, and you want to participate directly in the plan, you should instruct your broker, bank or trustee to register some or all of your Ferrellgas Partners common units directly in your name. You can choose whether to receive a physical unit certificate for your units or to have your units re-registered in your name through the Direct Registration System of The Depository Trust Company by instructing your broker to electronically transfer them to an account that will be set up for you with our transfer agent.
You also may arrange to have your broker, bank or other nominee participate in the plan on your behalf. In this case, your participation may be on terms and conditions that may differ from the terms and conditions of this plan and you will be limited to the distribution reinvestment feature of the plan only. The terms and conditions also will be subject to the terms and conditions of your bank, broker or nominee.
The initial enrollment form and the enrollment form will appoint the plan administrator as your agent for purposes of your participation in our plan. The forms direct the plan administrator to apply any optional cash investments made by you, whether transmitted with the initial enrollment form and the enrollment form or made at dates subsequent to your enrollment, to the purchase on your behalf of additional common units in accordance with our plan.
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If your common units are held in a brokerage, bank or other intermediary account (i.e., in “street name”), you may participate in our plan by instructing your broker, bank or other intermediary account to have your common units transferred into your name and then enrolling in our plan. Alternatively, you can enroll in our plan in the same manner as someone who currently is not an owner of our common units, as described above.
The right to participate in our plan is not transferable to another person. We reserve the right to exclude from participation in our plan persons who use our plan to engage in short-term trading activities that cause aberrations in the trading of our common units. In addition, we reserve the right to treat optional cash investments submitted with forms reflecting participants with the same name, address or social security or taxpayer identification number as a single investment for purposes of determining whether the maximum investment of $10,000.00 per month would be exceeded.
Optional Cash Investments
You can purchase common units by using our plan’s optional cash investment feature. To purchase common units using this feature, you must invest at least $100.00 at any one time (at least $1,000.00 for an initial investment if you are not already a unitholder), but you cannot invest more than $10,000.00 monthly, except as described below under “— Optional Investments Over Maximum Monthly Amount” beginning on page 13 of this prospectus. Any optional cash investment of less than $100.00 (or less than $1,000.00 for an initial investment if you are not already a unitholder) and the portion of any optional cash investment or investments totaling more than $10,000.00 monthly, except for optional investments made pursuant to requests for waiver approved by us, will be returned to you without interest. You have no obligation to make any optional cash investments under our plan. Other than for qualified employees and directors of our general partner who will not be charged service fees, a $5.00 service fee will be deducted from optional cash investments made by check or through the Internet and a $2.50 service fee will be subtracted from all optional cash investments made by automatic investments. If the plan administrator satisfies the requirements of plan participants by purchasing common units in the open market, all plan participants, including qualified employees and directors of our general partner, will pay a processing fee of $0.03 per common unit (which includes brokerage commissions) for any common units so purchased for their respective plan accounts.
Investment Dates
Purchases of common units made with initial cash payments from enrolling investors and with optional cash payments from current unitholders will begin on an investment date, which will be the fifteenth day of each month (if any such date is not a trading day on the New York Stock Exchange, then the investment date will be the next trading day). Purchases of common units made with optional cash investments pursuant to requests for waiver that we have approved will occur once a month on the last day of the pricing period (as described below under “— Pricing Period” beginning on page 14 of this prospectus), or on the last day of the extended pricing period, if applicable (as described below under “— Optional Pricing Period Extension Feature” beginning on page 15 of this prospectus), if at all. Common units purchased on the open market will be credited to participating accounts as soon as practicable after all purchases for the investment date are completed. Common units issued and sold by us will be credited on the investment date, or as soon as practicable thereafter.
The plan administrator must receive optional cash investments, other than optional investments pursuant to requests for waiver, no later than one business day before the investment date for those investments to be invested in our common units beginning on that investment date. Otherwise, the plan administrator may hold those funds and invest them beginning on the next investment date. No interest will be paid on funds held by the plan administrator pending investment. Accordingly, you may wish to transmit any optional cash investments so that they reach the plan administrator shortly – but not less than one business day – before the investment date. This will minimize the time period during which your funds are not invested. Participants have an unconditional right to obtain the return of any cash payment up to two business days prior to the investment date by notifying the plan administrator.
Method of Payment
Your payment options under our plan are as follows:
| • | | By Check or through the Internet:You may make optional cash investments up to the maximum monthly amount by sending the plan administrator a check in U.S. dollars drawn on a U.S. bank, and made payable to “Computershare – Ferrellgas.” If you are not in the United States, contact your bank to verify that it can provide you with a check that clears through a U.S. bank and that the dollar amount |
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| | | printed is in U.S. funds. Due to the longer clearance period, the plan administrator is unable to accept checks that clear through non-U.S. banks. Do not send cash, money orders or third party checks. To facilitate processing of your investment, please use the transaction form attached to each statement you receive. Mail your investment and transaction form in the envelope provided. Optional cash investments up to $10,000.00 may also be made through the Internet at www.computershare.com/equiserve. For purchases through the Internet, please refer to the online confirmation for your account debit date and investment date. |
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| • | | By Automatic Withdrawal from Your Bank Account:As an alternative to sending checks for optional cash investments, you may elect to have funds automatically withdrawn from your checking or savings account at a U.S. bank or other financial institution. You may elect the automatic deduction option by accessing your plan account through the Internet at the plan administrator’s website, www.computershare.com/equiserve. You may also elect the automatic deduction option by completing and signing a direct debit authorization form and returning this form to the plan administrator, together with a voided blank check or savings account deposit slip for the bank account from which the funds are to be withdrawn. Additional direct debit authorization forms are available from the plan administrator. Your direct debit authorization form will be processed and will become effective as promptly as practicable. However, you should allow four to six weeks for the first investment to be initiated using this automatic deduction feature. Once automatic deductions begin, funds will be withdrawn from your bank account on the ninth day of each month, or the next business day if the ninth day is not a business day. Funds so withdrawn will be invested on the next investment date, usually the 15th day of each month. You may change the amount of money or discontinue automatic deductions: |
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| • | | by accessing your plan account online at www.computershare.com/equiserve, |
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| • | | by calling the plan administrator directly at 1-800-730-6001, or |
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| • | | by completing and submitting to the plan administrator a new direct debit authorization form. |
To be effective for a particular investment date, the plan administrator must receive your new instructions at least six business days before the investment date.
Purchases above the maximum monthly amount (or any initial investments in excess of the maximum amount) pursuant to requests for waiver that we approve may be made only by wire transfer. Wire transfers made pursuant to a request for waiver must be received by 2:00 p.m., New York City time, on the first business day before the first day of the relevant pricing period. You should direct any inquiries regarding other forms of payment, including wire transfers, to the plan administrator as indicated above under “— Plan Administration” beginning on page 10 of this prospectus.
A $25.00 fee will be assessed if any check or deposit is returned unpaid, or if an automatic withdrawal from your bank account fails due to insufficient funds. This fee and any other incidental costs associated with the insufficient funds will be collected by the plan administrator through the sale of an appropriate number of common units from your plan account. The plan administrator will consider the respective request for optional investment null and void and will immediately remove any common units already credited to your account in anticipation of receiving those funds. If the net proceeds from the sale of those common units are insufficient to satisfy the balance of the uncollected amounts, the plan administrator may sell additional common units from your account as necessary to satisfy the uncollected balance.
Optional Investments for our Qualified Employees and Directors
The plan administrator will waive the initial purchase minimum amount of $1,000.00 and the subsequent investment minimum amount of $100.00 per investment for our qualified employees and directors. The plan administrator will also waive plan service fees for our qualified employees and directors. However, if the plan administrator satisfies the requirements of plan participants by purchasing common units in the open market, our qualified employees and directors will pay a processing fee of $0.03 per common unit (which includes brokerage commissions) for any common units so purchased for their respective plan accounts. If our qualified employees and directors sell common units held in their respective plan accounts, our plan administrator will deduct from net proceeds owing to them a processing fee of $0.12 per common unit (which includes brokerage commissions), as well as any required tax withholdings.
Optional Investments for our Non-Executive Employees Through Payroll Deductions
If you are a non-executive employee of us or our general partner, you may participate in the plan through payroll deductions. We will make available to these non-executive employees details on how to participate in the plan through payroll deductions. Our directors and executive officers may not participate in the plan through payroll deductions. The amount that a non-executive employee elects to have deducted from payroll may be subject to a minimum amount to be determined at our sole discretion. A non-executive employee’s payroll deductions may not at any time exceed his or her after-tax earnings for an applicable period, nor may the total of all optional cash investments (including investments other than by payroll deduction) exceed $10,000.00 per month.
Once enrolled, a non-executive employee may change the amount of his or her payroll deductions periodically, but there will necessarily be a time delay before a change takes effect. There will also be a time delay between the date that we deduct an amount from a non-executive employee’s payroll and the date that the plan administrator makes an investment on his or her behalf. No interest will be paid on payroll deductions held for investment.
Non-executive employees may discontinue their payroll deductions at any time but there will be a time delay before a discontinuance takes effect. Non-executive employees may retain their respective plan accounts after discontinuing payroll deductions. Distributions paid on common units held in their respective plan accounts will continue to be reinvested or paid in cash according to their distribution reinvestment election.
Optional Investments Over the Maximum Monthly Amount
Optional cash investments in excess of $10,000.00 per month (including any initial investments in excess of $10,000.00) may be made only by investors that submit requests for waiver that are approved by us.
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We may not accept requests for waiver each month. Investors who wish to make optional investments in excess of $10,000.00 per month should call us on the first day of each month at 1-913-661-2156 to determine (by a prerecorded message) if we are:
| • | | at that time accepting requests for waiver for that month, or |
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| • | | instructing investors of a later date in the month on which they should call us at 1-913-661-2156 to determine if at that time we are accepting requests for waiver for that month. |
We will decide whether to accept requests for waiver at least three to five business days prior to the commencement of the applicable pricing period. We must receive a request for waiver no later than 2:00 p.m., New York City time, on the third business day before the first day of the relevant pricing period, and the plan administrator must receive funds relating to such request for waiver by wire transfer by 2:00 p.m., New York City time, on the first business day before the first day of the applicable pricing period.
For optional cash investments that exceed $10,000.00 per month, we must receive any requests for waiver by facsimile at 1-913-661-1537 no later than 2:00 p.m., New York City time, on the third business day before the first day of the relevant pricing period. We will notify any investors whose requests for waiver have been approved of those approvals by 9:00 a.m. on the second business day before the first day of the applicable pricing period.
We have sole discretion to grant or to refuse to grant a request for waiver. In deciding whether to grant a request for waiver, we will consider relevant factors, including:
| • | | whether our plan is then purchasing newly-issued common units or is purchasing common units in the open market; |
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| • | | our need for additional funds; |
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| • | | the attractiveness of obtaining those funds through the sale of our common units under our plan in comparison to other sources of funds; |
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| • | | the purchase price likely to apply to any sale of our common units under our plan; |
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| • | | party submitting the request, including the extent and nature of that party’s prior participation in our plan and the number of units that party holds of record; and |
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| • | | the aggregate amount of optional investments in excess of $10,000.00 for the month for which requests for waiver have been submitted. |
If requests for waiver are submitted for any investment date for a total amount greater than the amount we are then willing to accept, we may honor those requests on any basis that we, in our sole discretion, consider appropriate.
We reserve the right to modify, suspend or terminate participation in our plan by otherwise eligible registered holders or beneficial owners of our common units for any reason whatsoever, including elimination of practices that are not consistent with the purposes of our plan.
Pricing Period
The purchase price of common units purchased pursuant to a request for waiver will be based upon the volume weighted average price of our common units obtained from Bloomberg, LP for New York Stock Exchange trading during the trading hours from 9:30 a.m. to 4:00 p.m., New York City time, rounded to three decimal places, if necessary, for each trading day during the relevant “pricing period,” calculated pro rata on a daily basis. We will notify you by prerecorded message how many days are in the pricing period, assuming the threshold price (as described below) is met each day, and of whether we intend to activate the optional pricing period extension feature
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as described below under “— Optional Pricing Period Extension Feature.” For example, if a cash investment of $10 million is made pursuant to an approved request for waiver for a pricing period of 10 trading days, a number of common units will be deemed to be assigned to that investment for each day of the pricing period, such number of common units to be equal to a pro rata portion of the total cash investment, which would be $1 million, divided by the volume weighted average price obtained from Bloomberg, LP that day. On the last day of the pricing period, assuming the threshold price is met on each day of the pricing period, the total investment amount, $10 million, will be divided by the total number of common units deemed to be assigned to the investment over the 10 days in order to establish the purchase price, which will be rounded to three decimal places. That purchase price will then be reduced by the amount of the waiver discount (as described below), if any. The total actual number of common units purchased in respect of the investment will then be calculated by dividing the total investment amount, $10 million, by the purchase price (or discounted purchase price, if applicable) so derived.
The plan administrator will apply all optional investments pursuant to requests for waiver that are approved by us and that are received via wire transfer by the plan administrator on or before 2:00 p.m., New York City time, on the first business day before the first day of the relevant pricing period to the purchase of common units on the next following investment date. All such optional investments received after the close of business on the first business day before the first day of the relevant pricing period will be returned without interest.
Optional Pricing Period Extension Feature
We may elect to activate for any given pricing period the pricing period extension feature which will provide that the initial pricing period will be extended by the number of days that the threshold price is not satisfied, or on which there are no trades of our common units reported by the New York Stock Exchange, subject to a maximum of five days. If the threshold price is satisfied for any additional day that has been added to the initial pricing period, that day will be included as one of the trading days for the pricing period in lieu of the day on which the threshold price was not met or trades of our common units were not reported. For example, if the determined pricing period is 10 consecutive business days, and the threshold price is not satisfied for three out of those 10 days in the pricing period, and we had previously announced at the time of the waiver request acceptance that the optional pricing period extension feature was activated, then the pricing period will automatically be extended, and if the threshold price is satisfied on the next three trading days, then those three days will be included in the pricing period in lieu of the three days on which the threshold price was not met. As a result, the purchase price will be based upon the ten trading days of the initial and extended pricing period on which the threshold price was satisfied and all of the optional cash investment will be invested (rather than 30% being returned to the participant).
Threshold Price
We may, in our sole discretion, establish for any pricing period a minimum, “threshold” price at or above which optional investments may be made pursuant to requests for waiver. The threshold price will be the minimum price applicable to purchases of our common units pursuant to requests for waiver during the applicable pricing period. At least three business days before the first day of the applicable pricing period, we will determine whether to establish a threshold price and, if a threshold price is established, its amount, and will notify the plan administrator. We will make that determination in our sole discretion after a review of, among other things, current market conditions, the level of participation in the plan and our current and projected capital needs.
If established for any pricing period, the threshold price will be stated as a dollar amount that the volume weighted average price obtained from Bloomberg, LP, rounded to three decimal places, if necessary, for the trading hours from 9:30 a.m. to 4:00 p.m., New York City time, must equal or exceed on each trading day of the relevant pricing period. In the event that the threshold price is not satisfied for a trading day in the pricing period or there are no trades of our common units reported by the New York Stock Exchange for a trading day, then that trading day will be excluded from the pricing period with respect to optional cash investments made pursuant to requests for waiver, and all trading prices for that day will be excluded from the determination of the purchase price. For example, if the threshold price is not satisfied for two of the 10 trading days in a pricing period, then the purchase price will be based upon the remaining eight trading days on which the threshold price was satisfied, unless we have activated the pricing period extension feature for the pricing period as described above under “Optional Pricing Period Extension Feature.”
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A portion of each optional investment made pursuant to a request for waiver will be returned for each trading day during a pricing period on which the threshold price is not satisfied and for each trading day on which no trades of our common units are reported on the New York Stock Exchange. The returned amount will equal the total amount of the optional investment multiplied by a fraction, the numerator of which is the number of trading days that the threshold price is not satisfied or trades of our common units are not reported on the New York Stock Exchange and the denominator of which is the number of trading days in the pricing period. For example, if the threshold price is not satisfied or if no sales are reported for one of 10 trading days in a pricing period, one-tenth of the optional investment will be returned. All such funds will be returned as soon as reasonably practicable after the pricing period, without interest.
