OLP PARTNERSHIP AGREEMENT

 

                                                                     Exhibit 3.1

 

 

 

                           THIRD AMENDED AND RESTATED

 

                                    AGREEMENT

 

                                       OF

 

                                LIMITED PARTNERSHIP

 

                                       OF

 

                                FERRELLGAS, L.P.

 

 

 

                                  April 7, 2004

 

 

 

 

 

 

<PAGE>

 

 

 

 

                           THIRD AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP OF

                                FERRELLGAS, L.P.

 

     THIS   THIRD   AMENDED   AND   RESTATED   AGREEMENT   OF LIMITED   PARTNERSHIP   OF

FERRELLGAS,   L.P.   dated as of April 7, 2004, is entered into by and between the

General Partner and the Limited Partner (as such terms are hereinafter defined).

 

     WHEREAS,   the   Partnership   (as   such   term   is   hereinafter   defined)   had

previously been governed by the First Amended and Restated   Agreement of Limited

Partnership of Ferrellgas, L.P. dated as of April 23, 1996; and

 

     WHEREAS,   the   Partnership is presently   governed by the Second Amended and

Restated   Agreement   of Limited   Partnership   of   Ferrellgas,   L.P.   dated as of

October 14, 1998 (the "Second Partnership Agreement"),   as amended by that First

Amendment to the Second Amended and Restated Agreement of Limited Partnership of

Ferrellgas,   L.P.   dated as of June 5, 2000 (the "First   Amendment" and together

with the Second Partnership Agreement, the "Current Partnership Agreement");

 

     NOW,   THEREFORE,   the Current   Partnership   Agreement is hereby   amended to

reflect   particular   amendments   made   pursuant   to Section   14.1 of the Current

Partnership   Agreement   that   provides   that the   General   Partner may amend the

Current   Partnership   Agreement   without the consent of the Acquisition   General

Partner or the Limited Partner to reflect a change that:

 

     (a) in the sole   discretion   of the   General   Partner,   does not   adversely

affect the   Acquisition   General   Partner or the Limited Partner in any material

respect; or

 

     (b) is   required   to effect the   intent of the   provisions   of the   Current

Partnership   Agreement or are otherwise   contemplated by the Current Partnership

Agreement,

 

which   amendments are intended to incorporate   herein the First Amendment and to

correct a typographical error contained therein, and, as so amended, is restated

in its entirety as follows:

 

                                   ARTICLE II

                             ORGANIZATIONAL MATTERS

 

SECTION 2.1        Formation.

 

     The General Partner and the Initial Limited Partner have previously   formed

the   Partnership   as a limited   partnership   pursuant to the   provisions   of the

Delaware Act.   Except as expressly   provided to the contrary in this   Agreement,

the rights and obligations of the Partners and the   administration,   dissolution

and   termination of the   Partnership   shall be governed by the Delaware Act. All

Partnership   Interests shall constitute   personal   property of the owner thereof

for all purposes.

 

SECTION 2.2        Name.

 

     The name of the   Partnership   shall be, and the business of the Partnership

shall be   conducted   under   the name of   "Ferrellgas,   L.P."   The   Partnership's

business   may be   conducted   under any other name or names   deemed   necessary or

appropriate by the General Partner,   including,   without limitation, the name of

the General Partner or any Affiliate thereof.   The words "Limited   Partnership,"

"L.P.,"    "Ltd."   or   similar    words   or   letters   shall   be   included   in   the

Partnership's   name where   necessary for the purposes of complying with the laws

of any jurisdiction that so requires. The General Partner in its sole discretion

may   change   the name of the   Partnership   at any time and from time to time and

shall    notify   the   Limited    Partner   of   such   change   in   the   next   regular

communication to the Limited Partner.

 

 

                                      -1-

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SECTION 2.3        Registered Office; Principal Office.

 

     Unless and until changed by the General Partner,   the registered   office of

the   Partnership   in the State of Delaware   shall be located at The   Corporation

Trust Center, 1209 Orange Street, New Castle County, Wilmington, Delaware 19801,

and the registered   agent for service of process on the Partnership in the State

of Delaware at such registered   office shall be The   Corporation   Trust Company.

The principal   office of the   Partnership and the address of the General Partner

shall be One Liberty Plaza, Liberty,   Missouri 64068, or such other place as the

General   Partner   may from   time to time   designate   by   notice   to the   Limited

Partner.   The   Partnership   may   maintain   offices at such other place or places

within or outside the State of Delaware as the General   Partner deems   necessary

or appropriate.

 

SECTION 2.4        Power of Attorney.

 

     (a) Each of the Acquisition   General Partner and the Limited Partner hereby

constitutes and appoints each of the General Partner and, if a Liquidator   shall

have been selected   pursuant to Section 13.3, the Liquidator   severally (and any

successor   to either   thereof   by   merger,   transfer,   assignment,   election   or

otherwise) and each of their   authorized   officers and   attorneys-in-fact,   with

full power of substitution,   as its true, and lawful agent and attorney-in-fact,

with full power and authority in its name, place and stead, to:

 

          (i) execute,   swear to, acknowledge,   deliver,   file and record in the

     appropriate   public   offices   (A) all   certificates,   documents   and   other

     instruments   (including,    without   limitation,    this   Agreement   and   the

     Certificate   of Limited   Partnership   and all   amendments   or   restatements

     thereof)   that the General   Partner or the   Liquidator   deems   necessary or

     appropriate to form,   qualify or continue the existence or qualification of

     the   Partnership   as a limited   partnership   (or a partnership in which the

     limited   partners   have limited   liability) in the State of Delaware and in

     all other   jurisdictions   in which the Partnership may conduct   business or

     own property;   (B) all   certificates,   documents and other instruments that

     the General   Partner or the   Liquidator   deems   necessary or appropriate to

     reflect, in accordance with its terms, any amendment,   change, modification

     or restatement of this Agreement; (C) all certificates, documents and other

     instruments (including,   without limitation,   conveyances and a certificate

     of cancellation) that the General Partner or the Liquidator deems necessary

     or   appropriate   to   reflect   the    dissolution    and   liquidation   of   the

     Partnership pursuant to the terms of this Agreement;   (D) all certificates,

     documents   and other   instruments   relating to the   admission,   withdrawal,

     removal   or   substitution   of any   Partner   pursuant   to,   or other   events

     described in, Article X, XI, XII or XIII or the Capital Contribution of any

     Partner; (E) all certificates,   documents and other instruments relating to

     the determination of the rights, preferences and privileges of any class or

     series of Partnership   Interests;   and (F) all certificates,   documents and

     other   instruments   (including,    without   limitation,    agreements   and   a

     certificate   of   merger)   relating   to a   merger   or   consolidation   of the

     Partnership pursuant to Article XV; and

 

          (ii)   execute,   swear to,   acknowledge,   deliver,   file and record all

     ballots, consents,   approvals, waivers,   certificates,   documents and other

     instruments necessary or appropriate, in the sole discretion of the General

     Partner or the Liquidator,   to make, evidence,   give, confirm or ratify any

     vote, consent, approval, agreement or other action that is made or given by

     the Partners hereunder or is consistent with the terms of this Agreement or

     is necessary or appropriate,   in the sole discretion of the General Partner

     or the   Liquidator,   to effectuate   the terms or intent of this   Agreement;

     provided,   that when the   consent or   approval   of the   Limited   Partner is

     required by any   provision of this   Agreement,   the General   Partner or the

     Liquidator   may   exercise   the   power   of   attorney   made in   this   Section

     1.4(a)(ii)   only after the   necessary   consent or   approval   of the Limited

     Partner is obtained.   Nothing   contained   in this   Section   1.4(a) shall be

     construed as authorizing the General Partner to amend this Agreement except

     in accordance   with Article XIV or as may be otherwise   expressly   provided

     for in this Agreement.

 

 

                                      -2-

<PAGE>

 

 

 

     (b) The foregoing   power of attorney is hereby   declared to be   irrevocable

and a power   coupled with an interest,   and it shall survive and not be affected

by the subsequent   death,   incompetency,   disability,   incapacity,   dissolution,

bankruptcy or   termination   of the   Acquisition   General   Partner or the Limited

Partner   and the   transfer   of all or any   portion   of the   Acquisition   General

Partner's or the Limited Partner's   Partnership Interest and shall extend to the

Acquisition   General   Partner's   and the Limited   Partner's   heirs,   successors,

assigns and personal   representatives.   Each of the Acquisition   General Partner

and the Limited Partner hereby agrees to be bound by any representation   made by

the   General   Partner or the   Liquidator   acting in good faith   pursuant to such

power of attorney;   and each of the Acquisition   General Partner and the Limited

Partner   hereby   waives any and all   defenses   that may be available to contest,

negate or disaffirm the action of the General Partner or the Liquidator taken in

good faith under such power of attorney. Each of the Acquisition General Partner

and the Limited   Partner shall execute and deliver to the General Partner or the

Liquidator,   within   15 days   after   receipt   of the   General   Partner's   or the

Liquidator's request therefor, such further designation,   powers of attorney and

other   instruments as the General   Partner or the Liquidator   deems necessary to

effectuate this Agreement and the purposes of the Partnership.

