Filed Pursuant to Rule 424(b)(1)
                                                     Registration No. 333-89010

PROSPECTUS
                             1,400,000 Common Units

                                 [INERGY LOGO]

                     Representing Limited Partner Interests

                               ----------------

   We are offering 1,061,005 common units, and the selling unitholders are
offering 338,995 common units. We will not receive any proceeds from the sale
of the common units by the selling unitholders. Our common units are traded on
the Nasdaq National Market under the symbol "NRGY." On June 18, 2002, the last
reported sale price of our common units on the Nasdaq was $31.35 per common
unit.

   Common units are entitled to receive minimum distributions of operating cash
of $0.60 per quarter, or $2.40 on an annualized basis, before any distributions
are paid on senior subordinated units or junior subordinated units, to the
extent we have sufficient cash from operations after establishment of cash
reserves and payment of fees and expenses, including payments to our general
partners. For the quarter ended March 31, 2002, we distributed $0.66 on each of
our outstanding common, senior subordinated and junior subordinated units.

                               ----------------

                 Investing in our common units involves risks.
                    See "Risk Factors" beginning on page 14.

                               ----------------

   These risks include the following:
  . We may not be able to generate sufficient cash from operations to allow
    us to pay the minimum quarterly distribution.
  . Since weather conditions may adversely affect the demand for propane, our
    financial condition and results of operations are vulnerable to, and will
    be adversely affected by, warm winters.
  . If we are unable to integrate our recent acquisitions or if we do not
    continue to make acquisitions on economically acceptable terms, our
    future financial performance will be limited.
  . Due to our lack of asset diversification, adverse developments in our
    propane business would reduce our ability to make distributions to
    unitholders.
  . Unitholders have less ability to elect or remove management than holders
    of common stock in a corporation.
  . Cost reimbursements due our managing general partner may be substantial
    and reduce our ability to pay the minimum quarterly distribution.
  . Our general partners have conflicts of interest and limited fiduciary
    responsibilities, which may permit our general partners to favor their
    own interests to the detriment of unitholders.
  . You may be required to pay taxes on income from us even if you do not
    receive any cash distributions.

                               ----------------

                          PRICE $31.25 PER COMMON UNIT

                               ----------------

                                                           Per
                                                       Common Unit    Total
                                                       ----------- -----------
                                                             
Public offering price.................................   $31.25    $43,750,000
Underwriting discount.................................   $ 1.64    $ 2,296,000
Proceeds, before expenses, to Inergy, L.P.............   $29.61    $31,416,358
Proceeds, before expenses, to the selling
 unitholders..........................................   $29.61    $10,037,642

   We have granted the underwriters a 30-day option to purchase up to an
additional 210,000 common units to cover over-allotments. The underwriters
expect to deliver the common units to purchasers on or about June 24, 2002.

   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

                               ----------------

A.G. Edwards & Sons, Inc.
                 Raymond James
                                      UBS Warburg
                                                             Wachovia Securities

                         Prospectus dated June 18, 2002

               [map and photographs of Inergy, L.P.'s operations]

                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                                                         
GUIDE TO READING THIS PROSPECTUS..........................................   iv

PROSPECTUS SUMMARY........................................................    1
  Inergy, L.P.............................................................    1
  Summary of Conflicts of Interest and Fiduciary Responsibilities.........    6
  Partnership Structure and Management....................................    6
  Summary Pro Forma Financial and Operating Data..........................   11

RISK FACTORS..............................................................   14
  Risks Inherent in our Business..........................................   14
  Risks Inherent in an Investment in Inergy, L.P..........................   18
  Tax Risks To Common Unitholders.........................................   21

USE OF PROCEEDS...........................................................   24

CAPITALIZATION............................................................   25

PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS.............................   26

CASH DISTRIBUTION POLICY..................................................   27
  Distributions of Available Cash.........................................   27
  Operating Surplus and Capital Surplus...................................   27
  Subordination Period....................................................   28
  Distributions of Available Cash from Operating Surplus During the
   Subordination Period...................................................   30
  Distributions of Available Cash from Operating Surplus After the
   Subordination Period...................................................   30
  Incentive Distribution Rights...........................................   30
  Percentage Allocations of Available Cash from Operating Surplus.........   31
  Distributions from Capital Surplus......................................   31
  Adjustment to the Minimum Quarterly Distribution and Target Distribution
   Levels.................................................................   32
  Distributions of Cash Upon Liquidation..................................   32

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.....................   35

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA..........................   45

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS...............................................................   49
  General.................................................................   49
  Inergy, L.P. and Inergy Partners, LLC...................................   51
  Independent Propane Company.............................................   55
  Hoosier Propane Group...................................................   56
  Liquidity and Capital Resources.........................................   59
  Description of Indebtedness.............................................   61
  Environmental Matters...................................................   65
  Recent Accounting Pronouncements........................................   66
  Critical Accounting Policies............................................   66
  Quantitative and Qualitative Disclosure About Market Risk...............   67
  Propane Price Risk......................................................   67

BUSINESS..................................................................   70
  General.................................................................   70
  Recent Acquisitions.....................................................   70
  Industry Background and Competition.....................................   71
  Competitive Strengths...................................................   73
  Retail Operations.......................................................   74
  Wholesale Supply, Marketing and Distribution Operations.................   76

                                       i

                                                                            Page
                                                                            ----
                                                                         
  Transportation Assets, Truck Fabrication and Maintenance.................  77
  Supply...................................................................  77
  Pricing Policy...........................................................  77
  Billing and Collection Procedures........................................  78
  Properties...............................................................  78
  Trademark and Tradenames.................................................  78
  Employees................................................................  79
  Government Regulation....................................................  79
  Litigation...............................................................  80

MANAGEMENT.................................................................  81
  Our Managing General Partner Manages Inergy, L.P.........................  81
  Directors and Executive Officers of Inergy GP, LLC.......................  81
  Reimbursement of Expenses of the Managing General Partner................  83
  Compensation of Directors................................................  83
  Executive Compensation...................................................  84
  Employment Agreements....................................................  86
  Long-Term Incentive Plan.................................................  87
  Unit Purchase Plan.......................................................  88

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............  89

SELLING UNITHOLDERS........................................................  92

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................  93
  Related Party Transactions...............................................  93

CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES.......................  96
  Conflicts of Interest....................................................  96

DESCRIPTION OF THE COMMON UNITS............................................ 100
  The Units................................................................ 100
  Transfer Agent and Registrar Duties...................................... 100

DESCRIPTION OF THE SUBORDINATED UNITS...................................... 102
  Limited Voting Rights.................................................... 102
  Distributions Upon Liquidation........................................... 102

THE PARTNERSHIP AGREEMENT.................................................. 103
  Organization............................................................. 103
  Purpose.................................................................. 103
  Power of Attorney........................................................ 103
  Capital Contributions.................................................... 103
  Limited Liability........................................................ 104
  Issuance of Additional Securities........................................ 104
  Amendment of the Partnership Agreement................................... 105
  Action Relating to the Operating Company................................. 107
  Merger, Sale or Other Disposition of Assets.............................. 108
  Termination and Dissolution.............................................. 108
  Liquidation and Distribution of Proceeds................................. 108
  Withdrawal or Removal of the General Partners............................ 109
  Transfer of General Partner Interests.................................... 110
  Transfer of Incentive Distribution Rights................................ 110
  Transfer of Ownership Interests in General Partners...................... 111
  Change of Management Provisions.......................................... 111

                                       ii

                                                                            Page
                                                                            ----
                                                                         
  Limited Call Right....................................................... 111
  Meetings; Voting......................................................... 111
  Status as Limited Partner or Assignee.................................... 112
  Non-Citizen Assignees; Redemption........................................ 112
  Indemnification.......................................................... 113
  Books and Reports........................................................ 113
  Right to Inspect our Books and Records................................... 114
  Registration Rights...................................................... 114