The establishment of the threshold price and the possible return of a portion of the investment in the event that a threshold price is not satisfied apply only to optional investments made pursuant to requests for waiver. Setting a threshold price for a pricing period will not affect the setting of a threshold price for any subsequent pricing period. We may waive our right to set a threshold price for any pricing period. Neither we nor the plan administrator will be required to provide any written or oral notice of the threshold price for any pricing period.
Waiver Discount
We may, in our sole discretion, establish a “waiver discount” of up to 5% from the market price applicable to optional investments made pursuant to requests for waiver. The waiver discount may vary for different investment dates but will apply uniformly to all optional investments made pursuant to requests for waiver with respect to a particular investment date. The waiver discount will not vary within any pricing period.
We will determine, in our sole discretion, whether to establish a waiver discount after a review of current market conditions, the level of participation and our current and projected capital needs. At least three business days before the first day of the applicable pricing period, we will determine whether to establish a waiver discount and, if a waiver discount is established, its amount, and will notify the plan administrator. Neither we nor the plan administrator will be required to provide any written or oral notice of the waiver discount, if any, for any pricing period.
You may ascertain the waiver discount, if any, pursuant to requests for waiver that we accept for any given pricing period by calling us at 1-913-661-2156 at any time after 8:00 a.m. on the third business day before the first day of the relevant pricing period.
Optional investments that do not exceed $10,000.00 per month (including initial investments that do not exceed $10,000.00) will not be subject to a waiver discount or a threshold price.
Distribution Reinvestments
You may elect to reinvest all, part or none of the distributions on your common units for the purchase of additional common units. You must select one of the three distribution options on the enrollment form. If you complete and return an enrollment form without selecting a distribution option, your distributions will automatically be fully reinvested to purchase additional common units.
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Full distribution reinvestment
| | If you select full distribution reinvestment, cash distributions paid on all of your common units in our plan will automatically be reinvested to purchase additional common units. |
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Partial distribution reinvestment
| | If you select partial distribution reinvestment, a portion of your cash distribution will be paid to you in cash, and the remainder will automatically be reinvested to purchase additional common units. To do this, you must specify the number of whole units with respect to which you wish to receive cash distributions. You may choose to have these cash distributions directly deposited to your designated U.S. bank account or sent to you by check. |
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All cash (no distribution reinvestment)
| | If you select all cash (no distribution reinvestment), all of your distribution will be paid to you in cash. You may choose to have these cash distributions directly deposited to your designated U.S. bank account or sent to you by check. |
To have your distributions directly deposited in your designated bank account, you must complete and return an authorization for electronic deposit form. You can request a copy of an authorization for electronic deposit form from our plan administrator at 1-800-730-6001. You can also authorize the direct deposit of distributions when you enroll online or access your account online at www.computershare.com/equiserve.
You may change your distribution participation option at any time by contacting our plan administrator. You may make such a request by:
| • | | telephoning our plan administrator at 1-800-730-6001; |
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| • | | accessing your account through the plan administrator’s website at www.computershare.com/equiserve; or |
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| • | | writing to the plan administrator at the address appearing in “Ferrellgas Partners, L.P. Direct Purchase and Distribution Reinvestment Plan — Plan Administration” beginning on page 10 of this prospectus. |
For each distribution reinvestment transaction, the plan administrator will charge a service fee of 5% of the aggregate cash amount that is reinvested at any one time, up to a maximum service fee of $3.00 per distribution reinvestment transaction, regardless of how many common units you actually purchase. This service fee is in addition to a processing fee of $0.03 per common unit (which includes brokerage commissions), which may also apply to distribution reinvestment transactions. See “— Purchase of Common Units — Pricing of Common Units Purchased in the Open Market” immediately below. The plan administrator will waive the service fee for qualified employees and directors of our general partner.
Purchase of Common Units
Source of Common Units
Common units needed to meet the requirements of our plan will, in our discretion, either be purchased in the open market, by the plan administrator or issued directly by us.
Pricing of Common Units Purchased in the Open Market
If we elect to satisfy the requirements of the plan participants through common units purchased in the open market, the price per common unit will be the weighted average price of all common units purchased by the service agent for the applicable investment period, plus a processing fee of $0.03 per common unit.
Pricing of Original Issue Common Units
If we elect to satisfy the requirements of the plan participants for optional investments not exceeding $10,000.00 per month with original issue common units, the price of such common units will be 100% of the average of the high and low sales price of our common units on the New York Stock Exchange on the investment date. No processing fee will be charged. In the event that the investment date is not a trading day on the New York Stock Exchange or no trading is reported for that trading day, we may determine the purchase price on the basis of market quotations as deemed appropriate. The price of original issue common units purchased pursuant to requests for waiver is described above under “— Optional Cash Investments — Pricing Period” beginning on page 12 of this prospectus.
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Timing and Control
The plan administrator will use initial and optional cash investments to purchase common units:
• | | only on the investment date, if common units are purchased from us, and |
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• | | beginning on (although not necessarily ending on) the investment date, if common units are purchased in the open market. |
Purchases may be made over a number of days to meet the requirements of our plan. No interest will be paid on funds held by the plan administrator pending investment. The plan administrator may commingle your funds with those of other participants in our plan for purposes of executing purchase transactions.
Because the plan administrator will purchase common units on behalf of our plan, neither we nor any participant in our plan will have the authority or power to control either the timing or the pricing of the common units purchased. Therefore, you will not be able to precisely time your purchases through our plan, and you will bear the market risk associated with fluctuations in the price of our common units. That is, if you send in an initial or optional cash investment, it is possible that the market price of our common units could go up or down before the plan administrator purchases common units with your funds. The plan administrator will use its best efforts to apply all funds to the purchase of common units before the next investment date, subject to any applicable requirements of federal or state securities laws. Purchases of our common units for initial and optional cash investments by the plan administrator on the open market usually will be completed no later than 35 days after the investment date, except where completion at a later date is necessary or advisable under any applicable securities laws or regulations.
Sale of Common Units
You can sell any number of common units held in your plan account through the Internet at www.computershare.com/equiserve or, subject to the penultimate sentence of this paragraph, by calling or writing to the plan administrator. Upon receipt of a request to sell some or all of your common units, the plan administrator will endeavor to process your order on the day it is received, and in no event later than five trading days after the date your request is received, except where deferral is necessary or advisable under any applicable securities laws or regulations. The sale price will be the weighted average price of all common units sold for plan participants that day. The service agent may commingle your common units with those of other participants in our plan for purposes of executing sales transactions. Other than for qualified employees and directors of our general partner, you will receive the proceeds of the sale less a $15.00 service fee, a processing fee of $0.12 per unit (which includes brokerage commissions), and any required tax withholdings. Qualified employees and directors of our general partner will receive the proceeds of the sale less a processing fee of $0.12 per unit (which includes brokerage commissions), and any required tax withholdings. Proceeds are paid by check, which is generally mailed within 24 hours of the date on which the transaction is settled. Settlement dates are typically three business days following a sale. You will not earn interest on funds generated from the sale of common units for the time period between the date of sale and the date on which you receive your check. All sale requests having an anticipated market value of $100,000.00 or more must be submitted in written form. In addition, all sale requests within 30 days of an address change to your account must be submitted in written form.
Neither we nor any plan participant has any authority or power to control either the timing or the pricing of common units sold. Therefore, you will not be able to precisely time your sales through our plan, and you will bear the market risk associated with fluctuations in the price of our common units. That is, if you send in a request for a sale, it is possible that the market price of our common units could go up or down before the sale is completed. If you prefer to have control over the exact price and timing of your sale, you can choose to withdraw the common units you wish to sell and conduct the transaction through a broker of your choice. See “— Issuance of Certificates” beginning on page 19 of this prospectus.
Please note that if your total holdings, which include any common units that you may hold in certificated form and any common units credited in book-entry form to your plan account, fall below one whole common unit, the plan administrator may liquidate your fractional interest in a common unit, remit the proceeds to you, less any applicable fees, and close your plan account.
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Safekeeping of Unit Certificates in Book-Entry Form
Common units that you buy under our plan will be maintained in your plan account in book-entry form. In addition, you may also deposit any other common units that you hold in certificate form into our plan for “safekeeping” to be held in book-entry form, at no cost. Deposited common units represented by unit certificates will be credited to your account. Thereafter, the deposited common units are treated in the same manner as common units purchased through our plan, giving you the option of selling your common units through our plan.
Safekeeping is beneficial because you no longer bear the risk and cost associated with the loss, theft, or destruction of unit certificates. Certificates will be issued only upon request to the plan administrator. See “— Issuance of Certificates” below.
To use the safekeeping service, complete the tear-off section of your account statement or write a letter of instruction and send it, along with your unit certificates, to the plan administrator. We recommend that common units be sent by registered or certified mail, with return receipt requested, or some other form of traceable mail and properly insured. Do not endorse the certificates or complete the assignment section.
Certificates deposited for safekeeping should be sent to:
Ferrellgas Partners, L.P.
c/o Computershare Trust Company, NA.
P.O. Box 43078
Providence, RI 02940-3078
Gifts or Transfers of Common Units
You can give or transfer common units from your plan account to anyone you choose by:
| • | | making an initial cash investment of at least $1,000.00 to establish an account in the recipient’s name; |
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| • | | submitting an optional cash investment on behalf of an existing plan participant in an amount not less than $100.00 nor more than $10,000.00; |
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| • | | transferring common units from your plan account to the account of an existing plan participant; or |
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| • | | transferring common units from your account to a recipient outside the plan. |
You may transfer common units to the accounts of existing plan participants or to establish a new account.
When authorizing a transfer of common units, you must send written instructions to the plan administrator, and you must have your signature on the letter of instruction medallion guaranteed by a financial institution participating in the Medallion Signature Guarantee Program. A Medallion Signature Guarantee is a special guarantee for securities that may be obtained through a financial institution such as a broker, bank, savings and loan association, or credit union. The guarantee ensures that the individual requesting the unit transfer is in fact the owner of the applicable common units. Most banks and brokers participate in the Medallion Signature Guarantee Program.
If you need additional assistance regarding the transfer of your common units, please call the plan administrator at 1-800-730-6001. Transfer forms and instructions are also available at the plan administrator’s website, www.computershare.com/equiserve.
Issuance of Certificates
At any time, you may obtain a certificate, free of charge, for all or a part of the whole common units in your account upon telephone or written request to the plan administrator. You may also request a certificate through the Internet at the plan administrator’s website, www.computershare.com/equiserve.
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Certificates will be issued for whole common units only. In the event your request involves a fractional interest in a common unit, a check for the value of the fractional interest will be separately mailed to you. The amount of the payment will be based upon the then-current market price of our common units, less any processing fees, taxes and any other costs of sale. The plan administrator normally will issue the certificates within two business days of the receipt of your request.
Certificates will be issued in the name(s) in which the account is registered, unless otherwise instructed. If the certificate is to be issued in a name other than your plan account registration, the signature on the instructions must be guaranteed by a financial institution participating in the Medallion Signature Guarantee Program, as described under “— Gifts or Transfers of Common Units” beginning on page 19 of this prospectus.
Pledging of Common Units
You may not pledge as collateral common units held in your account. If you wish to pledge common units held in your account, you must request that certificates for those units be issued. You can then deliver the certificates as collateral. See “— Issuance of Certificates” beginning on page 19 of this prospectus.
Statements of Account
Statements will be sent when you make an initial or optional cash investment or a deposit, transfer or withdrawal of common units.
In addition, you will receive a year-end statement summarizing the activity in your account for the entire year. The plan administrator will also furnish to you Internal Revenue Service information for reporting proceeds derived from any sale of common units credited to your account in the form and manner as the Internal Revenue Service may require.
Please retain your statements to establish the cost basis of common units purchased under our plan for income tax and other purposes.
You should notify the plan administrator promptly of any change in address since all notices, statements and reports will be mailed to your address of record.
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Summary of Participation Fees
Our directors and qualified employees will pay no service fees in connection with their respective plan accounts. However, they will pay the processing fees (which include any brokerage commissions the plan administrator is required to pay) described below. For all plan participants who are not directors or qualified employees, the following service fees and processing fees (which include brokerage commissions) for the acquisition and sale of common units apply:
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Enrollment Fee for New Investors | | $10.00 per new account |
Initial Investments | | Service fee of $5.00 if made by check or through the Internet;
$2.50 if made by automatic deduction |
Optional Cash Investments | | Service fee of $5.00 if made by check or through the Internet;
$2.50 if made by automatic deduction |
Distribution Reinvestments | | Service fee of 5% of the amount reinvested, up to a maximum fee per distribution reinvestment transaction of $3.00 |
Returned Checks | | $25.00 per check |
Purchase of Common Units | | |
Open Market | | Processing fee of $0.03 per unit (applies to common units purchased for all investments including distribution reinvestments) |
Original Issue | | No processing fee |
Sale of Common Units | | Service fee of $15.00 per sale, plus a processing fee of $0.12 per unit sold. |
Gift or Transfer of Common Units | | No fees |
“Safekeeping” of Common Units in book-entry form | | No fees |
Certificate Issuance | | No fees |
The plan administrator will deduct the applicable fees from the funds for investment or proceeds from a sale. For more details concerning fees, see “— Enrollment,” “— Purchase of Common Units,” “— Sale of Common Units”precise amount and “— Statements of Account” beginning on pages 11, 17, 18 and 20 of this prospectus, respectively. The fees in this prospectus are current astiming of the date hereof. Although the plan administrator does not currently anticipate changes in those fees, they are subject to change from time to time in the plan administrator’s discretion.
Termination of Participation
You may terminate your participation in our plan at any time either:
| • | | via the Internet at www.computershare.com/equiserve; |
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| • | | by calling the plan administrator at 1-800-730-6001; or |
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| • | | by delivering written instructions to the plan administrator. |
Upon termination, you must elect either to:
| • | | receive a certificate representing whole common units held in your account, as well as a check for the value of any fractional interest in a common unit, based upon the then-current market price of our common units, or |
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| • | | request the sale of all or a portion of the whole common units in your account as described under “— Sale of Common Units” beginning on page 18 of this prospectus. |
If you elect to receive the common units, they will be credited to your account in book-entry form (i.e., uncertificated) unless you request a certificate. The plan administrator will send your unit certificates (if certificates are requested) and/or sale proceeds to you as soon as practicable.
If you have been reinvesting your distributions and the plan administrator receives your notice of termination near a distribution payment record date, the plan administrator, in its sole discretion, may either pay your distribution in cash or reinvest your distribution on your behalf. If the plan administrator reinvests your
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distribution, the plan administrator will process your termination as soon as practicable after the reinvestment transaction is completed.
Generally, any former participant may re-elect to participate in our plan any time. However, the plan administrator reserves the right to reject any authorization form on the grounds of excessive joining and withdrawing. This reservation is intended to minimize unnecessary administrative expense and to encourage use of our plan as a long-term investment service.
Death of a Plan Participant
If a plan participant dies or becomes legally incapacitated, the plan administrator must be notified. The legal representativeapplication of the participant should contact the plan administrator for specific information.
Other Information About our Plan
Common Unit Splits
In the event that common units are distributed in connection with any common unit split or similar transaction, each account balance will be adjusted to reflect the receipt of the common units paid or distributed. You will receive a statement indicating the number of common units earned as a result of the transaction.
Voting of Common Units
You will have voting rights as a limited partner with respect to common units purchased under our plan only to the extent that your account reflects ownership of whole common units. You will not have any voting rights to the extent that your account is credited with a fractional interest in a common unit.
Unitholder Communications
Plan participants owning at least one whole common unit, will receive all communications sent to holders of our common units. Plan participants can also obtain current financial and other information about us by visiting our website at www.ferrellgas.com.
Liability of the Plan Administrator, the Service Agent and Ferrellgas Partners
Neither we nor the plan administrator will be liable for any act performed in good faith or for any good faith omission to act. This includes, without limitation, any claims of liability for:
| • | | failure to terminate an account upon the death of a participant prior to receiving written notice of such death, along with a request to terminate participation from a qualified representative of the deceased; |
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| • | | purchase or sale prices reflected in a participant’s plan account or the times of purchases or sales of a participant’s plan units; or |
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| • | | any fluctuation in the market value after purchase or sale of common units. |
Plan Modification or Termination
We reserve the right to suspend, modify or terminate our plan or refuse participation in our plan to any person at any time. You will receive notice of any such suspension, modification or termination. If we suspend or terminate our plan, all funds held by the plan administrator for investment will be returned without interest. We and the plan administrator also reserve the right to change any administrative procedures of our plan.