 

SECTION 2.5        Term.

 

     The   Partnership   commenced   upon the filing of the   Certificate of Limited

Partnership in accordance   with the Delaware Act and shall continue in existence

until the close of   Partnership   business on July 31, 2084, or until the earlier

termination   of the   Partnership   in accordance   with the   provisions of Article

XIII.

 

SECTION 2.6        Possible Restrictions on Transfer.

 

     Notwithstanding   anything to the contrary   contained in this Agreement,   in

the event of (a) the enactment (or imminent   enactment) of any legislation,   (b)

the publication of any temporary or final regulation by the Treasury Department,

(c) any ruling by the Internal   Revenue   Service or (d) any   judicial   decision,

that, in any such case, in the Opinion of Counsel,   would result in the taxation

of the Partnership as an association taxable as a corporation or would otherwise

result in the   Partnership   being   taxed as an entity   for   federal   income   tax

purposes, then, the General Partner may impose such restrictions on the transfer

of   Partnership   Interests   as may be   required,   in the Opinion of Counsel,   to

prevent   the   Partnership   from   being   taxed   as an   association   taxable   as a

corporation   or   otherwise   as   an   entity   for   federal   income   tax   purposes,

including,   without   limitation,   making any amendments to this Agreement as the

General   Partner   in its   sole   discretion   may   determine   to be   necessary   or

appropriate to impose such restrictions.

 

 

                                      -3-

 

 

 

                                  ARTICLE III

                                    DEFINITIONS

 

     The   following   definitions   shall be for all   purposes,   unless   otherwise

clearly indicated to the contrary, applied to the terms used in this Agreement.

 

     "Acquisition Closing Date" means October 14, 1998.

 

     "Acquisition   Contribution   Agreement" means a contribution agreement among

the Acquisition   General   Partner,   the   Partnership and Ferrellgas   pursuant to

which the Acquisition General Partner contributes the assets and properties of a

retail propane   business to the Partnership and the Partnership   assumes certain

indebtedness and liabilities of the Acquisition   General Partner related to such

business or the acquisition thereof.

 

     "Acquisition General Partner" means FAC.

 

     "Additional   Limited Partner" means a Person admitted to the Partnership as

a Limited Partner pursuant to Section 11.6 and who is shown as such on the books

and records of the Partnership.

 

     "Adjusted   Capital   Account" means the Capital Account   maintained for each

Partner as of the end of each fiscal year of the   Partnership,   (a) increased by

any amounts that such Partner is obligated to restore under the standards set by

Treasury   Regulation   Section   1.704-1(b)(2)(ii)(c)   (or is deemed   obligated to

restore under Treasury Regulation   Sections   1.704-2(g) and 1.704-2(i)(5)),   and

(b) decreased by (i) the amount of all losses and deductions that, as of the end

of such fiscal year, are reasonably   expected to be allocated to such Partner in

subsequent   years under   Sections   704(e)(2) and 706(d) of the Code and Treasury

Regulation Section   1.751-1(b)(2)(ii),   and (ii) the amount of all distributions

that, as of the end of such fiscal year, are   reasonably   expected to be made to

such Partner in subsequent   years in accordance with the terms of this Agreement

or otherwise to the extent they exceed   offsetting   increases to such   Partner's

Capital   Account that are reasonably   expected to occur during (or prior to) the

year in which such distributions are reasonably   expected to be made (other than

increases as a result of a minimum gain chargeback pursuant to Section 5.1(d)(i)

or 5.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended

to    comply    with    the     provisions     of    Treasury     Regulation     Section

1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

     "Adjusted Property" means any property the Carrying Value of which has been

adjusted pursuant to Section 4.5(d)(i) or 4.5(d)(ii).   Once an Adjusted Property

is deemed   distributed   by, and   recontributed   to, the   Partnership for federal

income tax purposes   upon a termination   thereof   pursuant to Section 708 of the

Code, such property shall thereafter constitute a Contributed Property until the

Carrying   Value of such property is   subsequently   adjusted   pursuant to Section

4.5(d)(i) or 4.5(d)(ii).

 

     "Affiliate"   means,   with   respect to any   Person,   any other   Person   that

directly or indirectly   controls,   is   controlled by or is under common   control

with,   the Person in question.   As used   herein,   the term   "control"   means the

possession,   directly   or   indirectly,   of the   power to   direct   or   cause   the

direction of the management and policies of a Person,   whether through ownership

of voting securities, by contract or otherwise.

 

     "Agreed Allocation" means any allocation, other than a Required Allocation,

of an item of income,   gain,   loss or deduction   pursuant to the   provisions   of

Section   5.1,   including,    without    limitation,    a   Curative   Allocation   (if

appropriate to the context in which the term "Agreed Allocation" is used).

 

 

                                      -4-

 

 

 

     "Agreed Value" of any   Contributed   Property means the fair market value of

such property or other   consideration   at the time of contribution as determined

by the General   Partner   using such   reasonable   method of   valuation   as it may

adopt;   provided,   however,   that   the   Agreed   Value   of   any   property   deemed

contributed by the Partnership for federal income tax purposes upon   termination

and   reconstitution   thereof   pursuant   to   Section   708 of the   Code   shall   be

determined in accordance with Section   4.5(c)(i).   Subject to Section 4.5(c)(i),

the General Partner shall, in its sole   discretion,   use such method as it deems

reasonable and appropriate to allocate the aggregate Agreed Value of Contributed

Properties   contributed to the Partnership in a single or integrated transaction

among each separate property on a basis proportional to the fair market value of

each Contributed Property.

 

     "Agreement"   means this Third   Amended and   Restated   Agreement   of Limited

Partnership of Ferrellgas, L.P., as it may be amended,   supplemented or restated

from time to time.

 

     "Audit   Committee"   means a   committee   of the   Board of   Directors   of the

General   Partner   composed   entirely   of two or more   directors   who are neither

officers nor employees of the General Partner or any of its Affiliates.

 

     "Available Cash" means with respect to any period and without duplication:

 

      (a) the sum of:

 

          (i) all cash receipts of the   Partnership   during such period from all

     sources (including,   without limitation,   distributions of cash received by

     the Partnership   from an OLP   Subsidiary)   plus, in the case of the Quarter

     ending   October 31,   1994,   the cash balance of the   Partnership   as of the

     close of business on the Closing Date; and

 

          (ii) any   reduction   with   respect   to such   period in a cash   reserve

     previously established pursuant to clause (b)(ii) below (either by reversal

     or   utilization)   from the   level of such   reserve   at the end of the prior

     period;

 

     (b) less the sum of:

 

          (i) all cash   disbursements   of the   Partnership   during such   period,

     including, without limitation, disbursements for operating expenses, taxes,

     if any,   debt   service   (including,   without   limitation,   the   payment   of

     principal,   premium and   interest),   redemption of   Partnership   Interests,

     capital expenditures,   contributions, if any, to an OLP Subsidiary and cash

     distributions    to   Partners   (but   only   to   the   extent   that   such   cash

     distributions   to   Partners   exceed   Available   Cash   for   the   immediately

     preceding Quarter); and

 

 

                                       -5-

 

 

 

          (ii) any cash reserves   established   with respect to such period,   and

     any   increase   with   respect to such   period in a cash   reserve   previously

     established   pursuant to this clause (b)(ii) from the level of such reserve

     at the end of the prior   period,   in such   amounts as the   General   Partner

     determines in its reasonable   discretion to be necessary or appropriate (A)

     to   provide   for the   proper   conduct of the   business   of the   Partnership

     (including, without limitation, reserves for future capital expenditures or

     capital   contributions   to an OLP   Subsidiary)   or (B) to provide funds for

     distributions   to the   Partners   in   respect of any one or more of the next

     four   Quarters or (C) because the   distribution   of such   amounts   would be

     prohibited by applicable law or by any loan agreement,   security agreement,

     mortgage,   debt   instrument   or other   agreement or obligation to which the

     Partnership   is a party or by which it is bound or its assets are   subject;

     provided,   however, that for purposes of determining Available Cash for the

     Quarter ending   October 31, 1994,   such Quarter shall be deemed to commence

     on the   Closing   Date.   Notwithstanding   the   foregoing   (x)   disbursements

     (including,   without   limitation,   contributions   to an OLP   Subsidiary   or

     disbursements on behalf of an OLP Subsidiary) made or reserves established,

     increased or reduced after the end of any Quarter but on or before the date

     on which   the   Partnership   makes its   distribution   of   Available   Cash in

     respect of such Quarter   pursuant to Section 5.3(a) shall be deemed to have

     been made,   established,   increased or reduced, for purposes of determining

     Available   Cash,   with   respect to such   Quarter if the General   Partner so

     determines   and (y)   "Available   Cash" with respect to any period shall not

     include any cash   receipts or   reductions   in reserves or take into account

     any disbursements made or reserves established after the Liquidation Date.