UNITS ELIGIBLE FOR FUTURE SALE............................................. 115

TAX CONSIDERATIONS......................................................... 116
  Partnership Status....................................................... 116
  Limited Partner Status................................................... 118
  Tax Consequences of Unit Ownership....................................... 118
  Tax Treatment of Operations.............................................. 123
  Disposition of Common Units.............................................. 124
  Uniformity of Units...................................................... 125
  Tax-Exempt Organizations and Other Investors............................. 126
  Administrative Matters................................................... 127
  State, Local and Other Tax Considerations................................ 129

INVESTMENT IN INERGY, L.P. BY EMPLOYEE BENEFIT PLANS....................... 130

UNDERWRITING............................................................... 131

VALIDITY OF THE COMMON UNITS............................................... 133

EXPERTS.................................................................... 133

OTHER MATTERS.............................................................. 134

WHERE YOU CAN FIND MORE INFORMATION........................................ 134

FORWARD-LOOKING STATEMENTS................................................. 135

INDEX TO FINANCIAL STATEMENTS.............................................. F-1

Appendix A--Glossary of Terms.............................................. A-1

                                      iii

                       GUIDE TO READING THIS PROSPECTUS

   The following information should help you understand some of the
conventions used in this prospectus.

  . Throughout this prospectus,

   (1) when we use the terms "we," "us," or "Inergy, L.P.," we are referring
       either to Inergy, L.P., the registrant itself, or to Inergy, L.P. and
       its operating subsidiaries collectively, as the context requires, and

   (2) when we use the term "our predecessor," we are referring to Inergy
       Partners, LLC, the entity that conducted our business prior to our
       initial public offering, which closed on July 31, 2001. Inergy, L.P.
       was formed as a Delaware limited partnership on March 7, 2001 and did
       not have operations until the initial public offering. Our
       predecessor commenced operations in November 1996. The discussion of
       our business throughout this prospectus relates to the business
       operations of Inergy Partners, LLC prior to Inergy, L.P.'s initial
       public offering and Inergy, L.P. thereafter.

  . We have a managing general partner and a non-managing general partner.
    Our managing general partner is responsible for the management of our
    partnership and its operations are governed by a board of directors. Our
    managing general partner does not have rights to allocations or
    distributions from our partnership and does not receive a management fee,
    but it is reimbursed for expenses incurred on our behalf. Our non-
    managing general partner owns a 2% non-managing general partner interest
    in our partnership. Generally, we refer to each general partner as
    managing or non-managing, as the case may be. We collectively refer to
    our managing general partner and our non-managing general partner as our
    "general partners."

  . For ease of reference, a glossary of some terms used in this prospectus
    is included in this prospectus as Appendix A.

  . Unless otherwise specified, the information in this prospectus assumes
    that the underwriters' over-allotment option is not exercised.

                                      iv

                               PROSPECTUS SUMMARY

   This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the
historical and pro forma financial statements and the notes to those financial
statements. You should read "Risk Factors" beginning on page 14 for more
information about important factors that you should consider before buying
common units.

                                  INERGY, L.P.

Our Business

   We own and operate a rapidly growing retail and wholesale propane marketing
and distribution business. Since our predecessor's inception in November 1996,
we have acquired thirteen propane companies for an aggregate purchase price of
approximately $230 million, including working capital, assumed liabilities and
acquisition costs. For the fiscal year ended September 30, 2001, on a pro forma
combined basis, we sold approximately 117 million gallons of propane to retail
customers and approximately 262 million gallons of propane to wholesale
customers.

   Our retail business includes the retail marketing, sale and distribution of
propane to residential, commercial, industrial and agricultural customers. We
market our propane products primarily under six regional brand names and serve
approximately 190,000 retail customers in Arkansas, Florida, Georgia, Illinois,
Indiana, Michigan, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee,
Texas, Virginia and Wisconsin from 99 customer service centers. In addition to
our retail business, we operate a wholesale supply, marketing and distribution
business providing propane procurement, transportation, supply and price risk
management services. We currently provide wholesale supply, marketing and
distribution services to approximately 350 customers in 24 states, primarily in
the Midwest and Southeast.

Recent Developments

 Recent Acquisitions

   Independent Propane Company Acquisition. In December 2001, we acquired the
assets of Independent Propane Company Holdings, which we refer to in this
prospectus as IPC, through IPCH Acquisition Corp., an affiliate of our managing
general partner, for approximately $96.8 million, including approximately $7.5
million paid for net working capital.

   IPC's principal business is the retail sale of propane throughout its branch
network in Texas, Oklahoma, Arkansas, Tennessee, South Carolina, Georgia, and
Florida. For the twelve months ended September 30, 2001, IPC sold approximately
49.8 million retail gallons of propane to approximately 116,000 customers
through its 44 branches and 24 satellite locations. For the year ended
September 30, 2001, IPC sold 74% of its volumes to individual homeowners, 20%
to commercial accounts and 6% to agricultural customers.

   Pro Gas Acquisition. In November 2001, we acquired the operations of the Pro
Gas affiliated companies, which we refer to collectively in this prospectus as
Pro Gas. The acquisition included six retail operations and three satellite
bulk storage facilities in Michigan. For the twelve months ended September 30,
2001, Pro Gas delivered approximately 12.4 million gallons of propane to
approximately 12,000 customers.

   Secured Notes Offering. On June 7, 2002, our operating company, Inergy
Propane, LLC, issued $85.0 million of senior secured notes with a weighted
average interest rate of 9.07% and a weighted average maturity

                                       1

of 5.9 years. The senior secured notes are guaranteed by IPCH Acquisition
Corp., Inergy Propane's subsidiaries and us. We obtained an investment grade
rating of "BBB-" for the senior secured notes from Fitch Ratings Service. We
used the net proceeds from the senior secured notes offering to repay
indebtedness under our bank credit facility.

Summary of Risk Factors

   An investment in our common units involves risks associated with our
business, our partnership structure and the tax characteristics of our common
units. Please carefully read the risks relating to these matters described
under "Risk Factors."

 Risks Inherent in Our Business

  . We may not be able to generate sufficient cash from operations to allow
    us to pay the minimum quarterly distribution.

  . Since weather conditions may adversely affect the demand for propane, our
    financial condition and results of operations are vulnerable to, and will
    be adversely affected by, warm winters.

  . If we do not continue to make acquisitions on economically acceptable
    terms, our future financial performance will be limited.

  . We cannot assure you that we will be successful in integrating our recent
    acquisitions.

  . Sudden and sharp propane price increases that cannot be passed on to
    customers may adversely affect our profit margins.

  . Our indebtedness may limit our ability to borrow additional funds, make
    distributions to you or capitalize on acquisition or other business
    opportunities.

  . The highly competitive nature of the retail propane business could cause
    us to lose customers, thereby reducing our revenues.

  . If we are not able to purchase propane from our principal suppliers, our
    results of operations would be adversely affected.

  . Competition from alternative energy sources may cause us to lose
    customers, thereby reducing our revenues.

  . Terrorists attacks, such as the attacks that occurred on September 11,
    2001, have resulted in increased costs, and future war or risk of war may
    adversely impact our results of operations.

  . Our business would be adversely affected if service at our principal
    storage facilities or on the common carrier pipelines we use is
    interrupted.

  . We are subject to operating and litigation risks that could adversely
    affect our operating results to the extent not covered by insurance.

  . Our results of operations and financial condition may be adversely
    affected by governmental regulation and associated environmental and
    regulatory costs.

  . Energy efficiency and new technology may reduce the demand for propane.

  . Due to our lack of asset diversification, adverse developments in our
    propane business would reduce our ability to make distributions to
    unitholders.

                                       2

 Risks Inherent in an Investment in Inergy, L.P.

  . Unitholders have less ability to elect or remove management than holders
    of common stock in a corporation.

  . The control of our managing general partner may be transferred to a third
    party without unitholder consent.