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Change of Eligibility; Termination
We reserve the right to deny, suspend or terminate participation by a plan participant who is using our plan for purposes inconsistent with the intended purpose of the plan. In such event, the plan administrator will notify you in writing. If we terminate your participation, the plan administrator will issue a certificate to you representing whole common units held in your account, as well as a check for the value of any fractional interest in a common unit, based upon the then-current market price of our common units.
We reserve the right to instruct the plan administrator to terminate your plan account if it contains less than one whole common unit. If we terminate your account, the plan administrator will mail a check to your address of record in an amount equal to the value of any fractional common unit credited to your plan account, based on the trading price of our common units on the sale date, less any applicable fees, taxes and any other costs of sale.
Multiple Accounts
We reserve the right to aggregate all optional investments for plan participants with more than one account using the same name, address or social security or taxpayer identification number. We may also aggregate plan accounts that we believe to be under common control or management or to have common ultimate beneficial ownership. In the event that we exercise our rights to aggregate investments and the result would be an investment in excess of $10,000.00 per month without a request for waiver approved by us, the amount in excess of $10,000.00 will be returned, without interest, as promptly as practicable.
Transfer Agent and Registrar
Computershare Trust Company, N.A. presently acts as transfer agent and registrar for our common units. We reserve the right to terminate the agent and appoint another agent or administer for our plan ourselves. All participants will receive notice of any such change.
No Profit or Distributions Assured
We cannot assure you of a profit or protect you against a loss on common units that you purchase or sell under our plan. The payment of distributions is at the discretion of the board of directors of our general partner andnet proceeds will depend upon future earnings, our financial conditionfunding requirements and the availability and cost of other factors.funds. We cannot assure you that we will declare or pay any distribution on our common units.
No Fractional Units
Our partnership agreement does not allow us to issue fractional common units. Your initial cash investments and any optional cash investments will purchase only whole common units. Your account will be credited withmay change the appropriate number of whole common units, but it will not be credited with any record or beneficial ownership of fractional common units. Rather, any cash that remains after the payment for those whole common units will represent only the right to a specified fractionpotential uses of the dollar value ofnet proceeds in a whole common unit, based on the then-current market price of our common units.
For illustration, assume an initial investment of $1,000 and a purchase price for our common units of $23.00. Your $1,000 investment would be able to purchase approximately 43.4783 common units. However, because we cannot issue fractional common units, your plan account would be credited with ownership of 43 common units and a right to a cash payment equal to the value of .4783 common units, based on the then-current market price for our common units. Your statement from the plan administrator would simply reflect 43.4783 common units in your account. However, because we cannot issue fractional common units, this means that, on any given date, upon a withdrawal of all of your 43.4783 common units in our plan, you would generally be entitled to:
a certificate representing 43 common units, and
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a cash payment equal to the value of .4783 common units, based on the then-current trading price of our common units on the sale date, less any applicable fees, taxes and any other costs of sale.
You would not in any event be entitled to receive a fractional .4783 common unit or any certificate therefor. A credit of a fractional common unit to your account will not by itself entitle you to any rights as a limited partner in us; rather, you will have rights as a limited partner only to the extent that your account reflects ownership of whole common units. Settlement of a fractional interest in our common units can occur only in cash.
Interpretation of our Plan
The officers of our general partner are authorized to take any actions that are consistent with our plan’s terms and conditions. We reserve the right to interpret and regulate our plan as we deem necessary or desirable in connection with our plan’s operations.
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TAX CONSEQUENCES
This section discusses the material tax consequences that may be relevant to prospective unitholdersholders of common units, senior units, deferred participation units, warrants or debt securities who are individual citizens or residents of the United States. It is based upon current provisions of the Internal Revenue Code, existing regulations, proposed regulations to the extent noted, and current administrative rulings and court decisions, all of which are subject to change. Later changes in these authorities may cause the actual tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “us” or “we” are references to Ferrellgas Partners, L.P. and the operating partnership.
No attempt has been made in the following discussion to comment on all federal income tax matters affecting us or the unitholders.holders. Moreover, this discussion focuses on unitholdersholders who are individual citizens or residents of the United States and it has only limited application to corporations, estates, trusts, non-resident aliens or other unitholdersholders that may be subject to specialized tax treatment, such as tax-exempt institutions, foreign persons, individual retirement accounts, real estate investment trusts or mutual funds. Furthermore, this discussion only applies to initial purchasers of common units, senior units, deferred participation units, warrants or debt securities and not to secondary market purchases. Accordingly, we recommend that each prospective unitholderholder consult, and depend on, that unitholder’sholder’s own tax advisor in analyzing the federal, state, local and foreign tax consequences particular to that unitholderholder of the ownership or disposition of our common units.units, senior units, deferred participation units, warrants or debt securities.
All statements as to matters of law and legal conclusions, but not as to factual matters, contained in this section entitled “Tax Consequences” are, unless otherwise noted, the opinion of Mayer, Brown, Rowe & MawGreenberg Traurig LLP, counsel to us and our general partner, and are, to the extent noted herein, based on the accuracy of various factual matters.
No ruling has been or will be requested from the IRS regarding any matter affecting us or prospective unitholders,holders, other than a ruling we received relating to our taxable year. An opinion of counsel represents only that counsel’s best legal judgment and does not bind the IRS or the courts. Accordingly, the opinions and statements made in this prospectus may not be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially reduce the prices at which our common units, senior units, deferred participation units, warrants or debt securities trade. In addition, the costs of any contest with the IRS will be borne directly or indirectly by the unitholdersholders and our general partner. Furthermore, the tax treatment of us, or of an investment in us or our common units, senior units, deferred participation units, warrants or debt securities, may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.
For the reasons described below, Mayer, Brown, Rowe & Maw LLP has not rendered an opinion with respect to the following specific federal income tax issues:
| • | | the treatment of a unitholder whose common units are loaned to a short seller to cover a short sale of common units; see “— Tax Consequences of Unit Ownership — Treatment of Short Sales;” |
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| • | | whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations; see “— Disposition of Common Units — Allocations Between Transferors and Transferees;” and |
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| • | | whether our method for depreciating Section 743 adjustments is sustainable; see “ — Tax Consequences of Unit Ownership — Section 754 Election.” |
Participation in our Plan
Participants will generally not realize gain or loss for federal income tax purposes upon the purchase of common units pursuant to our plan. A participant’s initial tax basis in any common units purchased under our direct purchase plan will be as described below in “— Tax Consequences of Unit Ownership — Basis of Common Units.” In specified circumstances, participants that make investments exceeding $10,000.00 in a single month and receive a discount from fair market value on the purchase of common units may be deemed to have received a taxable distribution as a result of such discount.
An employee of us or our general partner who makes optional cash investments through payroll deductions is subject to the same federal income tax consequences as if the employee had received the funds deducted for the purchase of common units. Thus, an employee’s purchase of common units through payroll deductions does not decrease the amount of the employee’s taxable income.
A participant’s holding period for units acquired pursuant to our plan will begin on the day following the date on which the common units are credited to the participant’s account. When a participant receives certificates for
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common units credited to the participant’s account under our plan, the participant will not realize taxable income. A gain or loss will also be realized by the participant whenever common units are sold. The amount of such gain or loss will be the difference between the amount that the participant receives for the common units and the tax basis of the participant in the common units sold.
The foregoing summary is based on current law and does not take into account possible changes in law which may have retroactive effect. The summary does not address special tax consequences that may be applicable to certain participants subject to special tax treatment, including foreign stockholders. Participants are advised to consult their own tax advisors for further information with respect to the federal, foreign, state and local tax consequences of participation in our plan.
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner of a partnership is required to take into account that partner’s allocable share of items of income, gain, loss and deduction of the partnership in computing that partner’s federal income tax liability, regardless of whether cash distributions are made. In most cases, distributions by a partnership to a partner are not taxable unless the amount of any cash distributed is in excess of the partner’s adjusted basis in that partner’s partnership interest.
No ruling has been or will be sought from the IRS and the IRS has made no determination as to our status for federal income tax purposes or whether our operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. Instead, we rely on the opinion of Mayer, Brown, Rowe & Maw LLPCode provides that based upon the Internal Revenue Code, its regulations, published revenue rulings and court decisions, that we and the operating partnershippublicly-traded partnerships will, each be classified as a partnershipgeneral rule, be taxed as corporations. However, an exception, referred to as the “Qualifying Income Exception,” exists with respect to publicly-traded partnerships of which 90% or more of the gross income for federal income tax purposes so long as:
| • | | we do not elect to be treated as a corporation; and |
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| • | | for each taxable year, more than 90%every taxable year consists of our gross income has been and continues to be “qualifying income.” “Qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code. |
Qualifying income includes income and gains from the processing, refining, transportation and marketing of crude oil, industrial source carbon dioxide, natural gas and products thereof, including the transportation and retail and wholesale marketing of propane. Other types of “ qualifying incomeincome” include interest other than from a financial business, dividends, gains from the sale of real property and gains from the sale or other disposition of assets held for the production of income that otherwise constitutes qualifying income. We believe that more than 90% of our income has been, and will be, within one or more categories of income that are qualifying“qualifying income.” The portion of our income that is qualifying income“qualifying income” can change from time to time.
No ruling has been or will be sought from the IRS and the IRS has made no determination as to our status for federal income tax purposes or whether our operations generate “qualifying income” under Section 7704 of the Internal Revenue Code. Instead, we rely on the opinion of Greenberg Traurig LLP that, based upon the Internal Revenue Code, provides that publicly-traded partnershipsits regulations, published revenue rulings and court decisions, we and our operating partnership will each be classified as a general rule,partnership for federal income tax purposes so long as:
we do not elect to be taxedtreated as corporations. However, an exception, referreda corporation; and
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for each taxable year, more than 90% of our gross income has been, and continues to asbe, “qualifying income” within the “Qualifying Income Exception,” exists with respect to publicly-traded partnershipsmeaning of which 90% or moreSection 7704(d) of the gross income for every taxable year consists of “qualifying income.”Internal Revenue Code.
Although we expect to conduct our business so as to meet the Qualifying Income Exception, if we fail to meet the Qualifying Income Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, we will be treated as if we had transferred all of our assets, subject to liabilities, to a newly formed corporation on the first day of the year in which we fail to meet the Qualifying Income Exception in return for stock in that corporation, and as if we had then distributed that stock to the unitholders in liquidation of their interests in us. This contribution and liquidation should be tax-free to us so long as we, at that time, do not have liabilities in excess of the tax basis of our assets and should be tax-free to a unitholderholder so long as that unitholderholder does not have liabilities allocated to that unitholderholder in excess of the tax basis in that unitholder’sholder’s common or preferred units. Thereafter, we would be treated as a corporation for federal income tax purposes.
If we were treated as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to the unitholders, and our net income would be taxed to us at corporate rates. In addition, any distribution made to a unitholderholder of our common units, senior units, or deferred participation units would be treated as either taxable dividend income (to the
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extent of our current or accumulated earnings and profits) or (in the absence of earnings and profits or any amount in excess of earnings and profits) a nontaxable return of capital (toto the extent of the tax basis in that unitholder’sholder’s common units)units, senior units, or deferred participation units or taxable capital gain (after the tax basis in that unitholder’sholder’s common units, senior units, or deferred participation units is reduced to zero). Accordingly, treatment of us as a corporation would result in a material reduction in a unitholder’sholder’s cash flow and after-tax return and thus would likely result in a substantial reduction of the value of our common units, senior units, or deferred participation units.
The discussion below in this section entitled “Tax Consequences” assumes that we will be treated as a partnership for federal income tax purposes.
Tax Treatment of UnitholdersHolders of Common Units, Senior Units and Deferred Participation Units
Limited Partner Status
UnitholdersHolders who have become our limited partners will be treated as our partners for U.S. federal income tax purposes. Also:
| • | | assignees who have executed and delivered transfer applications, and are awaiting admission as limited partners; and |
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| • | | unitholdersholders whose common units, senior units, or deferred participation 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 unitsor preferred units; |
will be treated as our partners for federal income tax purposes. Assignees of common units, senior units, or deferred participation units, who are entitled to execute and deliver transfer applications and become entitled to direct the exercise of attendant rights, but who fail to execute and deliver transfer applications, may not be treated as one of our partners for federal income tax purposes. Furthermore, a purchaser or other transferee of common units, senior units, or deferred participation units, who does not execute and deliver a transfer application may not receive particular federal income tax information or reports furnished to record holders of common units, senior units, or deferred participation units unless our common units, senior units, or deferred participation units are held in a nominee or street name account and the nominee or broker has executed and delivered a transfer application for those common and preferred units.
A beneficial owner of common units, senior units, or deferred participation units whose common units, senior units, or deferred participation units have been transferred to a short seller to complete a short sale would appear to lose its status as one of our partners with respect to those common or preferred units for federal income tax purposes. See “— Tax Consequences of Unit Ownership — Treatment of Short Sales.”
No portion of our income, gains, deductions or losses is reportable by a unitholderholder who is not one of our partners for federal income tax purposes, and any cash distributions received by a unitholderholder who is not one of our partners for federal income tax purposes would therefore appear to be fully taxable as ordinary income. These holders are urged to consult their own tax advisors with respect to the consequences of holding our common units, senior units, or deferred participation units for federal income tax purposes.
The following discussion in this section entitled “Tax Consequences” assumes that a unitholderholder is treated as one of our partners.
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Tax Consequences of Unit Ownership
Flow-through of Taxable Income
A partnership is not subject to federal income tax, but is required to file a partnership information tax return each year. Each unitholderholder will be required to report on that unitholder’stake into account, in computing the holder’s income tax return its allocableliability, the holder’s distributive share (as determined by the partnership and reported on Schedule K-1 to Form 1065) of all items of our income, gains,net profits, losses, credits and deductionsitems of tax preference for any of our taxable years ending within or with the taxable year of the holder without regard to whether the holder has received or will receive any cash distributions from us. Thus, a holder may be subject to tax if we have net income even though no corresponding cash distributions are received by that unitholder. Consequently, we may allocate income to a unitholder even if that unitholder has not received a cash distribution. Each unitholder will be required to include in income that unitholder’s allocable share of our income, gain, loss and deduction for our taxable year.distribution is made. Our taxable year is the calendar year.
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Treatment of Partnership Distributions
Except as described below, our distributions to a unitholderholder will not be taxable to that unitholderholder for federal income tax purposes to the extent of the tax basis in that unitholder’sholder’s common units, senior units, or deferred participation units immediately before the distribution. Except as described below, our cash distributions in excess of a unitholder’sholder’s tax basis will be considered to be gain from the sale or exchange of our common units, senior units, or deferred participation units, taxable in accordance with the rules described under “—Disposition of Common Units”Units, Senior Units, and Deferred Participation Units “ below. Any reduction in a unitholder’sholder’s share of our liabilities for which no partner, including our general partner, bears the economic risk of loss, which are known as “nonrecourse liabilities,” will be treated as a distribution of cash to that unitholder.holder. To the extent that our distributions cause a unitholder’sholder’s “at risk” amount to be less than zero at the end of any taxable year, that unitholderholder must recapture any losses deducted in previous years. See “— Tax Consequences of Unit Ownership — "—Limitations on Deductibility of Partnership Losses.”