 

     "Book-Tax Disparity" means with respect to any item of Contributed Property

or   Adjusted   Property,   as of the   date of any   determination,   the   difference

between the Carrying Value of such Contributed Property or Adjusted Property and

the adjusted   basis   thereof for federal   income tax purposes as of such date. A

Partner's   share   of   the   Partnership's   Book-Tax   Disparities   in   all   of its

Contributed   Property and Adjusted   Property will be reflected by the difference

between such Partner's Capital Account balance as maintained pursuant to Section

4.5 and the hypothetical   balance of such Partner's   Capital Account computed as

if it had been   maintained   strictly   in   accordance   with   federal   income   tax

accounting principles.

 

     "Business   Day" means   Monday   through   Friday of each week,   except that a

legal holiday   recognized as such by the   government of the United States or the

states of New York or Missouri shall not be regarded as a Business Day.

 

     "Capital   Account"   means   the   capital   account   maintained   for a Partner

pursuant to Section 4.5.

 

     "Capital   Contribution"   means any cash, cash equivalents or the Net Agreed

Value of   Contributed   Property that a Partner   contributes   to the   Partnership

pursuant to Section 4.1, 4.2, 4.3, 4.5(c) or 13.8.

 

     "Capital   Interests"   means,   with respect to any corporation,   any and all

shares,   participations,   rights or other equivalent interests in the capital of

the corporation,   and with respect to any   partnership,   any and all partnership

interests (whether general or limited) and any other interests or participations

that   confer on a Person the right to receive a share of the   profits and losses

of, or distributions of assets of, such partnership.

 

     "Carrying   Value" means (a) with   respect to a   Contributed   Property,   the

Agreed Value of such property reduced (but not below zero) by all   depreciation,

amortization   and cost   recovery   deductions   charged to the   Partners'   Capital

Accounts in respect of such   Contributed   Property,   and (b) with respect to any

other   Partnership   property,   the adjusted   basis of such   property for federal

income tax purposes, all as of the time of determination.   The Carrying Value of

any property   shall be adjusted   from time to time in   accordance   with Sections

4.5(d)(i) and 4.5(d)(ii) and to reflect changes,   additions or other adjustments

to   the   Carrying   Value   for    dispositions   and   acquisitions   of   Partnership

properties, as deemed appropriate by the General Partner.

 

     "Certificate   of   Limited   Partnership"   means the   Certificate   of Limited

Partnership   filed   with the   Secretary   of State of the   State of   Delaware   as

referenced in Section 6.2, as such   Certificate   of Limited   Partnership   may be

amended, supplemented or restated from time to time.

 

 

                                      -6-

 

 

 

     "Closing   Date" means the first date on which   Common Units are sold by the

MLP to the   Underwriters   pursuant   to the   provisions   of the MLP   Underwriting

Agreement.

 

     "Code"   means the Internal   Revenue Code of 1986,   as amended and in effect

from time to time, as interpreted by the applicable regulations thereunder.   Any

reference   herein to a specific   section or sections of the Code shall be deemed

to include a reference to any corresponding provision of future law.

 

     "Common Unit" has the meaning assigned to such term in the MLP Agreement.

 

     "Contributed   Property" means each property or other asset, in such form as

may be permitted by the Delaware Act, but   excluding   cash,   contributed   to the

Partnership   (or   deemed   contributed   to the   Partnership   on   termination   and

reconstitution   thereof pursuant to Section 708 of the Code).   Once the Carrying

Value of a Contributed   Property is adjusted   pursuant to Section   4.5(d),   such

property shall no longer constitute a Contributed Property,   but shall be deemed

an Adjusted Property.

 

     "Contribution   Agreement" has the meaning   assigned to such term in the MLP

Agreement.

 

     "Curative   Allocation"   means any   allocation   of an item of income,   gain,

deduction, loss or credit pursuant to the provisions of Section 5.1(d)(ix).

 

     "Delaware Act" means the Delaware Revised Uniform Limited   Partnership Act,

6 Del C. ss.ss. 17-101, et seq., as amended,   supplemented or restated from time

to time, and any successor to such statute.

 

     "Departing   Partner"   means a former   General   Partner,   from and after the

effective   date of any   withdrawal   or removal of such   former   General   Partner

pursuant to Section 12.1 or Section 12.2.

 

     "Economic   Risk of Loss" has the meaning   set forth in Treasury   Regulation

Section 1.752-2(a).

 

     "Event of   Withdrawal"   has the   meaning   assigned   to such term in Section

12.1(a).

 

     "Exchange   Act"   means the   Securities   Exchange   Act of 1934,   as   amended

supplemented or restated from time to time, and any successor to such statute.

 

     "FAC"   means   Ferrellgas   Acquisition   Company,   LLC,   a   Delaware   limited

liability company whose sole member is Ferrellgas.

 

     "Ferrell" means Ferrell Companies, Inc., a Kansas corporation.

 

     "Ferrellgas"   means Ferrellgas,   Inc., a Delaware   corporation and a wholly

owned subsidiary of Ferrell.

 

     "General Partner" means   Ferrellgas,   and its successors as general partner

of the Partnership.

 

     "IDR" has the meaning assigned to such term in the MLP Agreement.

 

     "Indemnitee" means the General Partner,   any Departing Partner,   any Person

who is or was an Affiliate of the General Partner or any Departing Partner,   any

Person who is or was an officer, director,   employee,   partner, agent or trustee

of the General Partner or any Departing   Partner or any such   Affiliate,   or any

Person   who is or was   serving   at the   request   of the   General   Partner or any

Departing   Partner   or any such   Affiliate   as a   director,   officer,   employee,

partner, agent or trustee of another Person.

 

 

                                       -7-

 

 

 

     "Initial Limited Partner" means the MLP.

 

     "Limited Partner" means the Initial Limited Partner, Ferrellgas pursuant to

Section 4.2, each Substituted   Limited Partner,   if any, each Additional Limited

Partner and any   Departing   Partner   upon the change of its status from   General

Partner to Limited   Partner   pursuant to Section   12.3,   but   excluding any such

Person from and after the time it withdraws from the Partnership.

 

     "Liquidation   Date"   means (a) in the case of an event   giving   rise to the

dissolution   of the   Partnership of the type described in clauses (a) and (b) of

the first sentence of Section 13.2, the date on which the applicable time period

during   which   the   Partners   have   the   right   to   elect   to   reconstitute   the

Partnership and continue its business has expired without such an election being

made,   and (b) in the case of any other event giving rise to the   dissolution of

the Partnership, the date on which such event occurs.

 

     "Liquidator" means the General Partner or other Person approved pursuant to

Section 13.3 who performs the functions described therein.

 

     "Merger Agreement" has the meaning assigned to such term in Section 15.1.

 

     "MLP" means Ferrellgas Partners, L.P., a Delaware limited partnership.

 

     "MLP Agreement" means the Fourth Amended and Restated   Agreement of Limited

Partnership of Ferrellgas   Partners,   L.P. dated February 18, 2003, as it may be

amended, supplemented or restated from time to time.

 

     "MLP Offering" means the initial offering of Common Units to the public, as

described in the MLP Registration Statement.

 

     "MLP Registration   Statement" means the Registration   Statement on Form S-1

(Registration   No.   33-53383),   as it   has   been   or as it   may   be   amended   or

supplemented   from   time to   time,   filed by the MLP   with   the   Securities   and

Exchange   Commission   under the Securities Act to register the offering and sale

of the Common Units in the MLP Offering.

 

     "MLP Subsidiary" means a Subsidiary of the MLP.

 

     "MLP   Underwriting   Agreement" means the underwriting   agreement dated June

27, 1994, among the MLP, the General Partner, Ferrell and the Underwriters named

in   Schedule   I thereto   providing   for the   purchase   of   Common   Units by such

Underwriters.

 

     "National   Securities   Exchange"   means   an   exchange   registered   with the

Securities and Exchange Commission under Section 6(a) of the Exchange Act.