  . Our managing general partner has a limited call right that may require
    you to sell your common units at an undesirable time or price.

  . Cost reimbursements due our managing general partner may be substantial
    and reduce our ability to pay the minimum quarterly distribution.

  . We may issue additional common units without your approval, which would
    dilute your existing ownership interests.

  . You may not have limited liability if a court finds that unitholder
    actions constitute control of our business.

  .  Our general partners have conflicts of interest and limited fiduciary
     responsibilities, which may permit our general partners to favor their
     own interests to the detriment of unitholders.

 Tax Risks to Common Unitholders

  .  The IRS could treat us as a corporation for tax purposes, which would
     substantially reduce the cash available for distribution to you.

  .  A successful IRS contest of the federal income tax positions we take may
     adversely affect the market for common units.

  .  You may be required to pay taxes on your share of our income even if you
     do not receive any cash distributions from us.

Our Competitive Strengths

   We believe that we are well positioned to compete in the propane industry.
Our competitive strengths include:

  .  Proven Acquisition Expertise. Our executive officers and key employees,
     who average more than 15 years experience in the propane industry, have
     significant industry contacts that have enabled us to negotiate all
     thirteen of our acquisitions on an exclusive basis. This acquisition
     expertise should allow us to continue to grow through strategic and
     accretive acquisitions that complement our existing operations.

  .  Internal Growth. We consistently promote internal growth in our retail
     operations through a combination of marketing programs and employee
     incentives. We also provide various financial and other services,
     including level payment, fixed price and price cap programs, supply,
     repair and maintenance contracts, and 24-hour customer service, in order
     to attract new customers and retain existing customers.

  .  Operations in High Growth Markets. A majority of our operations are
     concentrated in higher-than-average population growth areas, where
     natural gas distribution is not cost effective. We intend to pursue
     acquisitions in similar high growth markets.

  .  Regional Branding. We believe that our success in generating internal
     growth at our customer service centers results from our established,
     locally recognized trade names. We attempt to capitalize on the
     reputation of the companies we acquire by retaining their local brand
     names and employees, thereby preserving the goodwill of the acquired
     business and fostering employee loyalty and customer retention.

                                       3

  .  High Percentage of Retail Sales to Residential Customers. Our retail
     propane operations concentrate on sales to residential customers who
     generate higher margins and are generally more stable purchasers than
     other customers. For the fiscal year ended September 30, 2001, sales to
     residential customers represented approximately 72% of our retail
     propane gallons sold and approximately 75% of our retail propane gross
     profits, on a pro forma combined basis.

  .  Strong Wholesale Supply, Marketing and Distribution Business. Our
     wholesale business provides us with growing revenues as well as valuable
     market intelligence and awareness of potential acquisition
     opportunities. In addition, these operations help us achieve a secure,
     efficient source of supply and product cost advantages for our customer
     service centers. Moreover, the presence of our trucks serving our
     wholesale customers across the Midwest and Southeast allows us to take
     advantage of various pricing and distribution inefficiencies that exist
     in the market from time to time.

  .  Flexible Financial Structure. We have a $75.0 million revolving credit
     facility for acquisitions and a $50.0 million revolving working capital
     facility. Upon completion of this offering, we expect to have available
     capacity of approximately $57.4 million under our acquisition facility
     and approximately $46.5 million under our working capital facility. We
     believe our available capacity under these facilities combined with our
     ability to fund acquisitions through the issuance of additional
     partnership interests will provide us with a flexible financial
     structure that will facilitate our acquisition strategy.

   Our primary objective is to increase distributable cash flow for our
unitholders, while maintaining the highest level of commitment and service to
our customers. We intend to pursue this objective by capitalizing on our
competitive strengths.

Distribution History

   We have made distributions of available cash to all of our unitholders for
one partial quarter and two full quarters since our initial public offering on
July 31, 2001:

                                                 Distributions Paid Per Unit
                                               ---------------------------------
                                                          Senior       Junior
                                               Common  Subordinated Subordinated
                                               ------  ------------ ------------
                                                           
Fiscal Year 2002
  Quarter ended March 31, 2002................ $0.660     $0.660       $0.660
  Quarter ended December 31, 2001.............  0.625      0.625        0.625
Fiscal Year 2001
  Quarter ended September 30, 2001............  0.400*     0.400*       0.400*

- --------
* Represents a partial quarterly distribution for the period from July 31,
  2001, the date of our initial public offering, through September 30, 2001,
  the end of our fourth fiscal quarter.

   For the quarter ended March 31, 2002, we distributed $0.66 per unit,
representing $0.06 in excess of the minimum quarterly distribution on all of
our outstanding units. In accordance with the terms of our partnership
agreement, an affiliate of our general partners will receive increasing
percentages, up to 48%, of the cash we distribute in excess of $0.66 per unit.

Industry Background

   Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative stand-alone energy sources. Our retail propane business
consists principally of transporting propane to our customer service centers
and other

                                       4

distribution areas and then to tanks located on our customers' premises. Retail
propane falls into three broad categories: residential, industrial and
commercial and agricultural. Residential customers use propane primarily for
space and water heating. Industrial customers use propane primarily as fuel for
forklifts and stationary engines, to fire furnaces, as a cutting gas, in mining
operations and in other process applications. Commercial customers, such as
restaurants, motels, laundries and commercial buildings, use propane in a
variety of applications, including cooking, heating and drying. In the
agricultural market, propane is primarily used for tobacco curing, crop drying,
poultry brooding and weed control.

   According to the American Petroleum Institute, the domestic retail market
for propane is approximately 12.1 billion gallons annually. This represents
approximately 5% of household energy consumption in the United States. The
propane distribution industry is characterized by a large number of relatively
small, independently owned and operated local distributors. Each year a
significant number of these local distributors have sought to sell their
businesses for reasons that include retirement and estate planning. In
addition, the propane industry faces increasing environmental regulations and
escalating capital requirements needed to acquire advanced, customer-oriented
technologies. Primarily as a result of these factors, the industry is
undergoing consolidation, and we, as well as other national and regional
distributors, have been active consolidators in the propane market. In recent
years, an active, competitive market has existed for the acquisition of propane
assets and businesses. We expect this acquisition market to continue for the
foreseeable future.

                                       5

        SUMMARY OF CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES

   Inergy GP, LLC, our managing general partner, has a legal duty to manage us
in a manner beneficial to our unitholders. This legal duty originates in
statutes and judicial decisions and is commonly referred to as a "fiduciary"
duty. However, because our managing general partner is a subsidiary of Inergy
Holdings, LLC (generally referred to as Inergy Holdings in this prospectus),
its officers and directors also have fiduciary duties to manage our managing
general partner's business in a manner beneficial to the members of Inergy
Holdings. As a result of these relationships and others, conflicts of interest
may arise in the future between us and our unitholders, on the one hand, and
our general partners and their affiliates, on the other. For a more detailed
description of the conflicts of interest and fiduciary responsibilities of our
general partners, please read "Conflicts of Interest and Fiduciary
Responsibilities."

   Our partnership agreement limits the liability and reduces the fiduciary
duties owed by our general partners to the unitholders. Our partnership
agreement also restricts the remedies available to unitholders for actions that
might otherwise constitute breaches of our general partners' fiduciary duties.
By purchasing a common unit, you are treated as having consented to various
actions contemplated in the partnership agreement and conflicts of interest
that might otherwise be considered a breach of fiduciary or other duties under
applicable state law.

                      PARTNERSHIP STRUCTURE AND MANAGEMENT

   Our operations are conducted through, and our operating assets are owned by,
our subsidiaries. We own our interests in our subsidiaries through our
operating company, Inergy Propane, LLC.

  .  We own a 100% membership interest in Inergy Propane, LLC. Our membership
     interest in Inergy Propane, LLC carries economic and voting rights.