A decrease in a unitholder’sholder’s percentage interest in us because of our issuance of additional common units, senior units, or deferred participation units will decrease that unitholder’sholder’s share of our nonrecourse liabilities and result in a corresponding deemed distribution of cash. A non-pro rata distribution of money or property may result in ordinary income to a unitholder,holder, regardless of the tax basis in that unitholder’sholder’s common units, senior units, or deferred participation units, if the distribution reduces the unitholder’sholder’s share of our “unrealized receivables,” including depreciation recapture, and substantially appreciated “inventory items,” both as defined in Section 751 of the Internal Revenue Code and collectively referred to as “Section 751 Assets.” To that extent, the unitholderholder will be treated as having been distributed that unitholder’sholder’s proportionate share of the Section 751 Assets and having exchanged those assets with us in return for the non-pro rata portion of the actual distribution made to that unitholder.holder. This latter deemed exchange will result in the unitholder’sholder’s realization of ordinary income which will equal the excess of:
| • | | the non-pro rata portion of that distribution; over |
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| • | | the unitholder’sholder’s tax basis for the share of Section 751 Assets deemed relinquished in the exchange. |
Ratio of Taxable Income to Cash Distributions
We estimate that a personholder who:
| • | | acquires the common units, in an offering pursuant to this prospectus;senior units, or deferred participation units; and |
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| • | | owns those common units, senior units, or deferred participation units through the period ending on the record date for the cash distribution payable for the fiscal quarter ended JulyOctober 31, 2008,2011, |
will be allocated, on a cumulative basis, an amount of federal taxable income that will be less than 10% of the cumulative cash distributed to such personholder for that period. The taxable income allocable to a unitholderholder for subsequent periods may constitute an increasing percentage of distributable cash. These estimates are based upon many assumptions regarding our business and operations, including assumptions about weather conditions in our area of operations, capital expenditures, cash flows and anticipated cash distributions. These estimates and our assumptions are subject to numerous business, economic, regulatory, competitive and political uncertainties beyond our control. Furthermore,Further, these estimates are based on current tax law and tax reporting positions with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will be correct. The actual percentage of distributions that will constitute taxable income could be higher or lower and any differences could materially affect the value of our common units, senior units, or deferred participation units.
Basis of Common Units, Senior Units, and Deferred Participation Units
A unitholderholder will have an initial tax basis for its common units, senior units, or deferred participation units equal to the amount that unitholderholder paid for our common units, senior units, or deferred participation units plus that unitholder’sholder’s share of our nonrecourse liabilities. That basis will be increased by that unitholder’sholder’s share of our income and by any increases in that unitholder’sholder’s share of our nonrecourse liabilities. The IRS has ruled that a partner acquiring multiple interests in a partnership in
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separate transactions at different prices must maintain an aggregate adjusted tax basis in a single partnership interest consisting of the partner’s combined interests. That basis will be decreased, but not below zero, by distributions that that unitholderholder receives from us, by that unitholder’sholder’s share of our losses, by any decreases in that unitholder’sholder’s share of our nonrecourse liabilities and by that
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unitholder’s holder’s share of our expenditures that are not deductible in computing our taxable income and are not required to be capitalized. A unitholderholder will have no share of our debt which is recourse to our general partner, but will have a share, primarily based on that unitholder’sholder’s share of profits, of our nonrecourse liabilities. See “—Disposition of Common Units, — RecognitionSenior Units and Deferred Participation Units —Recognition of Gain or Loss.”
Limitations on Deductibility of Partnership Losses
The deduction by a unitholderholder of that unitholder’sholder’s share of our losses will be limited to the unitholder’sholder’s tax basis in its common units, senior units, or deferred participation units and, in the case of an individual unitholderholder or a corporate unitholderholder (if more than 50% of the value of the corporate unitholder’sholder’s stock is owned directly or indirectly by five or fewer individuals or particular tax-exempt organizations), to the amount for which the unitholderholder is considered to be “at risk” with respect to our activities, if that is less than the unitholder’sholder’s tax basis. A unitholderholder must recapture losses deducted in previous years to the extent that our distributions cause that unitholder’s at riskholder’s “at risk” amount to be less than zero at the end of any taxable year. Losses disallowed to a unitholderholder or recaptured as a result of these limitations will carry forward and will be allowable to the extent that the unitholder’sholder’s tax basis or at risk“at risk” amount, whichever is the limiting factor, subsequently increases. Upon the taxable disposition of aour common unit,units, senior units, or deferred participation units, any gain recognized by a unitholderholder can be offset by losses that were previously suspended by the at risk“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“at risk” or basis limitations would no longer be utilizable.
Subject to each unitholder’sholder’s specific tax situation, a unitholderholder will be at risk“at risk” to the extent of the tax basis in that unitholder’sholder’s common units, senior units, or deferred participation units, excluding any portion of that basis attributable to that unitholder’sholder’s share of our nonrecourse liabilities, reduced by any amount of money the unitholderholder borrows to acquire or hold that unitholder’sholder’s common units, senior units, or deferred participation units if the lender of such borrowed funds owns an interest in us, is related to the unitholderholder or can look only to the common units, senior units, or deferred participation units for repayment. A unitholder’s at riskholder’s “at risk” amount will increase or decrease as the tax basis of the unitholder’sholder’s common units, senior units, or deferred participation units increases or decreases, other than tax basis increases or decreases attributable to increases or decreases in that unitholder’sholder’s share of our nonrecourse liabilities.
The passive loss limitations provide that individuals, estates, trusts and specific closely held corporations and personal service corporations can deduct losses from passive activities (which for the most part consist of 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 also apply to a regulated investment company (or “mutual fund”) holding an interest in a “qualified publicly-traded partnership.” See “— Tax-Exempt Organizations and Various Other Investors.” The passive loss limitations are applied separately with respect to each publicly-traded partnership. Consequently, any passive losses generated by us will only be available to offset our passive income generated in the future and will not be available to offset income from other passive activities or investments (including other publicly-traded partnerships) or salary or active business income. Passive losses which are not deductible because they exceed a unitholder’sholder’s share of our income may be deducted in full when that unitholderholder disposes of its entire investment in us in a fully taxable transaction with an unrelated party. The passive activity loss rules are applied after other applicable limitations on deductions such as the at risk“at risk” rules and the basis limitation.
A unitholder’sholder’s share of our net income may be offset by any suspended passive losses from us, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly-traded partnerships. The IRS has announced that Treasury Regulations will be issued, which would 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 limited to the amount of such taxpayer’s “net investment income.” As noted, a unitholder’sholder’s net passive income from us will be treated as investment income for this purpose. In addition, the unitholder’sholder’s share of our portfolio income will be treated as investment income. Investment interest expense includes:
interest on indebtedness properly allocable to property held for investment;
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| • | | interest on indebtedness properly allocable to property held for investment; |
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| • | | our interest expense attributed to portfolio income; and |
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| • | | the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income. |
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The computation of a unitholder’sholder’s investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a common unit.units, senior units, or deferred participation units. 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 in most cases does not include gains attributable to the disposition of property held for investment.
Allocation of Partnership Income, Gain, Loss and Deduction
If we have a net profit, our items of income, gain, loss and deduction, after taking into account any special allocations required under our partnership agreement, will be allocated among our general partner and the unitholdersholders in accordance with their respective percentage interests in us. At any time that cash distributions are made to the holders of our senior units and our incentive distribution rights or a disproportionate distribution is made to a holder of our common units, senior units, or deferred participation units, gross income will be allocated to the recipients to the extent of such distributions. If we have a net loss, our items of income, gain, loss and deduction, after taking into account any special allocations required under our partnership agreement, will be allocated first, to the general partner and the unitholders in accordance with their respective percentage interests in us to the extent of their positive capital accounts, as maintained under our partnership agreements, and, second, to our general partner.
Various items of our income, gain, loss and deduction will be allocated to account for the difference between the tax basis and fair market value of property contributed to us by our general partner or any other person contributing property to us, and to account for the difference between the fair market value of our assets and their carrying value on our books at the time of any offering madethat we initially issued the common and preferred units offered pursuant to this prospectus. The effect of these allocations to a unitholder purchasing common units pursuant to this prospectus will be essentially the same as if the tax basis of our assets were equal to their fair market value at the time of purchase. In addition, items of recapture income will be allocated to the extent possible to the partner allocated the deduction or curative allocation giving rise to the treatment of such gain as recapture income to minimize the recognition of ordinary income by some unitholders.holders. Finally, although we do not expect that our operations will result in the creation of negative capital accounts, if negative capital accounts nevertheless result, items of our income and gain will be allocated in an amount and manner sufficient to eliminate the negative balance as quickly as possible.
Mayer, Brown, Rowe & MawGreenberg Traurig LLP is of the opinion that, with the exception of the issues described in “—Tax Consequences of Unit Ownership — "—Section 754 Election” and “—Disposition of Common Units, Senior Units and Deferred Participation Units —Allocations Between Transferors and Transferees,” the allocations in the partnership agreement of Ferrellgas Partners will be given effect for federal income tax purposes in determining how our income, gain, loss or deduction will be allocated among the holders of its equityoutstanding equity.
Substantial Economic Effect
Under Treasury Regulations, an allocation will be respected by the IRS only if it meets any one of the following: (i) the allocation has “substantial economic effect”; (ii) the allocation is in accordance with the partners’ interests in the partnership; or, (iii) the allocation is deemed to be in accordance with the partners’ interests in the partnership. Any allocation which fails to satisfy at least one of these three tests will be reallocated in accordance with the partners’ interests in the partnership as defined in the Treasury Regulations.
The Treasury Regulations set forth a two part analysis to determine whether an allocation has “substantial economic effect.” First, the allocation must have “economic effect.” In other words, the allocation must be consistent with the underlying economic arrangement of the partners. If there is an economic benefit or burden that corresponds to the allocation, the partner receiving such an allocation should benefit from the economic benefit or bear the economic burden. Normally, economic effect will be present only if the partners’ capital accounts are determined and maintained as required by the Treasury Regulations.
Liquidation proceeds must be distributed in accordance with the partners’ positive capital account balances (after certain adjustments). Additionally, if partners are not required to restore any deficit capital account balance, no loss or deduction may be allocated to a partner if such allocation would create a deficit balance in such partner’s capital account in excess of the amount such partner is obligated to restore to the partnership or is treated as required to restore to the partnership, and the partnership agreement must contain a “qualified income offset,” requiring that if a partner who unexpectedly receives an adjustment, allocation, or distribution described in subparagraphs (4), (5) or (6) of Section 1.704 1(b)(2)(ii)(d) of the Treasury Regulations which creates or increases a deficit in such partner’s capital account, such partner will be allocated items of net profits and gain (consisting of a pro rata portion of each item of partnership income, including gross income, and gain for such year) in an amount and manner sufficient to eliminate such deficit balance as quickly as possible.
Second, the economic effect must be “substantial.” Substantiality is present if there is a reasonable possibility that the allocation will substantially affect the dollar amounts to be received by a partner independent of his tax consequences. If a shifting of tax attributes results in little or no change to the partner’s capital accounts, or if the shift is merely transitory,
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they will not be recognized. Thus, if the allocation causes a shift in tax consequences that is outstanding immediately afterdisproportionately large in relation to the shift in economic consequence, there is a presumption that the economic effect of the allocation is not substantial and such allocation will be disregarded (and the partnership items will therefore be apportioned according to the partners’ respective interests).
The Treasury Regulations contain several exceptions and qualifications. For example, if a partnership allocation fails the above “economic effect” test, it may still be recognized if it meets the “economic effect equivalence” test. An allocation will be viewed as having economic effect if the agreement among the partners would in all cases produce the same results as the requirements outlined above. Further, there are also several exceptions, which come into play where the partner does not have an offering made pursuantabsolute obligation to this prospectus.restore a negative capital account.
Entity-Level Collections
If we are required or elect under applicable law to pay any federal, state or local income tax on behalf of any unitholderholder or the general partner or any former unitholder,holder, we are authorized to pay those taxes from our funds. Such payment, if made, will be treated as a distribution of cash to the unitholderholder on whose behalf the payment was made. If the payment is made on behalf of a person whose identity cannot be determined, we are authorized to treat the payment as a distribution to current unitholders.holders. We are authorized to amend the partnership agreement of Ferrellgas Partners in the manner necessary to maintain uniformity of intrinsic tax characteristics of common units, senior units, or deferred participation units and to adjust subsequent distributions, so that after giving effect to such distributions, the priority and characterization of distributions otherwise applicable under that partnership agreement is maintained as nearly as is practicable. Payments by us as described above could give rise to an overpayment of tax on behalf of a unitholderholder in which event the unitholderholder could file a claim for credit or refund.
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Treatment of Short Sales
A unitholderholder whose common units, senior units, or deferred participation units are loaned to a “short seller” to cover a short sale of common units, senior units, or deferred participation units may be considered to haveas having disposed of ownership of those common units, senior units, or deferred participation units. If so, that unitholderholder would no longer be a partner with respect to those common units, senior units, or deferred participation units during the period of the loan and may recognize gain or loss from the disposition. As a result, during this period:
| • | | any of our income, gain, loss or deduction with respect to those common units, senior units, or deferred participation units would not be reportable by the unitholder;holder; |
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| • | | any cash distributions received by the unitholderholder with respect to those common units, senior units, or deferred participation units would be fully taxable; and |
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| • | | all of such distributions would appear to be treated as ordinary income. |
Mayer, Brown, Rowe & MawGreenberg Traurig LLP has not rendered an opinion regarding the treatment of a unitholderholder whose common units, senior units, or deferred participation units are loaned to a short seller; therefore, unitholdersholders desiring to assure their status as partners and avoid the risk of gain recognition should modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common or preferred units. The IRS has announced that it is actively studying issues relating to the tax treatment of short sales of partnership interests. See “—Disposition of Common Units, — RecognitionSenior Units and Deferred Participation Units —Recognition of Gain or Loss.”
Certain Re-acquisitions of Debt Securities
If we or an entity related to us re-acquire one of our outstanding debt securities after December 31, 2008 and before January 1, 2011, whether in an actual exchange or by significantly modifying the debt, for an amount that is less than the adjusted issue price of such debt security, any resulting cancellation-of-debt (COD) income is deferred for up to five years for re-acquisitions occurring during 2009, and up to four years for re-acquisitions occurring in 2010. After this period of initial deferral, the COD Income is included in income ratably over the following five-year period. Therefore, in some cases, we may not recognize all of the COD Income until 10 years after the date on which the reacquisition occurred. If we elect to recognize COD income on such a re-acquisition of our debt securities during the specified period, and the new or modified debt security has original issue discount as a result of such re-acquisition, we may have to defer deductions for some or all of such original issue discount for the deferral period. Any income deferred pursuant to this election will be allocated to each holder immediately before the re-acquisition in a manner that such deferred amounts would have been included in the holder’s distributive share under Section 704 of the Code if such income were recognized at such time. Any decrease in a holder’s share of our liabilities as a result of such an event will not be taken into account for purposes of Code Section 752 at the time of cancellation of debt to the extent it would cause the holder to recognize
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gain under Code Section 731. Any decrease in our liabilities that was so deferred will be taken into account by the holders at the end of the deferral period for the COD income.
Prospective holders should consult with their tax advisors as to the impact of an investment in common units, senior units, or deferred participation units on their liability for the alternative minimum tax.
Alternative Minimum Tax
This discussion only addresses the alternative minimum tax as it applies to non-corporate taxpayers (and to shareholders of an S corporation). Each unitholderholder will be required to take into account that unitholder’sholder’s distributive share of any of our items of income, gain, loss or deduction for purposes of the alternative minimum tax. A portionThe first step in determining a taxpayer’s alternative minimum tax liability, if any, is calculation of our depreciation deductions may be treated as an adjustment itemthe taxpayer’s alternative minimum taxable income. Alternative minimum taxable income is computed by adjusting the taxpayer’s taxable income in accordance with the rules set forth in Sections 55, 56 and 58 of the Code, and by increasing the resulting amount by the taxpayer’s items of tax preference described in Section 57 of the Code. Alternative minimum taxable income is then reduced by a specified exemption amount and by the taxpayer’s alternative minimum tax foreign tax credit for this purpose. A unitholder’sthe taxable year. For taxable years beginning in 2009, the exemption amounts are $70,950 for married couples filing joint returns, $46,700 for single individuals, and $34,975 for married persons filing separate returns and estates and trusts. The exemption is phased out above certain alternative minimum taxable income derived from us may be higher than that unitholder’s share of our net income because we may use accelerated methods of depreciationlevels: $150,000 for purposes of computing federal taxable income or loss. Themarried taxpayers filing joint returns, $112,500 for single taxpayers, and $75,000 for married taxpayers filing separate returns and estates and trusts.