 

 

                                       -8-

 

 

 

     "Net Agreed Value" means, (a) in the case of any Contributed Property,   the

Agreed Value of such property   reduced by any liabilities   either assumed by the

Partnership   upon such   contribution   or to which such   property is subject when

contributed, and (b) in the case of any property distributed to a Partner by the

Partnership,   the   Partnership's   Carrying   Value of such   property (as adjusted

pursuant   to   Section   4.5(d)(ii))   at the time such   property   is   distributed,

reduced   by   any    indebtedness    either   assumed   by   such   Partner   upon   such

distribution   or to which such property is subject at the time of   distribution,

in either case, as determined under Section 752 of the Code.

 

     "Net Income"   means,   for any taxable   period,   the excess,   if any, of the

Partnership's   items of income and gain (other than those items   attributable to

dispositions   constituting   Termination   Capital   Transactions) for such taxable

period   over the   Partnership's   items of loss and   deduction   (other than those

items    attributable    to    dispositions     constituting    Termination    Capital

Transactions) for such taxable period.   The items included in the calculation of

Net Income shall be determined in accordance   with Section   4.5(b) and shall not

include any items   specially   allocated   under Section   5.1(d).   Once an item of

income,   gain,   loss   or   deduction   that   has   been   included   in   the   initial

computation   of Net Income is subjected to a Required   Allocation   or a Curative

Allocation,   Net   Income   or Net   Loss,   whichever   the   case   may be,   shall be

recomputed without regard to such item.

 

     "Net Loss"   means,   for any   taxable   period,   the   excess,   if any, of the

Partnership's   items of loss and deduction (other than those items   attributable

to dispositions   constituting Termination Capital Transactions) for such taxable

period over the   Partnership's   items of income and gain (other than those items

attributable to dispositions   constituting Termination Capital Transactions) for

such taxable period.   The items included in the calculation of Net Loss shall be

determined   in   accordance   with Section   4.5(b) and shall not include any items

specially allocated under Section 5.1(d). Once an item of income,   gain, loss or

deduction   that has been   included   in the   initial   computation   of Net Loss is

subjected to a Required Allocation or a Curative Allocation,   Net Income, or Net

Loss,   whichever   the case may be, shall be   recomputed   without   regard to such

item.

 

     "Net Termination Gain" means, for any taxable period, the sum, if positive,

of all items of income,   gain,   loss or deduction   recognized by the Partnership

(including,    without   limitation,    such   amounts   recognized   through   an   OLP

Subsidiary,   if applicable) from Termination Capital   Transactions   occurring in

such taxable period.   The items included in the determination of Net Termination

Gain shall be determined in accordance with Section 4.5(b) and shall not include

any items of income, gain or loss specially allocated under Section 5.1(d). Once

an   item of   income,   gain   or   loss   that   has   been   included   in the   initial

computation of Net Termination   Gain is subjected to a Required   Allocation or a

Curative Allocation, Net Termination Gain or Net Termination Loss, whichever the

case may be, shall be recomputed without regard to such item.

 

     "Net Termination Loss" means, for any taxable period, the sum, if negative,

of all items of income,   gain,   loss or deduction   recognized by the Partnership

(including,    without   limitation,    such   amounts   recognized   through   an   OLP

Subsidiary,   if applicable) from Termination Capital   Transactions   occurring in

such taxable period.   The items included in the determination of Net Termination

Loss shall be determined in accordance with Section 4.5(b) and shall not include

any items of income, gain or loss specially allocated under Section 5.1(d). Once

an item of gain or loss that has been included in the initial computation of Net

Termination Loss is subjected to a Required Allocation or a Curative Allocation,

Net Termination Gain or Net Termination   Loss,   whichever the case may be, shall

be recomputed without regard to such item.

 

     "Nonrecourse    Built-in   Gain"   means   with   respect   to   any    Contributed

Properties   or   Adjusted   Properties   that are   subject to a mortgage   or pledge

securing a Nonrecourse   Liability,   the amount of any taxable gain that would be

allocated to the Partners   pursuant to Sections   5.2(b)(i)(A),   5.2(b)(ii)(A) or

5.2(b)(iii) if such properties were disposed of in a taxable transaction in full

satisfaction of such liabilities and for no other consideration.

 

 

                                      -9-

 

 

 

     "Nonrecourse   Deductions"   means   any and all items of loss,   deduction   or

expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance

with   the   principles   of   Treasury    Regulation    Section    1.704-(2)(b),    are

attributable to a Nonrecourse Liability.

 

     "Nonrecourse   Liability"   has the meaning set forth in Treasury   Regulation

Section 1.752-1(a)(2).

 

     "OLP Offering" means the initial offering of Senior Notes to the public, as

described in the OLP Registration Statement.

 

     "OLP Registration   Statement" means the Registration   Statement on Form S-1

(Registration   No.   33-53379),   as it   has   been   or as it   may   be   amended   or

supplemented from time to time, filed by the Partnership and Ferrellgas   Finance

Corp.   with the Securities and Exchange   Commission   under the Securities Act to

register the offering and sale of the Senior Notes in the OLP Offering.

 

     "OLP Subsidiary" means a Subsidiary of the Partnership.

 

     "OLP   Underwriting   Agreement" means the underwriting   agreement dated June

27,1994,   among the Partnership,   Ferrellgas   Finance Corp., the General Partner

and the Underwriters   named in Schedule A thereto   providing for the purchase of

Senior Notes by such Underwriters.

 

     "Opinion of Counsel" means a written opinion of counsel (who may be regular

counsel to the General   Partner,   any Affiliate of the General   Partner,   or the

Partnership) acceptable to the General Partner.

 

     "Partners" means the General Partner,   the Acquisition   General Partner and

the Limited Partner.

 

     "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation

Section 1.704-2(b)(4).

 

     "Partner   Nonrecourse   Debt   Minimum   Gain"   has the   meaning   set forth in

Treasury   Regulation Section   1.704-2(i)(2).   "Partner   Nonrecourse   Deductions"

means any and all items of loss,   deduction or expenditure   (including,   without

limitation, any expenditure described in Section 705(a)(2)(B) of the Code) that,

in accordance with the principles of Treasury Regulation Section 1.704-2(i), are

attributable to a Partner Nonrecourse Debt.

 

     "Partnership"   means   Ferrellgas,   L.P.,   a Delaware   limited   partnership,

established   by the   Certificate   of   Limited   Partnership,   and   any   successor

thereto.

 

     "Partnership Interest" means the interest of a Partner in the Partnership.

 

     "Partnership   Minimum Gain" means that amount determined in accordance with

the principles of Treasury Regulation Section 1.704-2(d).

 

 

                                      -10-

 

 

 

     "Percentage   Interest" means as of the date of such determination as to any

Partner,   the   percentage   determined   by dividing the amount of that   Partner's

cumulative   Capital   Contributions to the Partnership by the cumulative   Capital

Contributions   of all   Partners   to the   Partnership.   As of April 7, 2004,   the

Percentage Interest of the General Partner, in its capacity as such, is 1.0101%,

and the Percentage Interest of the Limited Partner, is 98.9899%.

 

     "Person"   means   an   individual   or   a   corporation,    partnership,   trust,

unincorporated organization, association or other entity.

 

     "Quarter"   means,   unless the context   requires   otherwise,   a   three-month

period of time ending on October 31, January 31, April 30, or July 31; provided,

however,   that the General   Partner in its sole discretion may amend such period

as it deems   necessary or appropriate in connection   with a change in the fiscal

year of the Partnership.

 

     "Recapture   Income" means any gain recognized by the Partnership   (computed

without   regard to any   adjustment   required by Sections 734 or 743 of the Code)

upon the disposition of any property or asset of the Partnership,   which gain is

characterized   as   ordinary   income   because   it   represents   the   recapture   of

deductions previously taken with respect to such property or asset.

 

     "Registration   Statements" means the MLP Registration Statement and the OLP

Registration Statement.

 

     "Required   Allocations"   means any allocation (or limitation imposed on any

allocation)   of an item of   income,   gain,   deduction   or loss   pursuant   to (a)

Section 5.1(b)(i) or (b) Sections   5.1(d)(i)-(vi)   and (viii),   such allocations

(or limitations   thereon) being directly or indirectly   required by the Treasury

regulations promulgated under Section 704(b) of the Code.

 

     "Residual   Gain" or "Residual   Loss" means any item of gain or loss, as the

case may be, of the   Partnership   recognized   for   federal   income tax   purposes

resulting from a sale,   exchange or other disposition of a Contributed   Property

or Adjusted   Property,   to the extent such item of gain or loss is not allocated

pursuant to Sections 5.2(b)(i)(A) or 5.2(b)(ii)(A),   respectively,   to eliminate

Book-Tax Disparities.