  .  Inergy GP, LLC, our managing general partner, has sole responsibility
     for conducting our business and managing our operations. Our managing
     general partner's only interest in us is its management rights. Inergy
     GP, LLC has no economic interest in our partnership and does not receive
     a management fee, but it is reimbursed for expenses incurred on our
     behalf.

  .  Inergy Partners, LLC, our non-managing general partner, owns a 2% non-
     managing general partner interest in us. The 2% general partner interest
     is entitled to its proportionate share of allocations and distributions
     in our partnership. Our non-managing general partner has no operational
     or managerial responsibilities under our partnership agreement. In this
     prospectus, we refer to the interest owned by the non-managing general
     partner as its 2% general partner interest.

  .  Inergy Holdings, LLC owns 100% of each of our managing general partner
     and our non-managing general partner. Inergy Holdings also owns all of
     the "incentive distribution rights," which entitle it to receive
     increasing percentages, up to 48%, of any cash we distribute in excess
     of $0.66 per unit in any quarter. Additionally, Inergy Holdings, LLC and
     its affiliates own 404,601 common units, representing an aggregate
     limited partner interest in us of approximately 5.2% after this
     offering.

  .  New Inergy Propane, LLC, a wholly-owned subsidiary of our non-managing
     general partner, owns 961,158 senior subordinated units and 507,063
     junior subordinated units, representing an aggregate limited partner
     interest in us of approximately 19.0% after this offering.

   Our principal executive offices are located at 2 Brush Creek Blvd., Kansas
City, Missouri 64112, and our phone number is (816) 842-8181.

   The chart on the following page depicts our organization and ownership after
giving effect to this offering.

                                       6

                                            
                                               ----------------------------------------------------
                                                   Ownership of Inergy, L.P. after the offering:
                                                 Common units...........................     47.7%
- ---------------------------                      Senior subordinated units..............     42.9%
     Public Unitholders                          Junior subordinated units..............      7.4%
  3,274,276 Common Units                         General partner interest...............      2.0%
- ---------------------------                                                                 ------
       |                                                                                    100.0%
       |                                                                                    ------
       |                                       -----------------------------------------------------
       |
       |        ----------------------------------------                              ------------------------------
       |                    Owners of Certain                                             Inergy Holdings, LLC
       |                   Acquired Businesses                                             and its affiliates
       |                   and Other Investors                                            404,601 Common Units
       |          2,352,209 Senior Subordinated Units            _________________        Incentive Distribution       __________
       |            65,479 Junior Subordinated Units             |                               Rights                         |
       |        ----------------------------------------         |                    ------------------------------            |
       |                  |                                      |                                    |                         |
       |                  |                                      |                                    |                         |
       |                  |                                      |                                    |                         |
       |                  |                          100% membership interest                         |                         |
       |                  |                                      |                                    |                         |
       |                  |                                      |                         100% membership interest             |
       |                  |                                      |                                    |                         |
       |                  |                          -------------------------               ---------------------              |
       |                  |                            Inergy Partners, LLC                     Inergy GP, LLC                  |
      42.5% limited       |                _______     (The Non-managing                        (The Managing                   |
     partner interest     |                |            General Partner)                        General Partner                 |
       |                  |                |         -------------------------               ---------------------              |
       |                  |                |                     |                                    |                         |
       |                  |                |          100% membership interest                        |                         |
       |                  |                |                     |                                    |                         |
       |                  |                |                     |                                    |                         |
       |                  |                |         ---------------------------                      |                         |
       |                  |                |           New Inergy Propane, LLC                        |                         |
       |                  |        2% non-managing         961,158 Senior                             |                         |
       |                  |            general           Subordinated Units                management rights                    |
       |                  |         partner interest       507,063 Junior                    /                                  |
       |                  |                |             Subordinated Units                 /                                   |
       |                                   |         ---------------------------           /                                    |
       |           31.3% limited           |                     |                        /                                     |
       |         partner interest          |        19.0% limited partner interest       /                                      |
       |                                   |                     |                      /                   5.2% limited        |
       |                  |                |                     |                     /                  partner interest _____|
       |                  |                |                                          /                           |
       |                  |                |               ----------------                                       |
       |                  |                |____________                              ____________________________|
       |                  |                                  Inergy, L.P.
       |                  |_____________________________  (The Partnership)
       |________________________________________________
                                                           ----------------
                                                                 |
                                                                 |
                                                       100% membership interest
                                                                 |
                                                       -------------------------
                                                          Inergy Propane, LLC
                                                             (The Operating
                                                                Company)
                                                       -------------------------

                                       7

                                  The Offering

Common units offered by
Inergy, L.P. .............    1,061,005 common units.

                              1,271,005 common units if the underwriters
                              exercise their over-allotment option in full.

Common units offered by
the selling unitholders
............................    338,995 common units. For information about
                              the selling unitholders, please read "Selling
                              Unitholders."

Units outstanding after
this offering ............    3,678,877 common units, representing a 47.7%
                              limited partner interest in Inergy, L.P.;
                              3,313,367 senior subordinated units,
                              representing a 42.9% limited partner interest
                              in Inergy, L.P.; and 572,542 junior
                              subordinated units, representing a 7.4%
                              limited partner interest in Inergy, L.P.

Cash distributions .......    Common units are entitled to receive
                              distributions of available cash of $0.60 per
                              quarter, or $2.40 on an annualized basis,
                              before any distributions are paid on our
                              subordinated units.

                              In general, we will pay any cash
                              distributions we make each quarter in the
                              following manner:

                              . first, 98% to the common units and 2% to the
                                non-managing general partner, until each common
                                unit has received a minimum quarterly
                                distribution of $0.60 plus any arrearages from
                                prior quarters;

                              . second, 98% to the senior subordinated units
                                and 2% to the non-managing general partner,
                                until each senior subordinated unit has
                                received a minimum quarterly distribution of
                                $0.60;

                              . third, 98% to the junior subordinated units and
                                2% to the non-managing general partner, until
                                each junior subordinated unit has received a
                                minimum quarterly distribution of $0.60; and

                              . fourth, 98% to all units, pro rata, and 2% to
                                the non-managing general partner, until each
                                unit has received a distribution of $0.66 per
                                quarter.

                              If cash distributions exceed $0.66 per unit
                              in any quarter, Inergy Holdings will receive
                              increasing percentages, up to 48%, of the
                              cash we distribute in excess of that amount.
                              We refer to Inergy Holdings' right to receive
                              these higher amounts of cash as "incentive
                              distribution rights."

                              We must distribute all of our cash on hand at
                              the end of each quarter, less reserves
                              established by our managing general partner.
                              We refer to this cash as "available cash,"
                              and we define its meaning in our partnership
                              agreement and in the glossary in

                                       8

                              Appendix A. The amount of available cash may
                              be greater than or less than the minimum
                              quarterly distribution.

Timing of distributions...    We pay distributions approximately 45 days
                              after March 31, June 30, September 30 and
                              December 31 to unitholders of record on the
                              applicable record date and to our non-
                              managing general partner.

Subordination period .....    The subordination period will end once we
                              meet the financial tests in the partnership
                              agreement, but it generally cannot end before
                              June 30, 2006 with respect to the senior
                              subordinated units and June 30, 2008 with
                              respect to the junior subordinated units.

                              When the applicable subordination period
                              ends, all remaining senior subordinated units
                              or junior subordinated units, as applicable,
                              will convert into common units on a one-for-
                              one basis. Once all subordinated units have
                              been converted into common units, the common
                              units will no longer be entitled to
                              arrearages.

Early conversion of
subordinated units .......    If we meet the applicable financial tests in
                              the partnership agreement for any quarter
                              ending on or after June 30, 2004, 25% of the
                              senior subordinated units will convert into
                              common units. If we meet these tests for any
                              quarter ending on or after June 30, 2005, an
                              additional 25% of the senior subordinated
                              units will convert into common units. The
                              early conversion of the second 25% of the
                              senior subordinated units may not occur until
                              at least one year after the early conversion
                              of the first 25% of the senior subordinated
                              units.