For 2009, the alternative minimum tax rate for non-corporate taxpayers is 26% on the first $175,000amount of the taxpayer’s alternative minimum taxable income, in excess ofwhich does not exceed $175,000 (after taking into account the exemption amountamount) and 28% on any additionalthe amount exceeding $175,000. A taxpayer is only required to pay an alternative minimum taxable income.tax liability to the extent that the amount of that liability exceeds the liability, which the taxpayer would otherwise have for the regular federal income tax.
Prospective unitholdersholders should consult with their tax advisors as to the impact of an investment in common units, senior units, or deferred participation units on their liability for the alternative minimum tax.
Tax Rates
The highest effectivemarginal United States federal income tax rate for individuals for 20062009 is 35% and the maximum United States federal income tax rate for net capital gains of an individual that are recognized prior to January 1, 2011 is 15%, if the asset disposed of was held for more than 12 months at the time of disposition. It is possible that these rates will change in the near future.
Section 754 Election
We have made the election permitted by Section 754 of the Internal Revenue Code. The election is irrevocable without the consent of the IRS. The election permits us to adjust a common unitunits, senior units, or deferred participation units purchaser’s tax basis in our assets under Section 743(b) of the Internal Revenue Code to reflect that unitholder’sholder’s purchase price when common units, senior units, or deferred participation units are purchased from a holder thereof. The Section 743(b) adjustment does not applyapplies only to a person who purchases common units, pursuant to an initial offering by ussenior units, or deferred participation units from a holder of common units, senior units, or deferred participation units (including a person who purchases the common units, senior units, or deferred participation units offered pursuant to this prospectus).registration statement) and not pursuant to an initial offering by us. The effect of the Section 743(b) adjustment to a person buying the common units, senior units, or deferred participation units offered herein will be essentially the same as if the tax basis of our assets were equal to their fair market value at the time of purchase.
The calculations that are required to determine a Section 743(b) adjustment are made additionally complex because common units, senior units, or deferred participation units held by the public have been issued pursuant to multiple offerings. For example, particular regulations require that the portion of the Section 743(b) adjustment that eliminates the effect of any unamortized difference in “book” and tax basis of recovery property to the holder of such a common unitunits, senior units, or deferred participation units be depreciated over the remaining recovery period of that property, but Treasury Regulation Section 1.167(c)-1(a)(6) may require that any such difference in “book” and tax basis of other property be depreciated over a different period. In addition, the
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holder of a common unit,units, senior units, or deferred participation units, other than a holder who purchased such common unitunits, senior units, or deferred participation units pursuant to an initial offering by us, may be entitled by reason of a Section 743(b) adjustment to amortization deductions in respect of property to which the traditional method of eliminating differences in “book” and tax basis applies but to which the holder of a common or preferred unit that is sold in an initial offering will not be entitled.
Because we cannot match transferors and transferees of common units, senior units, or deferred participation units, uniformity of the economic and tax characteristics of our common units, senior units, or deferred participation units to a
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purchaser of such common units, senior units, or deferred participation units must be maintained. In the absence of uniformity, compliance with a number of federal income tax requirements, both statutory and regulatory, could be substantially diminished. Under the partnership agreement of Ferrellgas Partners, our general partner is authorized to take a position to preserve our ability to determine the tax attributes of a common unitunits, senior units, or deferred participation units from itsthe date of purchase and the amount that is paid therefortherefore even if that position is not consistent with the Treasury Regulations.
We intend to depreciate the portion of a Section 743(b) adjustment attributable to any unamortized difference between the “book” and tax basis of an asset in respect of which we use the remedial method in a manner that is consistent with the regulations under Section 743 of the Internal Revenue Code as to recovery property in respect of which the remedial allocation method is adopted. Such method is arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6), which is not expected to directly apply to a material portion of our assets. If we determine that this position cannot reasonably be taken, we may take a depreciation or amortization position which may result in lower annual depreciation or amortization deductions than would otherwise be allowable to some unitholders. In addition, if common units, senior units, or deferred participation units held by the public other than those that are sold in an initial offering by us are entitled to different treatment in respect of property as to which we are using the traditional method of eliminating differences in “book” and tax basis, we may also take a position that results in lower annual deductions to some or all of our unitholdersholders than might otherwise be available. Mayer, Brown, Rowe & MawGreenberg Traurig LLP is unable to opine as to the validity of any position that is described in this paragraph because there is no clear applicable authority.
A Section 754 election is advantageous if the tax basis in a transferee’s common units, senior units, or deferred participation units is higher than such common units, senior units, or deferred participation units’ share of the aggregate tax basis of our assets immediately prior to the transfer. In such a case, as a result of the election, the transferee would have a higher tax basis in its share of our assets for purposes of calculating, among other items, the transferee’s depreciation and amortization deductions and the transferee’s share of any gain or loss on a sale of our assets. Conversely, a Section 754 election is disadvantageous if the transferee’s tax basis in such common units, senior units, or deferred participation units is lower than such common unit’sunits, senior units, or deferred participation units’ share of the aggregate tax basis of our assets immediately prior to the transfer. However, we would be required to make a Section 743(b) adjustment in connection with such transfer if the tax basis of our assets exceeds the value of our assets by more than $250,000 immediately after such transfer (a “Substantial Built-in Loss”), even if we had not made a Section 754 election. Thus, the fair market value of our common units, senior units, or deferred participation units may be affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and will be made by us on the basis of assumptions as to the value of our assets and other matters. For example, the allocation of the Section 743(b) adjustment among our assets must be made in accordance with the Internal Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is amortizable over a longer period of time or under a less accelerated method than most of our tangible assets. The determinations we make may be successfully challenged by the IRS and the deductions resulting from them may be reduced or disallowed altogether. Should the IRS require a different basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek permission from the IRS to revoke our Section 754 election. If such permission is granted, a subsequent purchaser of common units, senior units, or deferred participation units may be allocated more income than that purchaser would have been allocated had the election not been revoked, but we would still be required to make Section 743(b) adjustments with respect to any Substantial Built-in Loss existing at the time such purchaser acquired our common units.revoked.
Tax Treatment of Our Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting for federal income tax purposes. Under the accrual method, we will recognize as income items such as rentals and interest as and when earned whether or not they are received. Each unitholderholder will be required to include in income that unitholder’sholder’s share of our income,
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gain, loss and deduction for our taxable year ending within or with that unitholder’sholder’s taxable year. In addition, a unitholderholder who has a taxable year ending on a date other than December 31 and who disposes of all of its common units, senior units, or deferred participation units following the close of our taxable year but before the close of its taxable year must include that unitholder’sholder’s share of our income, gain, loss and deduction in income for its taxable year, with the result that that unitholderholder will be required to include in income for its taxable year that unitholder’sholder’s share of more than one year of our income, gain, loss and deduction. See “—Disposition of Common Units, — AllocationsSenior Units and Deferred Participation Units —Allocations Between Transferors and Transferees.”
Initial Tax Basis, Depreciation and Amortization
We will use the tax basis of our various assets for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of such assets. Assets that we acquired from our general partner in connection with our formation initially had an aggregate tax basis equal to the tax basis of the assets in the possession of
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the general partner immediately prior to our formation. The majority of the assets that we acquired after our formation had an initial tax basis equal to their cost, however some of our assets were contributed to us and had an initial tax basis equal to the contributor’s tax basis in those assets immediately prior to such contribution. The federal income tax burden associated with the difference between the fair market value of our property and its tax basis immediately prior to an initial offering by us will be borne by unitholdersholders holding interests in us prior to that offering. See “—Tax ConsequencesTreatment of Unit Ownership — Holders of Common Units, Senior Units and Deferred Participation Units—Allocation of Partnership Income, Gain, Loss and Deduction.”
We may elect to use permitted depreciation and cost recovery methods that will result in the largest deductions being taken in the early years after assets are placed in service. Property we acquire or construct in the future may be depreciated using accelerated methods permitted by the Internal Revenue Code. The Code provides for a “bonus” depreciation of 50% (or 30% if the taxpayer so elects) of the adjusted basis of certain qualified property in the taxable year in which it is placed in service. Property is qualified property for this purpose if, among other things, its original use began with the taxpayer and it is placed in service before January 1, 2010. A taxpayer may, however, choose to use a straight line method of depreciation for the entire recovery period. In order to elect out of the “bonus” depreciation with respect to property in a class the election must apply to all property in that class placed in service during the taxable year. Up and until the tax year of 2008, we have not used the “bonus” depreciation method; however, we may decide to use it in the future.
If we dispose of depreciable property by sale, foreclosure, or otherwise, all or a portion of any gain, determined by reference to the amount of depreciation previously deducted and the nature of the property, may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a unitholderholder who has taken cost recovery or depreciation deductions with respect to property owned by us may be required to recapture such deductions as ordinary income upon a sale of that unitholder’sholder’s interest in us. See “—Tax ConsequencesTreatment of Unit Ownership — Holders of Common Units, Senior Units and Deferred Participation Units—Allocation of Partnership Income, Gain, Loss and Deduction” and “—Disposition of Common Units, — RecognitionSenior Units and Deferred Participation Units —Recognition of Gain or Loss.”
The costs that we incurred in our organization have previously been amortized over a period of 60 months. The costs incurred in selling our common units, senior units, or deferred participation units i.e., syndication expenses, must be capitalized and cannot be deducted currently, ratably or upon our termination. Uncertainties exist regarding the classification of costs as organization expenses, which have previously been amortized by us over a period of 60 months, and as syndication expenses, which may not be amortized by us. The underwriting discounts and commissions we incur will be treated as syndication expenses.
Valuation and Tax Basis of our Properties
The federal income tax consequences of the ownership and disposition of common units, senior units, or deferred participation units will depend in part on our estimates of the fair market values, and determinations of the tax bases, of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the fair market value estimates ourselves. These estimates of value and determinations of basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates and determinations of fair market value or basis are later found to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by unitholdersholders might change, and unitholdersholders might be required to adjust their tax liability for prior years and incur interest and penalties with respect to those adjustments.
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Disposition of Common Units, Senior Units, and Deferred Participation Units
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of common units, senior units, or deferred participation units equal to the difference between the amount realized and the unitholder’sholder’s tax basis for the common units, senior units, or deferred participation units sold. A unitholder’sholder’s amount realized will be measured by the sum of the cash or the fair market value of other property received plus that unitholder’sholder’s share of our nonrecourse liabilities. Because the amount realized includes a unitholder’sholder’s share of our nonrecourse liabilities, the gain recognized on the sale of common units, senior units, or deferred participation units could result in a tax liability in excess of any cash received from such sale. Prior distributions from us in excess of cumulative net taxable income in respect of a common unitunits, senior units, or deferred participation units which decreased a unitholder’sholder’s tax basis in such common unitunits, senior units, or deferred participation units will, in effect, become taxable income if our common unit isunits, senior units, or deferred participation units are sold at a price greater than the unitholder’sholder’s tax basis in such common unit,units, senior units, or deferred participation units, even if the price is less than that unitholder’sholder’s original cost.
Should the IRS successfully contest our convention to amortize only a portion of the Section 743(b) adjustment attributable to an amortizable intangible asset described in Section 197 of the Internal Revenue Code after a sale of
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common units, senior units, or deferred participation units, a unitholderholder could realize additional gain from the sale of common units, senior units, or deferred participation units than had such convention been respected. See “—Tax ConsequencesTreatment of Unit Ownership — Holders of Common Units, Senior Units and Deferred Participation Units—Section 754 Election.” In that case, the unitholderholder may have been entitled to additional deductions against income in prior years but may be unable to claim them, with the result to that unitholderholder of greater overall taxable income than appropriate. Counsel is unable to opine as to the validity of the convention but believes such a contest by the IRS to be unlikely because a successful contest could result in substantial additional deductions to other unitholders.holders.
Except as noted below, gain or loss recognized by a unitholder,holder, other than a “dealer” in common units, senior units, or deferred participation units, on the sale or exchange of a common unitunits, senior units, or deferred participation units will be taxable as capital gain or loss. Capital gain recognized on the sale of common units, senior units, or deferred participation units held for more than 12 months will be taxed at a maximum rate of 15% for sales occurring prior to January 1, 2011. A portion of this gain or loss, which will likely be substantial, however, will be separately computed and taxed as ordinary income or loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by us. The term “unrealized receivables” includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the sale of our common unitunits, senior units, or deferred participation units and may be recognized even if there is a net taxable loss realized on the sale of our common unit.units, senior units, or deferred participation units. Thus, a unitholderholder may recognize both ordinary income and a capital loss upon a disposition of common units, senior units, or deferred participation units. Net capital loss may offset no more than $3,000 of ordinary income in the case of individuals and may only be used to offset capital gain in the case of corporations.
The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis for all those interests. Upon a sale or other disposition of less than all of such interests, a portion of that tax basis must be allocated to the interests sold using an “equitable apportionment” method. Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholderholder who can identify common units, senior units, or deferred participation units transferred with an ascertainable holding period to elect to use the actual holding period of the common units, senior units, or deferred participation units transferred. Thus, according to the ruling, a holder of common units, senior units, or deferred participation units will be unable to select high or low basis common units, senior units, or deferred participation units to sell, but, under the regulations, may designate specific common units, senior units, or deferred participation units sold for purposes of determining the holding period of the common units, senior units, or deferred participation units sold. A unitholderholder electing to use the actual holding period of common units, senior units, or deferred participation units transferred must consistently use that identification method for all subsequent sales or exchanges of our common units, senior units, or deferred participation units. A unitholderholder considering the purchase of additional common units, senior units, or deferred participation units or a sale of common units, senior units, or deferred participation units purchased in separate transactions should consult that unitholder’sholder’s tax advisor as to the possible consequences of this ruling and application of the regulations.
The Internal Revenue Code treats a taxpayer as having sold a partnership interest, such as our common units, senior units, or deferred participation units, in which gain would be recognized if it were actually sold at its fair market value, if the taxpayer or related persons enters into:
| • | | a short sale; |
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| • | | an offsetting notional principal contract; or |
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| • | | a futures or forward contract with respect to the partnership interest or substantially identical property. |
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a futures or forward contract with respect to the partnership interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership interest or substantially identical property.
Allocations Between Transferors and Transferees
In most cases, our taxable income and losses will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholdersholders in proportion to the number of common units, senior units, or deferred participation units owned by each of them as of the opening of the New York Stock Exchange on the first business day of the month. However, gain or loss realized on a sale or other disposition of our assets other than in the ordinary course of business will be allocated among the unitholdersholders as of the opening of the New York Stock Exchange on the first business day of the month in which that gain or loss is recognized. As a result, a unitholderholder transferring common units, senior units, or deferred participation units in the open market may be allocated income, gain, loss and deduction accrued after the date of transfer.
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The use of this method may not be permitted under existing Treasury Regulations. Accordingly, Mayer, Brown, Rowe & MawGreenberg Traurig LLP is unable to opine on the validity of this method of allocating income and deductions between transferors and transferees of common or preferred units. If this method is not allowed under the Treasury Regulations, or only applies to transfers of less than all of the unitholder’sholder’s interest, our taxable income or losses might be reallocated among the unitholders.holders. We are authorized to revise our method of allocation between transferors and transferees, as well as among unitholdersholders whose interests otherwise vary during a taxable period, to conform to a method permitted under future Treasury Regulations.
A unitholderholder who owns common units, senior units, or deferred participation units at any time during a quarter and who disposes of such common units, senior units, or deferred participation units prior to the record date set for a cash distribution with respect to such quarter will be allocated items of our income, gain, loss and deduction attributable to such quarter but will not be entitled to receive that cash distribution.