 

     "Restricted   Activities"   means the   retail   sale of   propane   to end users

within the   continental   United   States in the manner   engaged in by   Ferrellgas

immediately prior to the Closing Date.

 

     "Securities Act" means the Securities Act of 1933, as amended, supplemented

or restated from time to time and any successor to such statute.

 

     "Senior Notes" means, collectively, the $200 million in aggregate principal

amount of 10.0%   Fixed Rate Senior   Notes due 2001 and $50 million in   aggregate

principal   amount of   Floating   Rate   Senior   Notes due 2001 to be issued by the

Partnership   and   Ferrellgas   Finance   Corp.   and   offered   and   sold in the OLP

Offering.

 

     "Special Approval" means approval by the Audit Committee.

 

     "Subsidiary"   means, with respect to any Person, (i) a corporation of which

more   than 50% of the   voting   power of   shares of   Capital   Interests   entitled

(without regard to the occurrence of any contingency) to vote in the election of

directors or other   governing   body of such   corporation   is owned,   directly or

indirectly,   by such Person,   by one or more   Subsidiaries of such Person,   or a

combination   thereof,   (ii) a partnership   (whether general or limited) in which

such Person or a Subsidiary of such Person is, at the date of   determination,   a

general or limited partner of such partnership, but only if more than 50% of the

Capital Interests of such partnership   (considering all of the Capital Interests

of the   partnership   as a single   class)   is owned or   controlled,   directly   or

indirectly,   by such Person,   by one or more   Subsidiaries of such Person,   or a

combination   thereof,   or (iii) any other Person (other than a corporation   or a

partnership)   in which   such   Person,   directly   or   indirectly,   at the date of

determination,   has (x) at least a majority   ownership interest or (y) the power

to   elect or   direct   the   election   of a   majority   of the   directors   or other

governing body of such Person.

 

 

                                      -11-

 

 

 

     "Substituted   Limited   Partner" means a Person who is admitted as a Limited

Partner to the Partnership pursuant to Section 11.3 in place of and with all the

rights of a Limited   Partner and who is shown as a Limited   Partner on the books

and records of the Partnership.

 

     "Surviving   Business   Entity"   has the   meaning   assigned   to such   term in

Section 15.2(b).

 

     "Termination   Capital   Transactions"   means   any   sale,   transfer   or other

disposition   of property of the   Partnership   occurring   upon or incident to the

liquidation and winding up of the Partnership pursuant to Article XIII.

 

     "Underwriting   Agreements" means the MLP Underwriting Agreement and the OLP

Underwriting Agreement.

 

     "Unit" has the meaning assigned to such term in this MLP Agreement.

 

     "Unrealized Gain"   attributable to any item of Partnership   property means,

as of any date of   determination,   the   excess,   if any,   of (a) the fair market

value of such property as of such date (as determined under Section 4.5(d)) over

(b) the Carrying Value of such property as of such date (prior to any adjustment

to be made pursuant to Section 4.5(d) as of such date).

 

     "Unrealized Loss"   attributable to any item of Partnership   property means,

as of any date of   determination,   the excess, if any, of (a) the Carrying Value

of such property as of such date (prior to any adjustment to be made pursuant to

Section   4.5(d) as of such date) over (b) the fair market value of such property

as of such date (as determined under Section 4.5(d)).

 

     "Withdrawal   Opinion of Counsel"   has the meaning   assigned to such term in

Section 12.1(b).

 

 

                                      -12-

 

 

 

                                    ARTICLE IV

                                     PURPOSE

 

SECTION 4.1        Purpose and Business.

 

     The purpose and nature of this business to be conducted by the   Partnership

shall be (a) to   acquire,   manage,   and   operate   the   assets   described   in the

Contribution   Agreement as being   transferred to the Partnership and any similar

assets or   properties   and to engage   directly   in, or to enter into or form any

corporation,   limited   liability   company,   partnership,   joint venture or other

arrangement to engage indirectly in, any type of business or activity engaged in

by   Ferrellgas   immediately   prior   to   the   Closing   Date   and,   in   connection

therewith,   to   exercise   all   of the   rights   and   powers   conferred   upon   the

Partnership   pursuant to the agreements   relating to such assets,   (b) to engage

directly in, or enter into or form any corporation,   limited liability   company,

partnership,   joint venture or other   arrangement   to engage   indirectly in, any

business activity that is approved by the General Partner and which may lawfully

be conducted   by a limited   partnership   organized   pursuant to the Delaware Act

and, in connection therewith, to exercise all of the rights and powers conferred

upon the   Partnership   pursuant   to the   agreements   relating   to such   business

activity,   and (c) to do anything   necessary or   appropriate   to the   foregoing,

including,   without limitation,   the making of capital   contributions to any OLP

Subsidiary   or   loans   to the   MLP,   an   MLP   Subsidiary   or an   OLP   Subsidiary

(including,   without   limitation,   those   contributions   or   loans   that   may be

required in connection   with its   involvement in the   activities   referred to in

clause (b) of this   sentence).   The General Partner has no obligation or duty to

the   Partnership or the Limited   Partner to propose or approve,   and in its sole

discretion may decline to propose or approve,   the conduct by the Partnership of

any business.

 

SECTION 4.2        Powers.

 

     The   Partnership   shall be   empowered   to do any and all   acts   and   things

necessary,   appropriate,   proper, advisable, incidental to or convenient for the

furtherance and accomplishment of the purposes and business described in Section

3.1 and for the protection and benefit of the Partnership.

 

                                   ARTICLE V

                              CAPITAL CONTRIBUTIONS

 

SECTION 5.1        Initial Contributions.

 

     In connection with the formation of the Partnership under the Delaware Act,

the General Partner made an initial   Capital   Contribution to the Partnership in

the amount of $10.10 for an interest in the   Partnership and was admitted as the

general   partner of the   Partnership,   and the Initial   Limited   Partner made an

initial Capital   Contribution to the Partnership in the amount of $989.90 for an

interest   in the   Partnership   and was   admitted   as a   limited   partner   of the

Partnership.

 

SECTION 5.2 Contributions by Ferrellgas, the MLP and the Acquisition General

Partner.

 

     (a)   On   the   Closing   Date,    Ferrellgas,    as   a   Capital    Contribution,

contributed,   transferred,   conveyed,   assigned and delivered to the Partnership

the property and other rights described in the   Contribution   Agreement as being

so contributed,   transferred,   conveyed,   assigned and delivered in exchange for

(i)   the   continuation   of its   general   partner   interest   in   the   Partnership

consisting of a Partnership Interest representing a 1.0101% Percentage Interest,

(ii) a limited   partner   interest   in the   Partnership,   which was   contributed,

transferred,   conveyed, assigned and delivered by the General Partner to the MLP

as set   forth   in the   Contribution   Agreement,   and   which,   together   with the

Partnership    Interest   previously   held   by   the   MLP,   represents   a   98.9899%

Percentage Interest in the Partnership,   and (iii) the Partnership's   assumption

of, or taking of assets subject to, certain   indebtedness and other liabilities,

including,   without   limitation,   the   Partnership's   assumption   of the payment

obligations of certain   indebtedness   of Ferrellgas,   all as provided for in the

Contribution Agreement.

 

     (b) On the Closing Date, the MLP   contributed in respect of its Partnership

Interest   approximately $255 million out of the net proceeds to the MLP from the

issuance of the Common Units pursuant to the MLP Offering.

 

 

                                      -13-

 

 

 

     (c) On the   Acquisition   Closing   Date,   FAC,   as a   Capital   Contribution,

contributed,   transferred,   conveyed,   assigned and delivered to the Partnership

the property and other rights described in an Acquisition Contribution Agreement

dated   the   Acquisition   Closing   Date as   being   so   contributed,   transferred,

conveyed,   assigned   and   delivered   in   exchange   for (i) the   general   partner

interest in the Partnership of the Acquisition   General Partner   consisting of a

Partnership   Interest   in   the   amount   of   $735,   and   (ii)   the   Partnership's

assumption of, or taking of assets subject to,   certain   indebtedness   and other

liabilities,   including, without limitation, the Partnership's assumption of the

payment obligations of certain   indebtedness of FAC, all as provided for in such

Acquisition   Contribution Agreement.   Immediately   thereafter,   FAC assigned the

Partnership   Interest of the   Acquisition   General   Partner to   Ferrellgas,   the

general partner interest in the Partnership of Ferrellgas   continued   thereafter

as a Partnership   Interest   representing a 1.0101 Percentage   Interest,   and FAC

withdrew from the Partnership.

 

SECTION 5.3        Additional Capital Contributions.