                              If we meet the applicable financial tests in
                              the partnership agreement for any quarter
                              ending on or after June 30, 2006, 25% of the
                              junior subordinated units will convert into
                              common units. If we meet these tests for any
                              quarter ending on or after June 30, 2007, an
                              additional 25% of the junior subordinated
                              units will convert into common units. The
                              early conversion of the second 25% of the
                              junior subordinated units may not occur until
                              at least one year after the early conversion
                              of the first 25% of the junior subordinated
                              units.

                              Notwithstanding the foregoing, all
                              outstanding junior subordinated units may
                              convert into common units on a one-for-one
                              basis on or after June 30, 2006, if we have
                              paid a distribution of at least $2.80 on each
                              outstanding unit for each of the three
                              preceding non-overlapping four-quarter
                              periods, all of the senior subordinated units
                              have been converted into common units, and we
                              have met other applicable financial tests in
                              the partnership agreement.

Issuance of additional
units ....................    In general, while any senior subordinated
                              units remain outstanding, we may not issue
                              more than 800,000 additional common units
                              without obtaining unitholder approval. We
                              may, however, issue an

                                       9

                              unlimited number of common units in
                              connection with acquisitions that increase
                              cash flow from operations per unit on a pro
                              forma basis. We refer to acquisitions which
                              increase cash flow from operations on a per
                              unit basis as "accretive."

Voting rights ............    Unlike the holders of common stock in a
                              corporation, you will have only limited
                              voting rights on matters affecting our
                              business. You will have no right to elect our
                              managing general partner or its directors on
                              an annual or other continuing basis. The
                              managing general partner may not be removed
                              except by the vote of the holders of at least
                              66 2/3% of the outstanding units, including
                              units owned by the general partners and their
                              affiliates.

Limited call right .......    If at any time not more than 20% of the
                              outstanding common units are held by persons
                              other than our general partners and their
                              affiliates, our managing general partner has
                              the right, but not the obligation, to
                              purchase all of the remaining common units at
                              a price not less than the then current market
                              price of the common units.

Estimated ratio of
taxable income to
distributions ............    We estimate that if you own the common units
                              you purchase in this offering through
                              December 31, 2004, you will be allocated, on
                              a cumulative basis, an amount of federal
                              taxable income for that period that will be
                              no more than 20% of the cash distributed to
                              you with respect to that period.

                              Please read "Tax Considerations--Tax
                              Treatment of Unitholders--Ratio of Taxable
                              Income to Distributions" for the basis of
                              this estimate.

Exchange listing .........    Our common units are traded on the Nasdaq
                              National Market under the symbol "NRGY."

                                       10

                 SUMMARY PRO FORMA FINANCIAL AND OPERATING DATA

   The summary pro forma financial and operating data of Inergy, L.P. reflect
the consolidated historical operating results of Inergy, L.P., and our
predecessor, Inergy Partners, LLC., the Hoosier Propane Group, Pro Gas and IPC,
as adjusted for this offering, the senior secured notes offering, our initial
public offering and the related acquisition transactions. The summary pro forma
financial data are derived from the unaudited pro forma financial statements.
The pro forma balance sheet assumes that this offering and the senior secured
notes offering occurred on March 31, 2002. The pro forma statements of income
assume that the Hoosier Propane Group, Pro Gas and IPC acquisitions, our
initial public offering, this offering and the senior secured notes offering
occurred on October 1, 2000. For a description of all of the assumptions used
in preparing the summary pro forma and pro forma, as adjusted financial data,
you should read the notes to the pro forma financial statements for Inergy,
L.P. The pro forma financial and operating data should not be considered as
indicative of the historical results we would have had or future results.

   We define EBITDA as shown in the table on page 12 and elsewhere in this
prospectus as income before income taxes, plus interest expense and
depreciation and amortization expense, less interest income. EBITDA should not
be considered an alternative to net income, income before income taxes, cash
flows from operating activities, or any other measure of financial performance
calculated in accordance with generally accepted accounting principles as those
items are used to measure operating performance, liquidity or ability to
service debt obligations. We believe that EBITDA provides additional
information for evaluating our ability to make the minimum quarterly
distribution and is presented solely as a supplemental measure. EBITDA, as we
define it, may not be comparable to EBITDA or similarly titled measures used by
other corporations or partnerships.

   The following table should be read together with, and is qualified in its
entirety by reference to, the historical and pro forma financial statements and
the accompanying notes included in this prospectus. The table should also be
read together with "Selected Historical Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

                                       11

                                  Year Ended              Six Months Ended
                              September 30, 2001           March 31, 2002
                          -------------------------- --------------------------
                                        Pro Forma As               Pro Forma As
                          Pro Forma (a) Adjusted (b) Pro Forma (a) Adjusted (b)
                          ------------- ------------ ------------- ------------
                                 (in thousands, except per unit amounts)
                                                       
Statement of Income
 Data:
Revenues................    $350,420      $350,420     $178,823      $178,823
Cost of product sold....     258,510       258,510      119,984       119,984
                            --------      --------     --------      --------
Gross profit............      91,910        91,910       58,839        58,839
Expenses:
 Operating and
  administrative........      52,118        52,118       28,048        28,048
 Depreciation and
  amortization..........      13,066        13,066        6,258         6,258
                            --------      --------     --------      --------
Operating income........      26,726        26,726       24,533        24,533
Other income (expense):
 Interest expense.......     (12,642)      (11,719)      (4,344)       (5,620)
 Interest income........         238           238            6             6
 Gain (loss) on sale of
  property, plant and
  equipment.............          46            46         (119)         (119)
 Finance charges........         302           302           85            85
 Other..................         246           246           39            39
                            --------      --------     --------      --------
Income before income
 taxes..................      14,916        15,839       20,200        18,924
Provision for income
 taxes..................          39            39           52            52
                            --------      --------     --------      --------
Net income..............    $ 14,877      $ 15,800     $ 20,148      $ 18,872
                            ========      ========     ========      ========
Non-managing general
 partner's interest in
 net income.............    $    298      $    316     $    403      $    377
                            ========      ========     ========      ========
Limited partners'
 interest in net
 income.................    $ 14,579      $ 15,484     $ 19,745      $ 18,495
                            ========      ========     ========      ========
Net income per limited
 partner unit:
 Basic..................    $   2.24      $   2.05     $   3.04      $   2.44
                            ========      ========     ========      ========
 Diluted................    $   2.22      $   2.03     $   2.99      $   2.42
                            ========      ========     ========      ========
Weighted average limited
 partners' units
 outstanding:
 Basic..................       6,504         7,565        6,504         7,565
                            ========      ========     ========      ========
 Diluted................       6,569         7,630        6,595         7,656
                            ========      ========     ========      ========
Balance Sheet Data (end
 of period):
Current assets..........                                             $ 53,049(c)
Total assets............                                              272,430(c)
Long-term debt,
 including current
 portion................                                              111,307(c)
Partners' capital.......                                              135,407(c)

Other Financial Data:
EBITDA..................    $ 40,386      $ 40,386     $ 30,796      $ 30,796
Maintenance capital
 expenditures (d).......       3,731         3,731        1,082         1,082
Reconciliation of Net
 Income to EBITDA:
Net income..............    $ 14,877      $ 15,800     $ 20,148      $ 18,872
Plus:
 Income taxes...........          39            39           52            52
 Interest expense.......      12,642        11,719        4,344         5,620
 Depreciation and
  amortization expense..      13,066        13,066        6,258         6,258
                            --------      --------     --------      --------
                              40,624        40,624       30,802        30,802
Less:
 Interest income........         238           238            6             6
                            --------      --------     --------      --------
EBITDA..................    $ 40,386      $ 40,386     $ 30,796      $ 30,796
                            ========      ========     ========      ========