Notification Requirements
A unitholderholder who sells or exchanges common units, senior units, or deferred participation units is required to notify us in writing of that sale or exchange within 30 days after the sale or exchange and in any event by no later than January 15 of the year following the calendar year in which the sale or exchange occurred. We are required to notify the IRS of that transaction and to furnish specific information to the transferor and transferee. However, these reporting requirements do not apply with respect to a sale by an individual who is a citizen of the United States and who effectscauses the sale or exchange through a broker. Additionally, a transferor and a transferee of a common unitunits, senior units, or deferred participation units 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 sets forth the amount of the consideration paid for the common unit. Failureunits, senior units, or deferred participation units. A holder who fails to satisfy these reporting obligations may lead toinform us of a transfer of the impositionholder’s common units, senior units or deferred participation units in accordance with the rules described above is liable for a penalty of substantial penalties.$50 per unreported transfer with an annual maximum penalty of $100,000. Each such statement must contain the following: (i) the names, addresses and taxpayer identification numbers of the transferee and transferor involved in the exchange and (ii) the date of the sale or exchange.
Constructive Termination
We will be considered to have been terminated for tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. A termination of us will result in the closing of our taxable year for all unitholders.holders. In the case of a unitholderholder reporting on a taxable year other than a year ending December 31, the closing of our taxable year may result in more than 12 months of our taxable income or loss being includable in that unitholder’sholder’s taxable income for the year of our termination. New tax elections required to be made by us, including a new election under Section 754 of the Internal Revenue Code, must be made subsequent to a termination, and a termination could result in a deferral of our deductions for depreciation. A termination could also result in penalties if we were unable to determine that the termination had occurred. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted prior to the termination.
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Tax-Exempt OrganizationsTax Treatment of Tax Exempt Holders of Common Units, Senior Units and Various Other InvestorsDeferred Participation Units
Ownership of common units, senior units, or deferred participation 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 substantially increase the tax liability and requirements imposed on such persons.
Employee benefit plans and most other organizationsThe income earned by a tax exempt entity, including a qualified employee pension or profit sharing trust or an individual retirement account, is generally exempt from federal incometaxation. However, gross Unrelated Business Taxable Income, or UBTI, of a tax including individual retirement accounts and other retirement plans, areexempt entity is subject to federaltax to the extent that, when combined with all other gross UBTI of the tax exempt entity for a taxable year, it exceeds all deductions attributable to the UBTI plus $1,000 during the taxable year. Such UBTI will be taxable at ordinary income tax on unrelated business taxable income.rates and may be subject to the alternative minimum tax. Virtually all of the taxable income derived by such an organization from the ownership of a common unitunits, senior units, or deferred participation units will be unrelated business taxable income and thus will be taxable to such a unitholder.
Pursuantholder. If the gross income taken into account in computing UBTI exceeds $1,000, the tax exempt entity is obligated to new Section 4965 of the Internal Revenue Code, certain tax-exempt investors and their managers may be subject to excise taxes if we engage infile a transaction that is a “prohibited tax shelter transaction,” which includes listed transactions and certain reportable transactions offered under conditions of confidentiality or as to which the intended tax benefits are contractually protected. Although we do not intend to invest in a listed transaction or a reportable transaction, we could inadvertently invest in a prohibited reportable transaction. Each tax-exempt entity should consult its own tax advisor regarding an investment in our common units.return for such year on IRS Form 990 T.
A regulated investment company (oror “mutual fund”) is required to derive 90% or more of its gross income from interest, dividends, gains from the sale of stocks or securities or foreign currency or related sources,sources. It is not anticipated that any significant amount of our gross income will include that type of income.
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Gift of Common Units, Senior Units, or Deferred Participation Units
In general, no gain or loss should be recognized on a gift of common units, senior units, or deferred participation units, although there may be federal gift tax imposed on such gift. However, a gift of common units, senior units, or deferred participation units encumbered by debt (including debt incurred by the gifting holder to acquire the common units, senior units, or deferred participation units and netdebt incurred by us that is included in the gifting holder’s basis in his or her common units, senior units, or deferred participation units) can result in the recognition of gain, but never loss, and federal income derived from an interesttax (as well as federal gift tax) liability to the donor. A gift of common units, senior units, or deferred participation units encumbered by debt generally results in a “qualified publicly-traded partnership.” However, no more than 25%decrease in the gifting holder’s allocable share of liabilities if the donee accepts the common units, senior units, or deferred participation units subject to the debt or assumes the liabilities of the valuegifting holder. If the amount of a regulated investment company’s total assets may be investedthe decrease in liabilities exceeds the securities of oneholder’s adjusted basis in his or more qualified publicly-traded partnerships. A qualified publicly-traded partnership is a publicly-traded partnership as to which less than 90% of its gross income for each taxable year consists of interest, dividends, gains fromher common units, senior units, or deferred participation units, the sale of stocks or securities or foreign currency or related sources. We expect Ferrellgas Partners totransaction should be treated as a qualified publicly-traded partnership.part gift and part sale transaction, resulting in taxable gain to the extent the amount of liabilities exceeds adjusted basis in the common units, senior units, or deferred participation units. To the extent some of the gain is attributable to the holder’s share of “substantially appreciated inventory items” and “unrealized receivables,” such gain will be taxed as ordinary income. Since the tax consequences of any gift or transfer will depend upon the particular circumstances and upon the individuals or organizations involved in the transaction, before making any gift of common units, senior units or deferred participation units, a holder should consult his or her tax advisor as to the consequences of such a gift and as to the basis of the common units, senior units or deferred participation units in the hands of his or her successor.
Death of Partner
If a holder dies, the fair market value of his or her common units, senior units, or deferred participation units at death (or, if elected, at the alternate valuation date) will be subject to federal estate taxation. Under present law, the death of a holder does not result in a sale or exchange giving rise to a federal income tax. It is not clear what the tax consequences are if the decedent’s proportionate share of our liabilities exceeds the adjusted basis of his or her common units, senior units, or deferred participation units at death. In this event, some gain may be recognized to the decedent or his estate upon the distribution of the common units, senior units, or deferred participation units to the extent of such excess. The cost or other basis of the common units, senior units, or deferred participation units inherited from the decedent generally is “stepped up” or “stepped down” to its fair market value for federal income tax purposes.
Non-U.S. Holders
A holder of common units, senior units, or deferred participation units is considered a “non-U.S. holder” for purposes of this discussion if he or she is a beneficial owner of common units, preferred units or deferred participation units and is not a “U.S. holder” or a partnership (including an entity treated as a partnership for U.S. federal income tax purposes).
Non-resident aliens and foreign corporations, trusts or estates which hold common units, senior units, or deferred participation units will be considered to be engaged in business in the United States on account of ownership of common units, senior units, or deferred participation units. As a consequence, they will be required to file federal tax returns in respect of their share of our income, gain, loss or deduction and pay federal income tax at regular rates on any net income or gain. Moreover, under rules applicable to publicly-traded partnerships, we will withhold at the highest effective tax rate applicable to individuals currently 35%, from cash distributions made quarterly to foreign unitholders.holders. Each foreign unitholderholder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8 BEN or applicable substitute form in order to obtain credit for the taxes withheld. A change in applicable law may require us to change these procedures.
In addition, because a foreign corporation which owns common units, senior units, or deferred participation units will be treated as engaged in a United States trade or business, that corporation may be subject to United States branch profits tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of our income and gain (as adjusted for changes in the foreign corporation’s “U.S. net equity”) which are effectively connected with the conduct of a United States trade or business. That tax may be reduced or eliminated by an income tax treaty between the United States and the country with respect to which the foreign corporate unitholderholder is a “qualified resident.” In addition, such a unitholderholder is subject to special information reporting requirements under Section 6038C of the Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholderholder who sells or otherwise disposes of a common unitunits, senior units, or deferred participation units will be subject to federal income tax on gain realized on the disposition of such common unitunits, senior units, or deferred participation units to the extent that such gain is effectively connected with a United States trade or business of the foreign unitholder.holder. Apart from the ruling, a foreign unitholderholder will not be taxed upon the disposition of a common unitunits, senior units, or deferred participation units if that foreign unitholderholder has held less than 5% in value of our common units, senior units, or deferred participation units during the five-year period ending on the date of the disposition and if our
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common units, senior units, or deferred participation units are regularly traded on an established securities market at the time of the disposition.
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Administrative Matters
Information Returns and Audit Procedures
We intend to furnish to each unitholder,holder, within 90 days after the close of each calendar year, specific tax information, including a Schedule K-1, which sets forth each unitholder’sholder’s share of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which in most cases will not be reviewed by counsel, we will use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine the unitholder’sholder’s share of income, gain, loss and deduction. There is no assurance that any of those conventions will yield a result which conforms to the requirements of the Internal Revenue Code, regulations or administrative interpretations of the IRS. We cannot assure prospective unitholdersholders that the IRS will not successfully contend in court that such accounting and reporting conventions are impermissible. Any such challenge by the IRS could negatively affect the value of our common units, senior units, or deferred participation units.
The IRS may audit our federal income tax information returns. Adjustments resulting from any such audit may require each unitholderholder to adjust a prior year’s tax liability, and possibly may result in an audit of the unitholder’sholder’s own return. Any audit of a unitholder’sholder’s return could result in adjustments not related to our returns as well as those related to our returns.
In most respects, partnerships are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined in a partnership proceeding rather than in separate proceedings with the partners. The Internal Revenue Code requires that one partner be designated as the “Tax Matters Partner” for these purposes. Our partnership agreements appoint our general partner as our Tax Matters Partner.
The Tax Matters Partner will file our tax returns using the accrual method of accounting and will adopt the calendar year as our taxable year. Holders will be required to file their returns consistently with the information provided on our informational return or notify the IRS of any inconsistency. A failure to notify the IRS of an inconsistent position allows the IRS automatically to assess and collect the tax, if any, attributable to the inconsistent treatment. With certain exceptions, a penalty will be assessed for each month or fraction thereof (up to a maximum of twelve months) that a partnership return is filed either late or incomplete. The monthly penalty is equal to $89 multiplied by the number of our partners during the year for which the return is due.
With certain exceptions, a penalty will be assessed if we fail to furnish to the holders a correct Schedule K 1 to our federal income tax return on or before the prescribed due date (including any extension thereof). The penalty is equal to $50 multiplied by the number of our partners not furnished a correct Schedule K 1 on or before the prescribed due date (including any extension thereof), with a maximum penalty of $100,000 per calendar year.
The Tax Matters Partner will make various elections on our behalf and on behalf of the unitholders.holders. In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax deficiencies against unitholdersholders for items in our returns. The Tax Matters Partner may bind a unitholderholder with less than a 1% profits interest in us to a settlement with the IRS unless that unitholderholder 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 unitholdersholders 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 unitholderholder having at least a 1% interest in our profits and by the unitholdersholders having in the aggregate at least a 5% profits interest. However, only one action for judicial review will go forward, and each unitholderholder with an interest in the outcome may participate.
A unitholderholder must file a statement with the IRS identifying the treatment of any item on that unitholder’sholder’s federal income tax return that is not consistent with the treatment of the item on our return. Intentional or negligent disregard of the consistency requirement may subject a unitholderholder to substantial penalties.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
| • | | the name, address and taxpayer identification number of the beneficial owner and the nominee; |
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| • | | whether the beneficial owner is: |
| • | | a person that is not a United States person; |
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| • | | a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing; or |
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| • | | the amount and description of common units, senior units, or deferred participation units held, acquired or transferred for the beneficial owner; and |
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| • | | particular information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. |
Brokers and financial institutions are required to furnish additional information, including whether they are United States persons and specific information on common units, senior units, or deferred participation units they acquire, hold or transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is imposed by the Internal Revenue Code for failure to report this information to us. The nominee is required to supply the beneficial owner of our common units, senior units, or deferred participation units with the information furnished to us.
Tax Shelter ReportingPartnership Anti Abuse Rules
Treasury Regulations require taxpayersknown as the “Anti-Abuse Rules” purportedly grant authority to report particular information on Form 8886 if they participate in a “reportable transaction.” Unitholders may be requiredthe IRS to file this formre-characterize certain transactions to the extent that it is determined that the utilization of partnerships is inconsistent with the IRS. A transactionintent of the federal partnership tax rules. Under these Anti Abuse Rules, the IRS may, under certain circumstances, (i) recast transactions which attempt to use the partnership form of ownership, or (ii) otherwise treat the partnership as an aggregation of its partners rather than a distinct separate entity, as appropriate in order to carry out the purposes of the partnership tax rules. The Anti Abuse Rules also provide that the authority to re-characterize transactions is limited to circumstances under which the tax characterization by the taxpayer is not, based on all facts and circumstances, clearly contemplated under the Code or the applicable Treasury Regulations.
These Anti Abuse Rules are intended to impact only a small number of transactions, which improperly utilize partnership tax rules. It is therefore not anticipated that we and/or the transactions contemplated herein will be a reportable transaction based upon any of several factors. Unitholders are urged to consult with their own tax advisors concerningaffected by the application of anypromulgation or administration of these factorsAnti Abuse Rules. In light of the broad language incorporated in these Regulations, however, no assurance can be given that the IRS will not attempt to theirutilize the Anti Abuse Rules to alter, in whole or part, the tax consequences described herein with regard to an investment in our common units. Significant penalties may be imposed for failure to comply with these disclosure requirements. Disclosure and information maintenance obligations are also imposed on “material advisors” that organize, manage or sell interests in reportable transactions. Unitholders are urged to consult with their own tax advisors concerning any possible disclosure obligation with respect to their investment and should be aware that we and our material advisors intend to comply with the disclosure and information maintenance requirements.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax which is attributable to one or more of particular listed causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed, however, with respect to any portion of an underpayment if it is shown that there was a reasonable cause for that portion and that the taxpayer acted in good faith with respect to that portion.
A substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds (i) the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000, or (ii) in the case of most corporations, the lesser of 10% of the tax required to be shown on the return for the taxable year or $10,000,000. The amount of any understatement subject to penalty is reduced if any portion is attributable to a position adopted on the return:
| • | | with respect to which there is, or was, “substantial authority;” or |
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| • | | as to which there is a reasonable basis and the pertinent facts of such position are disclosed on the return. |
This reduction does not apply to an understatement attributable to a “tax shelter,” a term that in this context does not appear to include us.
An additional penalty tax applies to certain “listed transactions” and reportable transactions with a significant tax avoidance purposes (“reportable avoidance transactions”). The amount of the penalty is equal to 20% of any understatement of income tax attributable to an adequately disclosed reportable avoidance transaction. No penalty will be imposed, however, if the relevant facts affecting the tax treatment of the transaction are adequately disclosed, there is or was substantial authority for the claimed tax treatment, and the taxpayer reasonably believed that the claimed tax treatment was more likely than not the proper treatment. If the reportable avoidance transaction
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is not adequately disclosed, this exception will not apply and the penalty will be increased to 30% of the understatement.
If any item of our income, gain, loss or deduction included in the distributive shares of unitholders might result in such an “understatement” of income for which no “substantial authority” exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property, or the adjusted basis of any property, claimed on a tax return is 200% or more of the amount determined to be the correct amount of such valuation or adjusted basis. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000, $10,000 for most corporations. If the valuation claimed on a return is 400% or more than the correct valuation, the penalty imposed increases to 40%.
State, Local andAnd Other Tax Consequences
In addition to federal income taxes, unitholdersholders will be subject to other taxes, such as state and local income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which we do business or own property. Although an analysis of those various taxes is not presented here, each prospective unitholderholder should consider their potential impact on that unitholder’sholder’s investment in us.common units, senior units, and deferred participation units. We currently conduct business in all 50 states.states and Puerto Rico. A unitholderholder will be required to file state income tax returns and to pay state income taxes in some or all of the states in which we do business or own property and may be subject to penalties for failure to comply with those requirements. In some states, tax losses may not produce a tax benefit in the year incurred (if, for example, we have no income from sources within that state) and also may not be available to offset income in subsequent taxable years. Some of the states may require that we, or we may elect to, withhold a percentage of income from amounts to be distributed to a unitholderholder who is not a resident of the state. Withholding, the amount of which may be greater or less than a particular unitholder’sholder’s income tax liability to the state, does not relieve the non-resident unitholderholder from the obligation to file an income tax return. Amounts withheld may be treated as if distributed to unitholdersholders for purposes of determining the amounts distributed by us. See “—Tax ConsequencesTreatment of Unit Ownership — Holders of Common Units, Senior Units and Deferred Participation Units—Entity-Level Collections.” Based on current law and our estimate of future operations, we anticipate that any amounts required to be withheld will not be material.