 

     With the consent of the General Partner, the Limited Partner may, but shall

not be obligated to, make additional   Capital   Contributions to the Partnership.

Contemporaneously   with the making of any such additional Capital   Contributions

by the Limited   Partner,   the General   Partner   may make an   additional   Capital

Contribution   to the Partnership in an amount equal to 1.0204% of the additional

Capital   Contribution then made by the Limited Partner. The General Partner may,

at any   time   and   from   time   to   time,   make   a   Capital   Contribution   to the

Partnership so that the General   Partner will have a Capital Account equal to no

more than 1.0101% of the sum of the Capital Accounts of all Partners.   Except as

set forth in Section   13.8,   the General   Partner shall not be obligated to make

any additional Capital Contributions to the Partnership.

 

SECTION 5.4        No Preemptive Rights.

 

     Except as provided in Section   4.3,   no Person   shall have any   preemptive,

preferential   or other   similar   right with   respect to (a)   additional   Capital

Contributions;   (b)   issuance   or sale of any   class or   series   of   Partnership

Interests,   whether   unissued,   held in the treasury or hereafter   created;   (c)

issuance of any   obligations,   evidences of indebtedness or other   securities of

the Partnership convertible into or exchangeable for, or carrying or accompanied

by any   rights to   receive,   purchase   or   subscribe   to,   any such   Partnership

Interests;   (d) issuance of any right of subscription to or right to receive, or

any warrant or option for the purchase of, any such   Partnership   Interests;   or

(e) issuance or sale of any other   securities   that may be issued or sold by the

Partnership.

 

SECTION 5.5        Capital Accounts.

 

     (a) The   Partnership   shall   maintain for each Partner owning a Partnership

Interest a separate Capital Account with respect to such Partnership Interest in

accordance with the rules of Treasury   Regulation   Section   1.704-1   (b)(2)(iv).

Such   Capital   Account   shall be   increased   by (i) the   amount   of all   Capital

Contributions made to the Partnership with respect to such Partnership   Interest

pursuant to this   Agreement   and (ii) all items of   Partnership   income and gain

(including,   without   limitation,   income and gain exempt from tax)   computed in

accordance   with Section 4.5(b) and allocated   with respect to such   Partnership

Interest pursuant to Section 5.1, and decreased by (x) the amount of cash or the

Net Agreed Value of all actual and deemed distributions of cash or property made

with respect to such Partnership Interest pursuant to this Agreement and (y) all

items of   Partnership   deduction and loss   computed in   accordance   with Section

4.5(b) and   allocated   with   respect to such   Partnership   Interest   pursuant to

Section 5.1.

 

     (b) For purposes of computing the amount of any item of income,   gain, loss

or   deduction   to   be   reflected   in   the   Partners'    Capital    Accounts,    the

determination, recognition and classification of any such item shall be the same

as its   determination,   recognition   and   classification   for federal income tax

purposes   (including,   without   limitation,   any   method of   depreciation,   cost

recovery or amortization used for that purpose), provided, that:

 

 

                                      -14-

 

 

 

          (i) Solely for purposes of this Section 4.5, the Partnership   shall be

     treated as owning   directly its   proportionate   share (as determined by the

     General   Partner)   of all   property   owned   by any OLP   Subsidiary   that is

     classified as a partnership for federal income tax purposes.

 

          (ii)   All fees and   other   expenses   incurred   by the   Partnership   to

     promote the sale of (or to sell) a Partnership Interest that can neither be

     deducted nor amortized   under Section 709 of the Code, if any,   shall,   for

     purposes of Capital Account maintenance, be treated as an item of deduction

     at the   time   such   fees and   other   expenses   are   incurred   and   shall be

     allocated among the Partners pursuant to Section 5.1.

 

          (iii)   Except as   otherwise   provided in Treasury   Regulation   Section

     1.704-1   (b)(2)(iv)(m),   the computation of all items of income, gain, loss

     and deduction   shall be made without   regard to any election   under Section

     754 of the Code which may be made by the Partnership and, as to those items

     described in Section   705(a)(1)(B)   or   705(a)(2)(B)   of the Code,   without

     regard to the fact that such items are not   includable   in gross   income or

     are neither   currently   deductible nor   capitalized   for federal income tax

     purposes.

 

          (iv) Any income,   gain or loss attributable to the taxable disposition

     of any Partnership property shall be determined as if the adjusted basis of

     such   property as of such date of   disposition   were equal in amount to the

     Partnership's Carrying Value with respect to such property as of such date.

 

           (v) In accordance with the requirements of Section 704(b) of the Code,

     any deductions for depreciation, cost recovery or amortization attributable

     to any Contributed Property shall be determined as if the adjusted basis of

     such property on the date it was acquired by the Partnership   were equal to

     the Agreed Value of such property.   Upon an adjustment   pursuant to Section

     4.5(d)   to the   Carrying   Value   of any   Partnership   property   subject   to

     depreciation,   cost recovery or   amortization,   any further   deductions for

     such   depreciation,   cost   recovery or   amortization   attributable   to such

     property   shall be determined (A) as if the adjusted basis of such property

     were equal to the Carrying   Value of such   property   immediately   following

     such   adjustment   and (B) using a rate of   depreciation,   cost   recovery or

     amortization   derived   from   the   same   method   and   useful   life   (or,   if

     applicable, the remaining useful life) as is applied for federal income tax

     purposes;   provided,   however, that, if the asset has a zero adjusted basis

     for   federal    income   tax    purposes,    depreciation,    cost   recovery   or

     amortization   deductions   shall be determined   using any reasonable   method

     that the General Partner may adopt.

 

          (vi) If the   Partnership's   adjusted   basis in a   depreciable   or cost

     recovery   property is reduced for federal   income tax purposes   pursuant to

     Section   48(q)(1)   or 48(q)(3)   of the Code,   the amount of such   reduction

     shall,    solely   for   purposes   hereof,   be   deemed   to   be   an   additional

     depreciation or cost recovery deduction in the year such property is placed

     in service and shall be allocated   among the   Partners   pursuant to Section

     5.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code

     shall,   to the extent   possible,   be   allocated   in the same   manner to the

     Partners to whom such deemed deduction was allocated.

 

 

                                       -15-

 

 

 

     (c) A transferee   of a   Partnership   Interest   shall   succeed to a pro rata

portion of the Capital   Account of the   transferor   relating to the   partnership

Interest so   transferred;   provided,   however,   that,   if the transfer   causes a

termination   of the   Partnership   under Section   708(b)(1)(B)   of the Code,   the

Partnership's properties shall be deemed to have been distributed in liquidation

of the   Partnership   to the Partners   (including any transferee of a Partnership

Interest that is a party to the transfer causing such   termination)   pursuant to

Sections 13.3 and 13.4 and   recontributed by such Partners in   reconstitution of

the   Partnership.   Any such   deemed   distribution   shall be treated as an actual

distribution   for   purposes of this   Section   4.5. In such event,   the   Carrying

Values of the Partnership properties shall be adjusted immediately prior to such

deemed   distribution   pursuant to Section   4.5(d)(ii)   and such Carrying   Values

shall then   constitute   the Agreed   Values of such   properties   upon such deemed

contribution   to the   reconstituted   Partnership.   The Capital   Accounts of such

reconstituted   Partnership shall be maintained in accordance with the principles

of this Section 4.5.

 

     (d) (i)   Consistent   with the   provisions   of Treasury   Regulation   Section

1.704-1(b)(2)(iv)(f),   on an issuance of   additional   Partnership   Interests for

cash or   Contributed   Property,   the   Capital   Account of all   Partners   and the

Carrying Value of each Partnership   property   immediately prior to such issuance

shall   be   adjusted   upward   or   downward   to   reflect   any   Unrealized   Gain or

Unrealized Loss attributable to such Partnership property, as if such Unrealized

Gain or   Unrealized   Loss had been   recognized   on an   actual   sale of each such

property   immediately   prior   to such   issuance   and had been   allocated   to the

Partners at such time   pursuant to Sections   5.1(a) and 5.1(b).   In   determining

such   Unrealized   Gain or Unrealized   Loss,   the aggregate   cash amount and fair

market value of all Partnership assets (including,   without limitation,   cash or

cash equivalents)   immediately   prior to the issuance of additional   Partnership

Interests   shall be   determined   by the General   Partner   using such   reasonable

method   of   valuation   as it may   adopt;   provided,   however,   that the   General

Partner,   in arriving at such   valuation,   must take fully into account the fair

market value of the   Partnership   Interests   of all   Partners at such time.   The

General   Partner   shall   allocate such   aggregate   value among the assets of the

Partnership   (in such   manner   as it   determines   in its sole   discretion   to be

reasonable) to arrive at a fair market value for individual properties.