Other Operating Data:
Retail propane gallons
 sold...................     117,476       117,476       64,070        64,070
Wholesale propane
 gallons sold...........     262,335       262,335      231,079       231,079

                                                   (footnotes on following page)

                                       12

- --------
(a) Reflects the acquisitions of the Hoosier Propane Group, Pro Gas and IPC,
    the financing in connection with these acquisitions, and the initial public
    offering and transactions whereby Inergy, L.P. became the successor to the
    business of our predecessor, as if all such transactions took place on
    October 1, 2000.
(b) In addition to the transactions described in footnote (a) above, reflects
    the proceeds from this offering and the senior secured notes offering,
    including interest expense adjustments resulting from the repayment of debt
    under our bank credit facility with the proceeds of this offering and the
    refinancing of $85.0 million of remaining debt under our bank credit
    facility as if this offering and the senior secured notes offering took
    place on October 1, 2000.
(c) Assumes that this offering and the senior secured notes offering took place
    on March 31, 2002.
(d) Capital expenditures fall generally into three categories: (1) growth
    capital expenditures, which include expenditures for the purchase of new
    propane tanks and other equipment to facilitate expansion of our retail
    customer base, (2) maintenance capital expenditures, which include
    expenditures for repair and replacement of property, plant and equipment,
    and (3) acquisition capital expenditures.

                                       13

                                 RISK FACTORS

   Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in a similar
business. You should carefully consider the following risk factors together
with all of the other information included in this prospectus in evaluating an
investment in the common units.

   If any of the following risks were actually to occur, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of our common units could decline
and you could lose all or part of your investment.

Risks Inherent in our Business

 We may not be able to generate sufficient cash from operations to allow us to
 pay the minimum quarterly distribution.

   The amount of cash we can distribute on our common units depends upon the
amount of cash we generate from our operations. The amount of cash we generate
from our operations will fluctuate from quarter to quarter and will depend
upon, among other things, the temperatures in our operating areas, the cost to
us of the propane we buy for resale, the level of competition from other
propane companies and other energy providers and prevailing economic
conditions. In addition, the actual amount of cash available for distribution
will also depend on other factors, such as the level of capital expenditures
we make, debt service requirements, fluctuations in working capital needs, our
ability to borrow under our working capital facility to make distributions,
and the amount, if any, of cash reserves established by the managing general
partner in its discretion for the proper conduct of our business. Because of
all these factors, we may not have sufficient available cash each quarter to
be able to pay the minimum quarterly distribution.

   Furthermore, you should be aware that the amount of cash we have available
for distribution depends primarily upon our cash flow, including cash flow
from financial reserves and working capital borrowings, and is not solely a
function of profitability, which will be affected by non-cash items. As a
result, we may make cash distributions during periods when we record losses
and may not make cash distributions during periods when we record net income.

 Since weather conditions may adversely affect the demand for propane, our
 financial condition and results of operations are vulnerable to, and will be
 adversely affected by, warm winters.

   Weather conditions have a significant impact on the demand for propane
because our customers depend on propane principally for heating purposes. As a
result, warm weather conditions will adversely impact our operating results
and financial condition. On a pro forma basis for the fiscal year ended
September 30, 2001, approximately 75% of our retail propane volume and
approximately 73% of our gross profit was attributable to sales during the
peak heating season of October through March. Actual weather conditions can
substantially change from one year to the next. Furthermore, warmer than
normal temperatures in one or more regions in which we operate can
significantly decrease the total volume of propane we sell. Consequently, our
operating results may vary significantly due to actual changes in temperature.
During the fiscal years ended September 30, 1999 and 2000, temperatures were
significantly warmer than normal in our areas of operation. Similarly, the
first half of fiscal 2002 was significantly warmer than normal in our areas of
operations. We believe that our results of operations during these periods
were adversely affected primarily due to this abnormally warm weather.

 If we do not continue to make acquisitions on economically acceptable terms,
 our future financial performance will be limited.

   The propane industry is not a growth industry because of increased
competition from alternative energy sources. In addition, as a result of
longstanding customer relationships that are typical in the retail home

                                      14

propane industry, the inconvenience of switching tanks and suppliers and
propane's higher cost as compared to certain other energy sources, we may have
difficulty in increasing our retail customer base other than through
acquisitions. Therefore, while our business strategy includes internal growth,
our ability to grow will depend principally on acquisitions. Our future
financial performance depends on our ability to continue to make acquisitions
at attractive prices. We cannot assure you that we will be able to continue to
identify attractive acquisition candidates in the future or that we will be
able to acquire businesses on economically acceptable terms. In particular,
competition for acquisitions in the propane business has intensified and
become more costly. We may not be able to grow as rapidly as we expect through
acquiring additional businesses after this offering closes for various
reasons, including the following:

  .  We will use our cash from operations primarily for reinvestment in our
     business and distributions to unitholders. Consequently, the extent to
     which we are unable to use cash or access capital to pay for additional
     acquisitions may limit our growth and impair operating results. Further,
     we are subject to certain debt incurrence covenants in our revolving
     credit facility and senior secured notes that may restrict our ability
     to incur additional debt to finance acquisitions. In addition, any new
     debt we incur to finance acquisitions may adversely affect our ability
     to make distributions to our unitholders.

  .  Although we intend to use common units as an acquisition currency, some
     prospective sellers may not be willing to accept units as consideration
     and their issuance in some circumstances may be dilutive to our existing
     unitholders.

   Moreover, acquisitions involve potential risks, including:

  .  the inability to integrate the operations of recently acquired
     businesses,

  .  the diversion of management's attention from other business concerns,

  .  customer or key employee loss from the acquired businesses, and

  .  a significant increase in our indebtedness.

 We cannot assure you that we will be successful in integrating our recent
 acquisitions.

   We have recently completed the IPC and Pro Gas acquisitions, which
geographically expanded our operations into several new states, including
Arkansas, Florida, Georgia, Oklahoma, South Carolina and Texas. For the year
ended September 30, 2001, the IPC and Pro Gas operations constituted 49% of
our pro forma gross profits and 47% of our pro forma EBITDA. We cannot assure
you that we will successfully integrate these acquisitions into our
operations, or that we will achieve the desired profitability from these
acquisitions. Failure to successfully integrate these substantial acquisitions
could adversely affect our operations and cash flows available for
distribution to our unitholders.

 Sudden and sharp propane price increases that cannot be passed on to
 customers may adversely affect our profit margins.

   The propane industry is a "margin-based" business in which gross profits
depend on the excess of sales prices over supply costs. As a result, our
profitability will be sensitive to changes in wholesale prices of propane
caused by changes in supply or other market conditions. When there are sudden
and sharp increases in the wholesale cost of propane, we may not be able to
pass on these increases to our customers through retail or wholesale prices.
Propane is a commodity and the price we pay for it can fluctuate significantly
in response to supply or other market conditions. We have no control over
supply or market conditions. In addition, the timing of cost pass-throughs can
significantly affect margins. Sudden and extended wholesale price increases
could reduce our gross profits and could, if continued over an extended period
of time, reduce demand by encouraging our retail customers to conserve or
convert to alternative energy sources. Furthermore, on May 1, 2002, we entered
into a one-year contract to purchase all of Sunoco Inc. (R&M)'s propane
production at its Toledo, Ohio refinery, which is approximately 62 million
gallons per year. If we are unable to market all of this propane at
competitive prices, our gross profits and margins could be significantly
reduced.

                                      15

 Our indebtedness may limit our ability to borrow additional funds, make
 distributions to you or capitalize on acquisition or other business
 opportunities.