It is the responsibility of each unitholderholder to investigate the legal and tax consequences under the laws of pertinent states and localities of that unitholder’sholder’s investment in us. Accordingly, each prospective unitholderholder should consult, and must depend upon, that unitholder’sholder’s own tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholderholder to file all state and local, as well as U.S. federal, tax returns that may be required of such unitholder. Mayer, Brown, Rowe & Mawholder. Greenberg Traurig LLP has not rendered an opinion on the state or local tax consequences of an investment in us.
Tax Treatment of Holders of Warrants
In general, a holder of a warrant is not treated as owning a direct equity interest in the grantor of the warrant unless and until the warrant is physically exercised. Nevertheless, if a warrant is “deep-in-the-money” at the time of issuance, the holder of the warrant is generally viewed as holding directly the underlying property. Specifically, in the context of warrants on partnership interests, the IRS issued proposed regulations in 2003, which contain a two-part test to determine whether a warrant will be re-characterized as a partnership interest. They require that both of the following tests be met: (i)
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the holder must have rights substantially similar to the rights afforded to a partner; and (ii) there must be a strong likelihood that failure to treat the warrant holder as a partner would result in a substantial reduction in aggregate tax liabilities.
It is unclear whether these proposed regulations would apply to our warrants or whether the warrants will be treated as “deep-in-the-money.” In either case, if the IRS determines that the holders of the warrants should be treated as holding a direct interest in us, the tax consequences discussed above in the section entitled “Tax Treatment of Holders of Common Units, Senior Units and Deferred Participation Units” may apply to such holders. Holders of warrants should consult their own tax advisers regarding the possible re-characterization of the warrants as partnership interests.
The discussion that follows assumes that the warrants are not treated as direct partnership interest in us and are respected as options for U.S. federal income tax purposes. The following discussion also assumes that the warrants can only be physically exercised (i.e., with delivery of the underlying property).
Tax Treatment of Standalone Warrants
In general, the issuance of warrants by us would not result in any tax consequences to the holder until the warrants are sold, exchanged, lapse or otherwise disposed of. Thus, upon issuance of a warrant, a holder of a warrant is not allowed a deduction for the premium paid to purchase the warrant.
A holder of a warrant will generally recognizes gain or loss upon a sale, exchange, or other disposition of the warrant equal to the amount realized on the warrant minus the premium paid for the warrant and any related costs. If a warrant lapses without exercise, the holder will simply be allowed a deduction for the premium (and any related costs) at the time of lapse. Gain or loss from the sale, exchange, or lapse of a warrant is treated as gain or loss from the sale or exchange of property which has the same character as the property to which the option relates in the hands of the holder. Thus, the character of gains and losses on the warrant is determined in accordance with the character of the underlying property in the hands of the holder. Certain early terminations of a warrant will give rise to capital gains or losses to the extent that the underlying property is also capital in the hands of the holder.
When a warrant is physically exercised, the holder generally recognizes no gain or loss and receives no deduction; rather, the holder adds the premium to its basis in the underlying property acquired upon exercise. Following the physical exercise of a warrant, the tax treatment of the property received by a holder pursuant to the warrant is similar to the tax treatment described herein concerning equity units or debt securities.
Tax Treatment of Warrants Issued in Conjunction with Our Debt Securities
Under the original issue discount regulations, if we issue warrants in conjunction with the issue of debt securities as an “investment unit, the issue price of the investment unit is allocated between the debt securities and the warrant based on the relative fair market values of each component at the time of issuance. The allocation of a portion of the issue price to the warrant creates original issue discount on the debt security, generally equal to the value of the warrant at the time of issue. The holder is generally bound by our allocation, unless the holder explicitly discloses on its return that its allocation differs from ours. Warrants issued in conjunction with our debt securities are generally treated by a holder as separate from the debt securities and are generally treated similarly for U.S. federal income tax purposes as warrants issued not in conjunction with debt securities.
Tax Treatment of Holders of Debt Securities
The following is a summary of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of our debt securities. This summary does not address the material U.S. federal income tax consequences of every type of debt security which may be issued under this registration statement. In particular, the following summary does not discuss the U.S. federal income tax treatment of purchasing, holding and disposing of: (i) debt securities that are convertible into our common or senior units; (ii) debt securities characterized as variable rate debt instruments or contingent payment debt instruments for U.S. federal income tax purposes; (iii) debt securities with a term of one year or less (“short-term debt obligations”); or (iv) debt securities that are denominated in currency other than U.S. Dollar. In the event we issue debt securities the tax treatment of which is not discussed herein, the applicable prospectus or prospectus supplement will describe the material U.S. federal income tax consequences thereof. This discussion only applies to initial purchasers of our debt securities by a U.S. holder. If you purchase one of our debt securities in the secondary market, you should consult your own adviser regarding the possible U.S. federal income tax consequences of purchasing, holding and disposing of our debt securities.
In addition, the following discussion does not address the potential U.S. federal income tax consequences for purchasers of our debt securities in the secondary markets. Such purchasers are encouraged to consult with their own tax advisers regarding the potential U.S. federal income tax consequences of purchasing, holding and disposing of our debt securities.
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Tax Consequences to U.S. Holders
U.S. Holder
A “U.S. holder” is a beneficial owner of debt securities that is for U.S. federal income tax purposes:
| • | | a citizen or resident of the United States; |
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| • | | a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof (other than a partnership that is not treated as a U.S. person under any applicable Treasury regulations); |
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| • | | an estate the income of which is subject to U.S. federal income tax regardless of its source; or |
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| • | | a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. |
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds debt securities, the tax treatment of a partner of the partnership generally will depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership acquiring the debt securities, you are urged to consult your own tax advisor about the U.S. federal income tax consequences of acquiring, holding and disposing of the debt securities.
Accrual of Stated Interest and Original Issue Discount
A U.S. holder generally will be required to include in gross income as ordinary interest income the stated interest on debt securities at the time that the interest accrues or is received, in accordance with the U.S. holder’s regular method of accounting for U.S. federal income tax purposes.
Some debt securities may be issued with original issue discount (''OID’’). OID on debt securities will generally equal the excess of the debt securities’ stated redemption price at maturity over the debt securities’ issue price, subject to a statutory de minimis exception ((0.25% of the debt security’s stated redemption price at maturity multiplied by the number of complete years to its maturity). The issue price of the debt securities will be the first price at which a substantial amount of the debt securities is sold (ignoring sales to bond houses, brokers, or similar persons acting in the capacity of underwriters, placement agents, or wholesalers). The debt securities’ stated redemption price at maturity is equal to the sum of all payments to be made on such debt securities, other than payments of qualified stated interest (i.e., payments of interest at a fixed rate that are payable at least annually for the entire term of the notes).
For debt securities that will be issued with OID, U.S. holders will be required to include the OID in ordinary income for U.S. federal income tax purposes as it accrues on a constant yield basis in advance of receipt of cash payments to which such income is attributable. A U.S. holder must include in income for each taxable year the sum of the daily portions of OID for each day on which it held the note during the taxable year, regardless of whether the holder is a cash-basis or accrual-method taxpayer. To determine the daily portions of OID, a U.S. holder must determine the amount of OID allocable to an accrual period and allocate a ratable portion of that OID to each day in the accrual period. Under the constant-yield method, the amount of OID allocable to an accrual period is equal to the product of the debt securities’ adjusted issue price at the beginning of the accrual period and the debt securities’ yield (adjusted to reflect the length of the accrual period), less the amount of any qualified stated interest allocable to the period. The debt securities’ adjusted issue price at any time generally is their original issue price, increased by the amount of OID on such debt securities accrued by any holder in a prior period, and decreased by the amount of any payment (other than a payment of qualified stated interest) previously made on the debt securities. The yield-to-maturity is the discount rate that, when used in computing the present value of all principal and interest payments to be made on the debt securities, produces an amount equal to the debt securities’ original issue price.
A U.S. holder may elect an accrual period of any length and may vary the length of the accrual periods over the life of the debt securities, but no accrual period may be longer than one year, and each scheduled payment of interest or principal on the debt securities must occur on either the first day or the last day of an accrual period. Under the foregoing rules, a U.S. holder generally will recognize increasingly greater amounts of OID in each successive period that the U.S. holder holds debt securities, regardless of whether the U.S. holder received payments corresponding to that income.
Subject to certain limitations, a U.S. holder may elect to use the constant-yield method to include in the U.S. holder’s income all interest that accrues on debt securities issued with OID. For purposes of the election, interest includes, inter alia, all stated interest and OID. In the case of U.S. holders that use the cash method of accounting, this election generally will result in such U.S. holders including stated interest on the notes offered hereby in income earlier than would be the case if no such election were made. This election applies only to the debt securities with respect to which it is made
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and may not be revoked without the consent of the IRS. U.S. holders should consult their own tax advisors as to the desirability, the mechanics and the collateral consequences of making this election with respect to the debt securities.
In certain circumstances, we may pay amounts on the debt securities that are in excess of the stated interest or principal of the debt securities. We intend to take the position that the possibility that any such payments will be made is remote so that the debt securities will not be treated as contingent payment debt instruments solely because of this possibility, and such possibility will not affect the timing or amount of interest income that a U.S. holder must recognize unless and until any such payments are made. Our determination that these contingencies are remote is binding on a U.S. holder unless the U.S. holder discloses a contrary position to the IRS in the manner that is required by applicable Treasury Regulations. Our determination is not, however, binding on the IRS. It is possible that the IRS might take a different position from that described above, in which case the timing, character and amount of taxable income in respect of the debt securities may be different from that described herein.
Debt Securities Issued at Originally Issued Bond Premium
A debt security may be issued for an amount that is in excess of the debt security’s principal amount. The U.S. holder pays the bond premium upfront and, therefore, may later deduct it as amortizable bond premium over the term of the debt security. A U.S. holder of a debt security with originally issued bond premium may elect to amortize the bond premium on a yield-to-maturity basis, as an offset to interest income, over the term of the debt security. The election will apply to all of the U.S. holder’s taxable premium bonds for the current and subsequent years, unless revoked with consent of the IRS Commissioner. The amortization of bond premium is based on the U.S. holder’s yield-to-maturity, applying the same concepts found in the original issue discount rules. The U.S. holder also should reduce his or her basis in the debt security with such amortization of the premium.
Disposition of the debt securities
A U.S. holder generally recognizes capital gain or loss on the sale, redemption, exchange, retirement or other taxable disposition of debt securities. This gain or loss will equal the difference between the U.S. holder’s adjusted tax basis in the debt securities and the proceeds received, excluding any proceeds attributable to accrued interest which will be recognized as ordinary interest income to the extent the U.S. holder has not previously included the accrued interest in income.
A U.S. holder’s adjusted tax basis in the debt securities generally will equal such U.S. holder’s initial investment in the debt securities increased by any original issue discount included in income and decreased by the amount of any payments, other than qualified stated interest payments, received with respect to any of the debt securities.
The proceeds the U.S. holder receive will include the amount of any cash and the fair market value of any other property received for the debt securities. The U.S. holder’s adjusted tax basis in the debt securities will generally equal the amount paid for the debt securities less any principal payments received. The gain or loss will be long-term capital gain or loss if the U.S. holder held the debt securities for more than one year. Long-term capital gains of individuals, estates and trusts currently are taxed at a maximum rate of 15% (this rate is scheduled to increase to 20% beginning January 1, 2011. The deductibility of capital losses may be subject to limitation.
Information reporting and backup withholding
Information reporting will apply to payments of interest and principal on, or the proceeds of the sale or other disposition of, debt securities held by a U.S. holder, and backup withholding may apply to payments of interest unless the U.S. holder provides the appropriate intermediary with a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise establish an exemption from backup withholding. Any amount withheld under the backup withholding rules is allowable as a credit against the U.S. holder’s U.S. federal income tax liability, if any, and a refund may be obtained if the amounts withheld exceed your actual U.S. federal income tax liability and you provide the required information or appropriate claim form to the IRS.
Tax Consequences to Non-U.S. Holders
Non-U.S. holder
A holder of our debt securities is a “non-U.S. holder” for purposes of this discussion if such holder is a beneficial owner of debt securities and is not a “U.S. holder” or a partnership (including an entity treated as a partnership for U.S. federal income tax purposes).
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Interest on the debt securities
For a non-U.S. holder, payments of interest on the debt securities generally are exempt from withholding of U.S. federal income tax under the “portfolio interest” exemption if the interest is not effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the non-U.S. holder properly certifies as to its foreign status as described below, and:
| • | | the non-U.S. holder does not own directly or indirectly, actually or constructively, 10% or more of our capital or profits interests; |
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| • | | the non-U.S. holder is not a “controlled foreign corporation” that is related to us through stock ownership; and |
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| • | | the non-U.S. holder is not a bank whose receipt of interest on the debt securities is in connection with an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business. |
The portfolio interest exemption and several of the special rules for non-U.S. holders described herein generally apply only if the non-U.S. holder appropriately certifies as to its foreign status. A non-U.S. holder can generally meet this certification requirement by providing a properly executed IRS Form W-8BEN (or successor form) or appropriate substitute form to us, or our paying agent. If the non-U.S. holder holds the debt securities through a financial institution or other agent acting on its behalf, the non-U.S. holder may be required to provide appropriate certifications to the agent. The agent will then generally be required to provide appropriate certifications to us or our paying agent, either directly or through other intermediaries. Special rules apply to foreign partnerships, estates and trusts, and in certain circumstances certifications as to foreign status of partners, trust owners or beneficiaries may have to be provided to us or our paying agent. In addition, special rules apply to qualified intermediaries that enter into withholding agreements with the IRS.
If the non-U.S. holder cannot satisfy the requirements described above, payments of interest made to the non-U.S. holder will be subject to a U.S. federal withholding tax at a 30% rate, unless the non-U.S. holder provides us with a properly executed IRS Form W-8BEN (or successor form) claiming an exemption from (or a reduction of) withholding under the benefits of a tax treaty, or the payments of interest are effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States, and the non-U.S. holder meet the certification requirements described below. See “-Income or Gain Effectively Connected With a U.S. Trade or Business.”
Disposition of debt securities
A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the sale, redemption, exchange, retirement or other taxable disposition of debt securities unless:
| • | | the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business (and if a tax treaty applies, is attributable to its permanent establishment in the United States); |
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| • | | the non-U.S. holder is an individual who has been present in the United States for 183 days or more in the taxable year of disposition and certain other requirements are met; or |
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| • | | the non-U.S. holder were a citizen or resident of the United States and are subject to special rules that apply to certain expatriates. |
Income or gain effectively connected with a U.S. trade or business
The preceding discussion of the tax consequences of the purchase, ownership and disposition of debt securities by a non-U.S. holder generally assumes that the non-U.S. holder is not engaged in a U.S. trade or business. If any interest on the debt securities or gain from the sale, exchange or other taxable disposition of the debt securities is effectively connected with a U.S. trade or business conducted by the non-U.S. holder (and if a tax treaty applies, is attributable to a permanent establishment in the United States), then the income or gain will be subject to U.S. federal income tax at regular graduated income tax rates, but will not be subject to withholding tax if certain certification requirements are satisfied. A non-U.S. holder can generally meet the certification requirements by providing a properly executed IRS Form W-8ECI or appropriate substitute form to us, or our paying agent
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U.S. federal estate tax
If the non-U.S. holder is an individual and is not a resident of the United States (as specially defined for U.S. estate tax purposes) at the time of the non-U.S. holder’s death, the debt securities will not be included in its estate for U.S. federal estate tax purposes unless, at the time of death, interest on the debt securities does not qualify for the “portfolio interest” exemption.
Information reporting and backup withholding
Payments to non-U.S. holders of interest on debt securities, and amounts withheld from such payments, if any, generally will be required to be reported to the IRS and to the non-U.S. holder. United States backup withholding tax generally will not apply to payments of interest and principal on debt securities to a non-U.S. holder if the statement described in “Tax consequences to non-U.S. holders—Interest on the debt securities” is duly provided by the non-U.S. holder or the non-U.S. holder otherwise establishes an exemption, provided that we do not have actual knowledge or reason to know that the non-U.S. holder is a United States person.