 

           (ii)     In     accordance     with     Treasury      Regulation     Section

     1.704-1(b)(2)(iv)(f),    immediately    prior   to   any    actual    or    deemed

     distribution   to a   Partner   of   any   Partnership   property   (other   than a

     distribution   of   cash   that   is   not   in   redemption   or   retirement   of a

     Partnership   Interest),   the   Capital   Accounts   of all   Partners   and   the

     Carrying Value of such   Partnership   property   shall be adjusted   upward or

     downward to reflect any Unrealized Gain or Unrealized Loss   attributable to

     such   Partnership   property,   as if such Unrealized Gain or Unrealized Loss

     had been   recognized in a sale of such property   immediately   prior to such

     distribution   for an amount   equal to its fair market   value,   and had been

     allocated   to the   Partners,   at such time,   pursuant to Section   5.1.   Any

     Unrealized Gain or Unrealized   Loss   attributable to such property shall be

     allocated   in the same manner as Net   Termination   Gain or Net   Termination

     Loss pursuant to Section   5.1(c);   provided,   however,   that, in making any

     such   allocation,   Net Termination   Gain or Net   Termination   Loss actually

     realized shall be allocated   first. In determining   such Unrealized Gain or

     Unrealized   Loss the   aggregate   cash amount and fair   market   value of all

     Partnership   assets,    (including,    without    limitation,    cash   or   cash

     equivalents) immediately prior to a distribution shall (A) in the case of a

      deemed   distribution   occurring   as   a   result   of   a   termination   of   the

     Partnership   pursuant   to   Section   708   of the   Code,   be   determined   and

     allocated in the same manner as that   provided in Section   4.5(d)(i) or (B)

     in the case of a liquidating distribution pursuant to Section 14.3 or 14.4,

     be determined and allocated by the Liquidator using such reasonable   method

     of valuation as it may adopt.

 

 

                                      -16-

 

 

 

SECTION 5.6        Interest.

 

     No interest shall be paid by the Partnership on Capital Contributions or on

balances in Partners' Capital Accounts.

 

SECTION 5.7        No Withdrawal.

 

     No   Partner   shall   be   entitled   to   withdraw   any   part   of   its   Capital

Contributions   or its Capital   Account or to receive any   distribution   from the

Partnership, except as provided in Articles V, VII, XII and XIII.

 

SECTION 5.8        Loans from Partners.

 

     Loans   by a   Partner   to   the   Partnership   shall   not   constitute   Capital

Contributions.   If any Partner shall advance funds to the   Partnership in excess

of the amounts required   hereunder to be contributed by it to the capital of the

Partnership, the making of such excess advances shall not result in any increase

in the amount of the   Capital   Account of such   Partner.   The amount of any such

excess   advances shall be a debt   obligation of the   Partnership to such Partner

and   shall be   payable   or   collectible   only out of the   Partnership   assets in

accordance with the terms and conditions upon which such advances are made.

 

                                   ARTICLE VI

                          ALLOCATIONS AND DISTRIBUTIONS

 

SECTION 6.1        Allocations for Capital Account Purposes.

 

     For purposes of maintaining   the Capital   Accounts and in   determining   the

rights of the Partners   among   themselves,   the   Partnership's   items of income,

gain,   loss and deduction   (computed in accordance with Section 4.5(b)) shall be

allocated   among the   Partners   in each   taxable   year (or   portion   thereof) as

provided hereinbelow.

 

     (a) Net Income. After giving effect to the special allocations set forth in

Section   5.1(d),   Net   Income for each   taxable   period and all items of income,

gain,   loss and   deduction   taken into account in computing   Net Income for such

taxable period shall be allocated as follows:

 

          (i) First,   100% to the General Partner until the aggregate Net Income

     allocated   to the General   Partner   pursuant to this Section 5.1 (a)(i) for

     the current   taxable   year and all previous   taxable   years is equal to the

     aggregate Net Losses   allocated to the General Partner   pursuant to Section

     5.1 (b)(ii) for all previous taxable years; and

 

          (ii) Second, the balance,   if any, 100% to the General Partner and the

     Limited Partner in accordance with their respective Percentage Interests.

 

     (b) Net Losses. After giving effect to the special allocations set forth in

Section   5.1(d),   Net   Losses for each   taxable   period and all items of income,

gain,   loss and   deduction   taken into account in computing   Net Losses for such

taxable period shall be allocated as follows:

 

 

                                      -17-

 

 

 

          (i) First,   100% to the General   Partner   and the   Limited   Partner in

     accordance with their respective Percentage Interests;   provided,   that Net

     Losses   shall not be allocated   pursuant to this   Section   5.1(b)(i) to the

     extent   that such   allocation   would   cause any   Limited   Partner to have a

     deficit balance in its Adjusted Capital. Account at the end of such taxable

     year (or   increase   any existing   deficit   balance in its Adjusted   Capital

     Account); and

 

          (ii) Second, the balance, if any, 100% to the General Partner.

 

     (c) Net   Termination   Gains and Losses.   After giving effect to the special

allocations   set forth in Section   5.1(d),   all items of income,   gain, loss and

deduction   taken   into   account   in   computing   Net   Termination    Gain   or   Net

Termination   Loss; for such taxable period shall be allocated in the same manner

as such Net Termination Gain or Net Termination Loss is allocated hereunder. All

allocations   under   this   Section   5.1(c)   shall be made after   Capital   Account

balances have been adjusted by all other allocations provided under this Section

5.1(c) after all distributions of Available Cash provided under Section 5.3 have

been   made   with   respect   to the   taxable   period   ending   on the   date   of the

Partnership's liquidation pursuant to Section 13.3.

 

          (i) If a Net   Termination   Gain is   recognized   (or deemed   recognized

     pursuant to Section 4.5(d)) from Termination Capital Transactions, such Net

     Termination   Gain shall be   allocated   between the General   Partner and the

     Limited Partner in the following   manner (and the Adjusted Capital Accounts

     of the   Partners   shall be   increased by the amount so allocated in each of

     the following subclauses, in the order listed, before an allocation is made

     pursuant to the next succeeding subclause):

 

               (A)   First,   to each   Partner   having a   deficit   balance   in its

          Adjusted Capital Account,   in the proportion that such deficit balance

          bears to the total deficit   balances in the Adjusted   Capital Accounts

          of all   Partners,   until   each such   Partner   has been   allocated   Net

          Termination   Gain equal to any such   deficit   balance in its   Adjusted

          Capital Account; and

 

               (B) Second,   100% to the General   Partner and the Limited Partner

          in accordance with their respective Percentage Interests.

 

          (ii) If a Net   Termination   Loss is recognized   (or deemed   recognized

     pursuant to Section 4.5(d)) from Termination Capital Transactions, such Net

     Termination   Loss   shall be   allocated   to the   Partners   in the   following

     manner:

 

               (A) First, 100% to the General Partner and the Limited Partner in

          proportion   to, and to the extent of, the   positive   balances in their

          respective Adjusted Capital Accounts; and

 

               (B) Second, the balance, if any, 100% to the General Partner.

 

     (d)   Special   Allocations.   Notwithstanding   any   other   provision   of this

Section 5.1, the following   special   allocations   shall be made for such taxable

period:

 

 

                                      -18-

 

 

 

          (i) Partnership   Minimum Gain   Chargeback.   Notwithstanding   any other

     provision of this   Section   5.1, if there is a net decrease in   Partnership

     Minimum Gain during any Partnership   taxable period,   each Partner shall be

     allocated   items of   Partnership   income and gain for such period (and,   if

     necessary,   subsequent   periods)   in the manner   and   amounts   provided   in

     Treasury     Regulation     Sections     1.704-2(f)(6),     1.704-2(g)(2)    and

     1.704-2(j)(2)(i),   or any successor provision. For purposes of this Section

     5.1(d),    each   Partner's    Adjusted    Capital   Account   balance   shall   be

     determined,   and the allocation of income or gain required   hereunder shall

     be effected,   prior to the application of any other allocations pursuant to

     this   Section   5.1(d) with respect to such   taxable   period   (other than an

     allocation   pursuant   to   Sections   5.1   (d)(v)   and   (vi)).   This   Section

     5.1(d)(i)   is   intended   to   comply   with   the   Partnership    Minimum   Gain

     chargeback   requirement in Treasury Regulation Section 1.704-2(f) and shall

     be interpreted consistently therewith.

 

          (ii)    Chargeback    of   Partner    Nonrecourse    Debt    Minimum    Gain.