   Upon completion of this offering, we expect our total outstanding long-term
indebtedness (excluding borrowings under our working capital facility) to be
approximately $106.2 million, including $85.0 million of senior secured notes,
approximately $17.6 million under our acquisition facility and approximately
$3.6 million of other indebtedness. Our payment of principal and interest on
the indebtedness will reduce the cash available for distribution on our
outstanding units. We will be prohibited by our credit facility and the terms
of our senior secured notes from making cash distributions during an event of
default under any of our indebtedness. Furthermore, our leverage and various
limitations in the credit facility and the note purchase agreement relating to
the senior secured notes may reduce our ability to incur additional
indebtedness, to engage in some transactions and to capitalize on acquisition
or other business opportunities.

   In addition, our credit facility contains provisions relating to change of
control of our managing general partner, our partnership and our operating
company. If these provisions are triggered, such outstanding indebtedness may
become due. In such event, there is no assurance that we would be able to pay
the indebtedness, in which case the lenders would have the right to foreclose
on our assets, which would have a material adverse effect on us. There is no
restriction on the ability of our general partners to enter into a transaction
which would trigger the change of control provisions.

   Please read "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Description of Indebtedness." Any subsequent refinancing
of our current indebtedness or any new indebtedness could have similar or
greater restrictions.

 The highly competitive nature of the retail propane business could cause us to
 lose customers, thereby reducing our revenues.

   We have competitors and potential competitors who are larger and have
substantially greater financial resources than we do, which may provide them
with some advantages. Also, because of relatively low barriers to entry into
the retail propane business, numerous small retail propane distributors, as
well as companies not engaged in retail propane distribution, may enter our
markets and compete with us. Competition in the past several years has
intensified, partly as a result of warmer-than-normal weather and general
economic conditions. Most of our propane retail branch locations compete with
several marketers or distributors. The principal factors influencing
competition with other retail marketers are:

  .  price,

  .  reliability and quality of service,

  .  responsiveness to customer needs,

  .  safety concerns,

  .  long-standing customer relationships,

  .  the inconvenience of switching tanks and suppliers, and

  .  the lack of growth in the industry.

   We can make no assurances that we will be able to compete successfully on
the basis of these factors. If a competitor attempts to increase market share
by reducing prices, we may lose customers, which would reduce our revenues.

                                       16

 If we are not able to purchase propane from our principal suppliers, our
 results of operations would be adversely affected.

   During the fiscal year ended September 30, 2001, Louis Dreyfus Energy
Services, L.P. and Dynegy Inc. each accounted for approximately 10% of our
volume of propane purchases on a pro forma combined basis. Most of these
purchases were made under supply contracts that have a term of one year, are
subject to annual renewal and provide various pricing formulas. On May 1, 2002,
we entered into a one-year contract to purchase all of Sunoco Inc. (R&M)'s
propane production at its Toledo, Ohio refinery, which is approximately 62
million gallons per year. In the event that we are unable to purchase propane
from Sunoco or our other significant suppliers, our failure to obtain alternate
sources of supply at competitive prices and on a timely basis would hurt our
ability to satisfy customer demand, reduce our revenues and adversely affect
our results of operations.

 Competition from alternative energy sources may cause us to lose customers,
 thereby reducing our revenues.

   Competition from alternative energy sources, including natural gas and
electricity, has been increasing as a result of reduced regulation of many
utilities, including natural gas and electricity. Propane is generally not
competitive with natural gas in areas where natural gas pipelines already exist
because natural gas is a less expensive source of energy than propane. The
gradual expansion of natural gas distribution systems and availability of
natural gas in many areas that previously depended upon propane could cause us
to lose customers, thereby reducing our revenues.

 Terrorist attacks, such as the attacks that occurred on September 11, 2001,
 have resulted in increased costs, and future war or risk of war may adversely
 impact our results of operations.

   The impact that the terrorist attacks of September 11, 2001 may have on the
energy industry in general, and on us in particular, is not known at this time.
Uncertainty surrounding retaliatory military strikes or a sustained military
campaign may affect our operations in unpredictable ways, including disruptions
of fuel supplies and markets, particularly oil, and the possibility that
infrastructure facilities, including pipelines, production facilities,
processing plants and refineries, could be direct targets of, or indirect
casualties of, an act of terror. We may have to incur additional costs in the
future to safeguard certain of our assets and we may be required to incur
significant additional costs in the future.

   The terrorist attacks on September 11, 2001 and the changes in the insurance
markets attributable to the September 11 attacks may make certain types of
insurance more difficult for us to obtain. We may be unable to secure the
levels and types of insurance we would otherwise have secured prior to
September 11, 2001. There can be no assurance that insurance will be available
to us without significant additional costs. A lower level of economic activity
could also result in a decline in energy consumption which could adversely
affect our revenues or restrict our future growth. Instability in the financial
markets as a result of terrorism or war could also affect our ability to raise
capital.

 Our business would be adversely affected if service at our principal storage
 facilities or on the common carrier pipelines we use is interrupted.

   Historically, a substantial portion of the propane purchased to support our
operations has originated at Conway, Kansas, Hattiesburg, Mississippi and Mont
Belvieu, Texas and has been shipped to us through major common carrier
pipelines. Any significant interruption in the service at these storage
facilities or on the common carrier pipelines we use would adversely affect our
ability to obtain propane.

 We are subject to operating and litigation risks that could adversely affect
 our operating results to the extent not covered by insurance.

   Our operations are subject to all operating hazards and risks incident to
handling, storing, transporting and providing customers with combustible
liquids such as propane. As a result, we may be a defendant in various

                                       17

legal proceedings and litigation arising in the ordinary course of business.
Our insurance may not be adequate to protect us from all material expenses
related to potential future claims for personal and property damage. In
addition, the occurrence of a serious accident, whether or not we are
involved, may have an adverse effect on the public's desire to use our
products.

 Our results of operations and financial condition may be adversely affected
 by governmental regulation and associated environmental and regulatory costs.

   The propane business is subject to a wide range of federal and state laws
and regulations related to environmental and other regulated matters. We may
have higher costs in the future due to stricter pollution control requirements
or liabilities resulting from non-compliance with operating or other
regulatory permits. New environmental regulations might adversely impact our
operations, as well as the storage and transportation of propane.

 Energy efficiency and new technology may reduce the demand for propane.

   The national trend toward increased conservation and technological
advances, including installation of improved insulation and the development of
more efficient furnaces and other heating devices, has adversely affected the
demand for propane by retail customers. Future conservation measures or
technological advances in heating, conservation, energy generation or other
devices might reduce demand for propane.

 Due to our lack of asset diversification, adverse developments in our propane
 business would reduce our ability to make distributions to our unitholders.

   We rely exclusively on the revenues generated from our propane business.
Due to our lack of asset diversification, an adverse development in this
business would have a significantly greater impact on our financial condition
and results of operations than if we maintained more diverse assets.

Risks Inherent in an Investment in Inergy, L.P.

 Unitholders have less ability to elect or remove management than holders of
 common stock in a corporation.

   Unlike the holders of common stock in a corporation, unitholders have only
limited voting rights on matters affecting our business, and therefore limited
ability to influence management's decisions regarding our business.
Unitholders did not elect our managing general partner or its board of
directors and will have no right to elect our managing general partner or its
board of directors on an annual or other continuing basis. The board of
directors of our managing general partner is chosen by the sole member of our
managing general partner, Inergy Holdings. Although our managing general
partner has a fiduciary duty to manage our partnership in a manner beneficial
to Inergy, L.P. and the unitholders, the directors of the managing general
partner have a fiduciary duty to manage the managing general partner in a
manner beneficial to its member, Inergy Holdings.

   Furthermore, if the unitholders are dissatisfied with the performance of
our managing general partner, they will have little ability to remove our
managing general partner. First of all, the managing general partner generally
may not be removed except upon the vote of the holders of 66 2/3% of the
outstanding units voting together as a single class. Because the general
partners and their affiliates, including our executive officers and directors,
will control approximately 31% of all the units upon completion of this
offering, it will be difficult to remove the managing general partner without
the consent of the general partners and our affiliates. Furthermore, if the
managing general partner is removed without cause during the subordination
period and units held by the general partners and their affiliates are not
voted in favor of that removal, all remaining subordinated units will
automatically be converted into common units and any existing arrearages on
the common units will be extinguished. A removal under these circumstances
would adversely affect the common units by prematurely eliminating their
distribution and liquidation preference over the subordinated units which
would otherwise have continued until we had met certain distribution and
performance tests.