Payment of the proceeds of a disposition of debt securities effected by the U.S. office of a U.S. or foreign broker will be subject to information reporting requirements and backup withholding unless the non-U.S. holder properly certifies under penalties of perjury as to its foreign status and certain other conditions are met or the non-U.S. holder otherwise establish an exemption. The backup withholding tax rate is currently 28%. For payments made after 2010, the backup withholding rate will be increased to 31%. Information reporting requirements and backup withholding generally will not apply to any payment of the proceeds of the disposition of debt securities outside the United States by a foreign office of a broker. However, unless such a broker has documentary evidence in its records that the non-U.S. holder is a non-U.S. holder and certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of debt securities effected outside the United States by such a broker if it:
| • | | is a United States person; |
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| • | | derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States; |
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| • | | is a controlled foreign corporation for U.S. federal income tax purposes; or |
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| • | | is a foreign partnership that, at any time during its taxable year, has more than 50% of its income or capital interests owned by United States persons or is engaged in the conduct of a U.S. trade or business. |
Any amount withheld under the backup withholding rules may be credited against your U.S. federal income tax liability and any excess may be refundable if the proper information is provided to the IRS.
Reportable Transactions
Treasury Regulations requires us to complete and file Form 8886 (���Reportable Transaction Disclosure Statement”) with our tax return for any taxable year in which we participate in a “reportable transaction.” Additionally, each partner treated as participating in a “reportable transaction” of us is required to file Form 8886 with its tax return. We and any such partner, respectively, must also submit a copy of the completed form with the IRS’s Office of Tax Shelter Analysis. A “reportable transaction” is one of the following:
| • | | a “listed transaction,” which is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a “listed transaction;” |
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| • | | a “confidential transaction,” which is a transaction that is offered to a taxpayer under conditions of confidentiality and for which the taxpayer has paid an advisor a minimum fee; |
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| • | | a “transaction with contractual protection,” which is a transaction for which the taxpayer or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, or a transaction for which fees are contingent on the taxpayer’s realization of tax benefits from the transaction; |
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| • | | a “loss transaction,” which is any transaction resulting in the taxpayer claiming a loss under section 165 of the Internal Revenue Code; or |
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a “transaction of interest,” which is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest;
We intend to notify the partners of what we believe (based on information available to us) might be a “reportable transaction,” and intend to provide each partners with any available information needed to complete and submit Form 8886 with respect to such transaction. In certain situations, there may also be a requirement that a list be maintained of persons participating in such “reportable transactions,” which could be made available to the IRS at its request.
Under the Internal Revenue Code, a significant penalty is imposed on taxpayers who participate in a “reportable transaction” and fail to make the required disclosure. The penalty is generally $10,000 for natural persons and $50,000 for other persons (increased to $100,000 and $200,000, respectively, if the reportable transaction is a “listed transaction”).
Holders are urged to consult with their own tax advisor concerning any possible disclosure obligation with respect to their investment and should be aware that we and our material advisors intend to comply with the list and disclosure requirements.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an underpayment of tax, which is attributable to one or more of particular listed causes, including negligence or disregard of rules or regulations, substantial understatements of income tax and substantial valuation misstatements, is imposed by the Internal Revenue Code. No penalty is 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 is reduced if any portion is attributable to a position adopted on the return:
| • | | with respect to which there is, or was, “substantial authority;” or |
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| • | | as to which there is a reasonable basis and the pertinent facts of such position are disclosed on the return. |
If any item of our income, gain, loss or deduction included in the distributive shares of holders might result in such an “understatement” of income for which no “substantial authority” exists, we must disclose the pertinent facts on our return. In addition, we will make a reasonable effort to furnish sufficient information for holders to make adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property, or the adjusted basis of any property, claimed on a tax return is 200% or more of the amount determined to be the correct amount of such valuation or adjusted basis. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000, $10,000 for most corporations. If the valuation claimed on a return is 400% or more than the correct valuation, the penalty imposed increases to 40%.
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INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to additional considerations because the investments of these plans are subject to:
| • | | the fiduciary responsibility and prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, often referred to as ERISA; and |
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| • | | restrictions imposed by Section 4975 of the Internal Revenue Code. |
For these purposes, the term “employee benefit plan” may include:
| • | | qualified pension, profit-sharing and stock bonus plans; |
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| • | | simplified employee pension plans; and |
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| • | | tax deferred annuities or individual retirement accounts established or maintained by an employer or employee organization. |
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tax deferred annuities or individual retirement accounts established or maintained by an employer or employee organization.
Prior to making an investment in us, consideration should be given to, among other things:
| • | | whether the investment is permitted under the terms of the employee benefit plan; |
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| • | | whether the investment is prudent under Section 404(a)(1)(B) of ERISA; |
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| • | | whether in making the investment, the employee benefit plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; |
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| • | | whether the investment will result in recognition of unrelated business taxable income by the employee benefit plan and, if so, the potential after-tax investment return; and |
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| • | | whether, as a result of the investment, the employee benefit plan will be required to file an exempt organization business income tax return with the IRS. |
See “Tax Consequences — DispositionConsequences—Tax Treatment of Tax-Exempt Holders of Common Units, — Tax-Exempt OrganizationsSenior Units and Various Other Investors.Deferred Participation Units.”
The person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in us is authorized by the appropriate governing instrument and is a proper investment for the employee benefit plan. A fiduciary should also consider whether the employee benefit plan will, by investing in us, be deemed to own an undivided interest in our assets. If so, our general partner would also be a fiduciary of the employee benefit plan, and we would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Internal Revenue Code.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit employee benefit plans, and also individual retirement accounts that are not considered part of an employee benefit plan, from engaging in specified transactions involving “plan assets” with parties that are “parties in interest” under ERISA or “disqualified persons” under the Internal Revenue Code with respect to the employee benefit plan. TheSection 3(42) of ERISA defines “plan assets” to mean plan assets as defined in Department of Labor regulations. Those Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed “plan assets” under some circumstances. Under these regulations, an entity’s assets would not be considered to be “plan assets” if, among other things:
the equity interests acquired by employee benefit plans are publicly-offered securities; meaning the equity interests are:
| • | | the equity interests acquired by employee benefit plans are publicly-offered securities; meaning the equity interests are: |
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| •o | | widely held by 100 or more investors independent of us and each other; |
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| •o | | freely transferable; and |
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| •o | | registered under some provisions of the federal securities laws; |
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| • | | the entity is an “operating company;” meaning that it is primarily engaged in the production or sale of a product or service, other than the investment of capital, either directly or through a majority owned subsidiary or subsidiaries; or |
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| • | | there is no significant investment by employee benefit plan investors; meaning that less than 25% of the value of each class of equity interest, disregarding particular interests held by our general partner, its affiliates, and particular other persons, is held by:by benefit plan investors, which are defined in Section 3(42) of ERISA to mean: |
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| o | | any employee benefit plans subject to the fiduciary requirements of ERISA; |
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| •o | | the employee benefitany qualified plans, referred to above; |
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| • | | individual retirement accounts;accounts, or other plans subject to the prohibited transaction rules in Section 4975 of the Internal Revenue Code; and |
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| •o | | other employee benefit plans not subject to ERISA, including governmental plans.any entity whose underlying assets include plan assets by reason of a plan’s investment in such entity. |
Our assets should not be considered “plan assets” under these regulations because it is expected that an investment in us will satisfy the requirements of the first bullet point immediately above.
Plan fiduciaries contemplating an investment in us should consult with their own counsel regarding the potential consequences of such an investment under ERISA and the Internal Revenue Code in light of the serious penalties imposed on persons who engage in prohibited transactions or otherwise violate any applicable statutory provisions.
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PLAN OF DISTRIBUTION
ExceptWe may sell the securities from time-to-time pursuant to any one or more of the extentfollowing methods:
| • | | underwritten public offerings; |
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| • | | a block trade, which may involve crosses, in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
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| • | | purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; |
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| • | | exchange distributions and/or secondary distributions in accordance with the rules of the applicable exchange; |
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| • | | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
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| • | | through the settlement of short sales; |
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| • | | directly to purchasers or to a single purchaser; and |
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| • | | privately negotiated transactions. |
The applicable prospectus supplement with respect to a particular offering of securities will describe the plan administrator purchases common unitsterms of the offering of the securities, including:
| • | | the name or names of any underwriters, and if required, dealers of agents; |
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| • | | the purchase price of the securities and the proceeds we will receive from the sale; |
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| • | | any underwriting discounts and other items constituting underwriters’ compensation; |
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| • | | any discounts or concessions allowed or reallowed paid to dealers; and |
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| • | | any securities exchange or market on which the securities may be listed. |
We may solicit directly offers to purchase the securities being offered by this prospectus. We may also designate agents to solicit offers to purchase the securities from time to time. We will name in a prospectus supplement any agent involved in the open market,offer or sale of our securities.
If we utilize a dealer in the sale of the securities being offered by this prospectus, we will sell directlythe securities to the plan administratordealer, as principal. The dealer may then resell the common units acquired under our plan. There are no brokerage commissionssecurities to the public at varying prices to be determined by the dealer at the time of resale. If we utilize an underwriter in the sale of the securities being offered by this prospectus, we will execute an underwriting agreement with the underwriter at the time of sale and we will provide the name of any underwriter in the prospectus supplement which the underwriter will use to make resales of the securities to the public. In connection with the sale of the securities, we, or the purchasers of securities for whom the underwriter may act as agent, may compensate the underwriter in the form of underwriting discounts or commissions. The underwriter may sell the securities to or through dealers, and the underwriter may compensate those dealers in the form of discounts, concessions or commissions.
With respect to underwritten public offerings, negotiated transactions and block trades, we will provide in the applicable prospectus supplement any compensation we pay to underwriters, dealers or agents in connection with the purchasesoffering of such newly-issued common units.
In connection with the administrationsecurities, and any discounts, concessions or commissions allowed by underwriters to participating dealers. Underwriters, dealers and agents participating in the distribution of our plan, wethe securities may be requested to approve investments made pursuant to requests for waiver by or on behalf of participants or other investors who may be engaged in the securities business.
Persons who acquire common units through our plan and resell them shortly after acquiring them, including coverage of short positions, under certain circumstances, may be participating in a distribution of securities that would require compliance with Regulation M under the Exchange Act and may be considereddeemed to be underwriters within the meaning of the Securities Act. We will not extend toAct and any such persondiscounts and commissions received by them and any rights or privileges other than those to which it would be entitled as a participant, nor will we enter into any agreement with any such person regarding theprofit realized by them on resale or distribution by any such person of the common units so purchased. We may, however, accept investments made pursuant to requests for waiver by such persons.
From time to time, financial intermediaries, including brokers and dealers, and other persons may engage in positioning transactions in order to benefit from any waiver discounts applicable to investments made pursuant to requests for waiver under our plan. Those transactions may cause fluctuations in the trading volume of our common units. Financial intermediaries and such other persons who engage in positioning transactionssecurities may be deemed to be underwriters.underwriting discounts and commissions. We have no arrangementsmay enter into agreements to indemnify underwriters, dealers and agents against civil liabilities, including liabilities under the Securities Act, or understandings, formalto contribute to payments they may be required to make in respect thereof.
To facilitate the offering of securities, certain persons participating in the offering may engage in transactions that stabilize, maintain or informal, with any person relating tootherwise affect the price of the securities. This may include over—allotments or short sales of the securities, which involve the sale by persons participating in the offering of common unitsmore securities than we sold to be received under our plan. We reserve the right to modify, suspendthem. In these circumstances, these persons would cover such over—allotments or terminate participationshort positions by making purchases in our plan by otherwise eligible persons to eliminate practices that are inconsistent with the purpose of the plan.
In connection with any investment in which the plan administrator purchases common units on the open market you will pay your pro rata shareor by exercising their over—allotment option. In addition, these persons may stabilize or maintain the price of all brokerage commissionsthe securities by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating in the offering may be reclaimed if securities sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
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The underwriters, dealers and fees. Upon withdrawal by a participant from our plan byagents may engage in other transactions with us, or perform other services for us, in the saleordinary course of common units held under our plan, the participant will receive the proceeds of that sale less a service fee, a processing fee (which includes brokerage commissions) and any applicable withholdings, transfer or other taxes. Our common units may not be available under our plan in all states.their business.
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SALESDESCRIPTION OF COMMON UNITS, BY PLAN PARTICIPANTSSENIOR UNITS AND DEFERRED PARTICIPATION UNITS
Common Units
Plan participants, other than our directors and qualified employees, who request the saleAs of any of their, 2009, we had 68,178,103 common units held in our plan must pay a service fee of $15.00 per sale and a processing fee currently equal to $0.12 per unit (which includes brokerage commissions), as well as any required tax withholdings. Our directors and qualified employees must pay only a processing fee currently equal to $0.12 per unit (which includes brokerage commissions), as well as any required tax withholdings. Ouroutstanding, representing an aggregate 98% limited partner interest. Of those common units, may not be available under20,327,666, representing an approximate 30% limited partner interest in us, are held by Ferrell Companies, Inc., the owner of our plan in all states. This prospectus does not constitute an offer to sell, or a solicitationgeneral partner, and its affiliates.
A copy of an offer to buy, anythe partnership agreement of Ferrellgas Partners is incorporated herein by reference. A summary of the important provisions of the partnership agreement of Ferrellgas Partners and the rights and privileges of our common units is included in our registration statement on Form 8-A/A as filed with the SEC on February 18, 2003, including any amendments or reports filed to update such descriptions. See “Where you Can Find More Information.”
Our common units are listed on the New York Stock Exchange under the symbol “FGP.” Any additional common units we issue will also be listed on the New York Stock Exchange.
Senior Units and Deferred Participation Units
The partnership agreement of Ferrellgas Partners authorizes Ferrellgas Partners to issue an unlimited number of additional limited partner interests and other equity securities for the consideration and with the rights, preferences and privileges established by our general partner in its sole discretion without the approval of any of our limited partners. In accordance with Delaware law and the provisions of that partnership agreement, we may also issue additional partnership interests that, in the sole discretion of our general partner, have special voting rights to which our common units are not entitled.
We have no senior units or deferred participation units outstanding as of the date of this prospectus. The terms of any deferred participation units we offer under this prospectus may have distribution, liquidation or other rights ranking junior to, or on a parity with, our senior units or common units and may be subject to limitations and restrictions that are not applicable to our senior units or common units. Generally, deferred participation units will participate in our distributions at some time after their initial issuance based on targeted distribution levels.
Should Ferrellgas Partners offer senior units or deferred participation units under this prospectus, a prospectus supplement relating to the particular series of senior units or deferred participation units offered will include the specific terms of those senior units or deferred participation units, including the following:
| • | | the designation, stated value and liquidation preference of the senior units or deferred participation units and the number of senior units or deferred participation units offered; |
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| • | | the initial public offering price at which the senior units or deferred participation units will be issued; |
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| • | | the conversion or exchange provisions of the senior units or deferred participation units; |
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| • | | any redemption or sinking fund provisions of the senior units or deferred participation units; |
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| • | | the distribution rights of the senior units or deferred participation units, if any; |
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| • | | a discussion of material federal income tax considerations, if any, regarding the senior units or deferred participation units; and |
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| • | | any additional rights, preferences, privileges, limitations and restrictions of the senior units or deferred participation units. |
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This indemnification is available only if the Indemnitee acted in good faith, in a manner in which the Indemnitee believed to be in, or not opposed to, ourthe best interests of the applicable partnership and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea ofnolo contendere, or its equivalent, shall not of itself create a presumption that the Indemnitee acted in a manner contrary to that specified in the immediately preceding sentence. Any indemnification shall be made only out of ourthe assets andof the applicable partnership; our general partner shall not be personally liable for any indemnification and shall have no obligation to contribute or loan any money or property to usthe applicable partnership to enable usit to effect anyeffectuate such indemnification. In no event may an Indemnitee subject ourthe limited partners of the applicable partnership to personal liability by reason of being entitled to indemnification.
To the fullest extent permitted by current applicable law or as such law may hereafter be amended (but, in the case of such amendment, only to the extent that the amendment permits useither partnership to provide broader indemnification rights), expenses (including, without limitation, legal fees and expenses) incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by usthe applicable partnership prior to the final disposition of