     Notwithstanding   the other   provisions   of this   Section   5.1   (other   than

     Section   5.1(d)   (i)),   except as provided in Treasury   Regulation   Section

     1.704-2(i)(4),   if there is a net   decrease   in   Partner   Nonrecourse   Debt

     Minimum   Gain during any   Partnership   taxable   period,   any Partner with a

     share of Partner   Nonrecourse   Debt Minimum   Gain at the   beginning of such

     taxable period shall be allocated items of Partnership   income and gain for

     such   period   (and,   if   necessary,   subsequent   periods) in the manner and

     amounts   provided   in   Treasury   Regulation    Sections    1.704-2(i)(4)   and

     1.704-2(j)(2)(ii),   or any   successor   provisions.   For   purposes   of   this

     Section 5.1(d),   each Partner's   Adjusted   Capital Account balance shall be

     determined,   and the allocation of income or gain required   hereunder shall

     be effected,   prior to the application of any other allocations pursuant to

     this   Section   5.1(d),   other   than   Section   5.1(d)(i)   and other   than an

     allocation   pursuant to Sections   5.1(d)(v) and (vi),   with respect to such

     taxable   period.   This   Section   5.1(d)(ii)   is intended to comply with the

     chargeback of items of income and gain   requirement in Treasury   Regulation

     Section 1.7041-2(i)(4) and shall be interpreted consistently therewith.

 

          (iii) Qualified Income Offset.   In the event any Partner   unexpectedly

     receives   any   adjustments,    allocations   or   distributions   described   in

     Treasury         Regulation         Sections          1.704-1(b)(2)(ii)(d)(4),

     1.704-1(b)(2)(ii)(d)(5),   or 1.704-1(b)(2)(ii)(d)(6),   items of Partnership

     income   and gain   shall be   specifically   allocated   to such   Partner in an

     amount and manner   sufficient to eliminate,   to the extent   required by the

     Treasury   Regulations   promulgated   under Section   704(b) of the Code,   the

     deficit   balance,   if any, in its Adjusted   Capital Account created by such

     adjustments,   allocations or distributions   as quickly as possible,   unless

     such deficit balance is otherwise   eliminated pursuant to Section 5.1(d)(i)

     or (ii).

 

          (iv) Gross Income Allocations.   In the event any Partner has a deficit

     balance   in its   Adjusted   Capital   Account   at the end of any   Partnership

     taxable   period   such   Partner   shall   be   specially    allocated   items   of

     Partnership   gross   income and gain in the amount of such excess as quickly

     as   possible;   provided,   that   an   allocation   pursuant   to   this   Section

     5.1(d)(iv)   shall be made only if and to the extent that such Partner would

     have a deficit   balance in its   Adjusted   Capital   Account   after all other

     allocations   provided in this Section 5.1 have been   tentatively made as if

     this Section 5.1(d)(iv) were not in this Agreement.

 

          (v)   Nonrecourse   Deductions.   Nonrecourse   Deductions for any taxable

     period   shall   be   allocated   to the   Partners   in   accordance   with   their

     respective Percentage   Interests.   If the General Partner determines in its

     good faith discretion that the Partnership's Nonrecourse Deductions must be

     allocated in a different   ratio to satisfy the safe harbor   requirements of

     the Treasury Regulations   promulgated under Section 704(b) of the Code, the

     General   Partner is   authorized,   upon   notice to the Limited   Partner,   to

     revise the   prescribed   ratio to the   numerically   closest   ratio that does

     satisfy such requirements.

 

          (vi) Partner Nonrecourse   Deductions.   Partner Nonrecourse   Deductions

     for any taxable   period shall be   allocated   100% to the Partner that bears

     the Economic Risk of Loss with respect to the Partner   Nonrecourse   Debt to

     which such Partner   Nonrecourse   Deductions are   attributable in accordance

     with Treasury Regulation Section 1.704-2(i). If more than one Partner bears

     the Economic Risk of Loss with respect to a Partner   Nonrecourse Debt, such

     Partner   Nonrecourse   Deductions   attributable   thereto   shall be allocated

     between or among such Partners in accordance   with the ratios in which they

     share such Economic Risk of Loss.

 

 

                                      -19-

 

 

 

          (vii)   Nonrecourse   Liabilities.   For purposes of Treasury   Regulation

     Section 1.752-3(a)(3),   the Partners agree that Nonrecourse   Liabilities of

     the   Partnership   in   excess of the sum of (A) the   amount   of   Partnership

     Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be

     allocated among the Partners in accordance with their respective Percentage

     Interests.

 

          (viii) Code Section 754   Adjustments.   To the extent an   adjustment to

     the adjusted tax basis of any Partnership   asset pursuant to Section 734(b)

     or 743(b) of the Code is required,   pursuant to Treasury Regulation Section

     1.704-1   (b)(2)(iv)(m),   to be taken into   account in   determining   Capital

     Accounts,   the amount of such   adjustment to the Capital   Accounts shall be

     treated as an item of gain (if the   adjustment   increases   the basis of the

     asset) or loss (if the adjustment   decreases such basis),   and such item of

     gain or loss   shall be   specially   allocated   to the   Partners   in a manner

     consistent with the manner in which their Capital   Accounts are required to

     be adjusted pursuant to such Section of the Treasury Regulations.

 

          (ix) Curative Allocation.

 

               (A)   Notwithstanding   any other   provision   of this   Section 5.1,

          other than the Required Allocations, the Required Allocations shall be

          taken into account in making the Agreed   Allocations   so that,   to the

          extent   possible,   the net amount of items of income,   gain,   loss and

          deduction    allocated   to   each   Partner    pursuant   to   the   Required

          Allocations and the Agreed   Allocations,   together,   shall be equal to

          the net amount of such items   that would have been   allocated   to each

          such Partner under the Agreed Allocations had the Required Allocations

          and the related   Curative   Allocation   not otherwise   been provided in

          this Section 5.1.   Notwithstanding   the preceding   sentence,   Required

          Allocations relating to (1) Nonrecourse Deductions shall not be taken,

          into   account   except to the extent   that there has been a decrease in

           Partnership Minimum Gain and (2) Partner Nonrecourse   Deductions shall

          not be taken into   account   except to the extent that there has been a

          decrease   in   Partner   Nonrecourse   Debt   Minimum   Gain.    Allocations

          pursuant to this Section 5.1(d)(ix)(A) shall only be made with respect

          to Required   Allocations to the extent the General Partner   reasonably

          determines that such allocations   will otherwise be inconsistent   with

          the   economic   agreement   among   the   Partners.   Further,   allocations

          pursuant to this Section   5.1(d)(ix)(A) shall be deferred with respect

          to   allocations   pursuant   to clauses (1) and (2) hereof to the extent

          the General Partner   reasonably   determines that such   allocations are

          likely to be offset by subsequent Required Allocations.

 

               (B) The General   Partner shall have reasonable   discretion,   with

          respect to each taxable period, to (1) apply the provisions of Section

          5.1(d)(ix)(A)   in   whatever   order   is most   likely   to   minimize   the

          economic   distortions   that might   otherwise   result from the Required

          Allocations,   and (2)   divide   all   allocations   pursuant   to   Section

           5.1(d)(ix)(A)   among   the   Partners   in a   manner   that is   likely   to

          minimize such economic distortions.

 

 

                                      -20-

 

 

 

     (e) Allocations to Acquisition   General Partner.   Notwithstanding any other

provision of this Section 5.1, no items of income, gain, loss or deduction shall

be allocated to the Acquisition General Partner.

 

SECTION 6.2        Allocations for Tax Purposes.

 

     (a) Except as otherwise   provided herein,   for federal income tax purposes,

each item of income,   gain,   loss and   deduction   shall be   allocated   among the

Partners in the same manner as its correlative item of "book" income, gain, loss

or deduction is allocated pursuant to Section 5.1.

 

     (b) In an attempt   to   eliminate   Book-Tax   Disparities   attributable   to a

Contributed   Property   or   Adjusted   Property,   items   of   income,   gain,   loss,

depreciation,   amortization and cost recovery   deductions shall be allocated for

federal income tax purposes among the Partners as follows:

 

          (i) (A) In the case of a Contributed Property, such items attributable

     thereto shall be allocated   among the Partners in the manner provided under

     Section   704(c) of the Code that takes into account the   variation   between

     the Agreed Value of such   property   and its   adjusted   basis at the time of

     contribution; and (B) except as otherwise provided in Section 5.2(b)i(iii),

     any item of Residual   Gain or Residual Loss   attributable   to a Contributed

     Property   shall be   allocated   among the Partners in the same manner as its

     correlative   item of "book" gain or loss is   allocated   pursuant to Section

     5.1.

 

          (ii) (A) In the case of an   Adjusted   Property,   such items   shall (1)

     first,   be   allocated   among the Partners in a manner   consistent   with the

     principles   of   Section   704(