                                      18

   Cause is narrowly defined to mean that a court of competent jurisdiction
has entered a final, non-appealable judgment finding the managing general
partner liable for actual fraud, gross negligence, or willful or wanton
misconduct in its capacity as our managing general partner. Cause does not
include most cases of charges of poor management of the business, so the
removal of the managing general partner because of the unitholders'
dissatisfaction with the managing general partner's performance in managing
our partnership will most likely result in the termination of the
subordination period.

   Furthermore, unitholders' voting rights are further restricted by the
partnership agreement provision providing that any units held by a person that
owns 20% or more of any class of units then outstanding, other than the
general partners and their affiliates, cannot be voted on any matter.

 The control of our managing general partner may be transferred to a third
 party without unitholder consent.

   The managing general partner may transfer its general partner interest to a
third party in a merger or in a sale of all or substantially all of its assets
without the consent of the unitholders. Furthermore, there is no restriction
in the partnership agreement on the ability of the owner of the managing
general partner, Inergy Holdings, from transferring its ownership interest in
the managing general partner to a third party. The new owner of the managing
general partner would then be in a position to replace the board of directors
and officers of the managing general partner with its own choices and to
control the decisions taken by the board of directors and officers.

 Our managing general partner has a limited call right that may require you to
 sell your common units at an undesirable time or price.

   If at any time less than 20% of the outstanding units of any class are held
by persons other than our general partners and their affiliates, our managing
general partner has the right to acquire all, but not less than all, of those
units held by the unaffiliated persons. The price for these units will not be
less than the then-current market price of the units. As a consequence, you
may be required to sell your common units at an undesirable time or price. Our
managing general partner may assign this acquisition right to any of its
affiliates or to the partnership.

 Cost reimbursements due our managing general partner may be substantial and
 reduce our ability to pay the minimum quarterly distribution.

   Prior to making any distributions on the units, we will reimburse our
managing general partner for all expenses it has incurred on our behalf. In
addition, our general partners and their affiliates may provide us with
services for which we will be charged reasonable fees as determined by the
managing general partner. The reimbursement of these expenses and the payment
of these fees could adversely affect our ability to make distributions to you.
Our managing general partner has sole discretion to determine the amount of
these expenses and fees. From July 31, 2001 until March 31, 2002, our general
partners and their affiliates incurred $7.0 million of direct and indirect
expenses on our behalf, consisting primarily of salaries and employee
benefits. Effective January 1, 2002, all employees of our general partners
became employees of our operating company.

 We may issue additional common units without your approval, which would
 dilute your existing ownership interests.

   While any senior subordinated units remain outstanding, our managing
general partner may cause us to issue up to 800,000 additional common units
without your approval. Our managing general partner may also cause us to issue
an unlimited number of additional common units, without your approval, in a
number of circumstances, such as:

  .  the issuance of common units in connection with acquisitions that
     increase cash flow from operations per unit on a pro forma basis,

  .  the conversion of subordinated units into common units,

                                      19

  .  the conversion of the general partner interests and the incentive
     distribution rights into common units as a result of the withdrawal of
     our general partners, or

  .  issuances of common units under our employee benefit plans.

   The issuance of additional common units or other equity securities of equal
rank will have the following effects:

  .  your proportionate ownership interest in us will decrease,

  .  the amount of cash available for distribution on each common unit may
     decrease,

  .  since a lower percentage of total outstanding units will be subordinated
     units, the risk that a shortfall in the payment of the minimum quarterly
     distribution will be borne by the common unitholders will increase,

  .  the relative voting strength of each previously outstanding common unit
     may be diminished, and

  .  the market price of the common units may decline.

   Once no senior subordinated units remain outstanding, we may issue an
unlimited number of limited partner interests of any type without the approval
of the unitholders. Our partnership agreement does not give the unitholders
the right to approve our issuance of equity securities ranking junior to the
common units.

 You may not have limited liability if a court finds that unitholder actions
 constitute control of our business.

   Under Delaware law, you could be held liable for our obligations to the
same extent as a general partner if a court determined that the right of
unitholders to remove our managing general partner or to take other action
under the partnership agreement constituted participation in the "control" of
our business.

   Our general partners generally have unlimited liability for the obligations
of the partnership, such as its debts and environmental liabilities, except
for those contractual obligations of the partnership that are expressly made
without recourse to the general partners.

   In addition, Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act provides that, under some circumstances, a unitholder may be
liable to us for the amount of a distribution for a period of three years from
the date of the distribution. Please read "The Partnership Agreement--Limited
Liability" for a discussion of the implications of the limitations on
liability to a unitholder.

 Our general partners have conflicts of interest and limited fiduciary
 responsibilities, which may permit our general partners to favor their own
 interests to the detriment of unitholders.

   Following this offering, Inergy Holdings and its affiliates will indirectly
own an aggregate limited partner interest of approximately 24% in us and the
incentive distribution rights, will own and control our managing general
partner and will own and control our non-managing general partner, which owns
the 2% general partner interest. Conflicts of interest could arise in the
future as a result of relationships between Inergy Holdings, our general
partners and their affiliates, on the one hand, and the partnership or any of
the limited partners, on the other hand. As a result of these conflicts our
general partners may favor their own interests and those of their affiliates
over the interests of the unitholders. The nature of these conflicts includes
the following considerations:

  .  Our general partners may limit their liability and reduce their
     fiduciary duties, while also restricting the remedies available to
     unitholders for actions that might, without the limitations, constitute
     breaches of fiduciary duty. Unitholders are deemed to have consented to
     some actions and conflicts of interest that might otherwise be deemed a
     breach of fiduciary or other duties under applicable state law.

                                      20

  .  Our general partners are allowed to take into account the interests of
     parties in addition to the partnership in resolving conflicts of
     interest, thereby limiting their fiduciary duties to the unitholders.

  .  Our general partners' affiliates are not prohibited from engaging in
     other business or activities, including those in direct competition with
     us.

  .  Our managing general partner determines the amount and timing of asset
     purchases and sales, capital expenditures, borrowings and reserves, each
     of which can affect the amount of cash that is distributed to
     unitholders.

  .  Our managing general partner determines whether to issue additional
     units or other equity securities of the partnership.

  .  Our managing general partner determines which costs are reimbursable by
     us.

  .  Our managing general partner controls the enforcement of obligations
     owed to us by it.

  .  Our managing general partner decides whether to retain separate counsel,
     accountants or others to perform services for us.

  .  Our managing general partner is not restricted from causing us to pay it
     or its affiliates for any services rendered on terms that are fair and
     reasonable to us or entering into additional contractual arrangements
     with any of these entities on our behalf.

  .  In some instances our managing general partner may borrow funds in order
     to permit the payment of distributions, even if the purpose or effect of
     the borrowing is to make a distribution on the subordinated units or to
     make incentive distributions or hasten the expiration of the
     subordination period.

Tax Risks To Common Unitholders

   You are urged to read "Tax Considerations" for a more complete discussion of
the following expected material federal income tax consequences of owning and
disposing of our common units.

 The IRS could treat us as a corporation for tax purposes, which would
 substantially reduce the cash available for distribution to you.

   The anticipated after-tax economic benefit of an investment in our units
depends largely on our being treated as a partnership for federal income tax
purposes. We have not requested, and do not plan to request, a ruling from the
IRS on this or any other matter affecting us.

   If we were treated as a corporation for federal income tax purposes, we
would pay federal income tax on our income at the corporate tax rate, which is
currently a maximum of 35% and we would likely pay state taxes as well.
Distributions to you would generally be taxed again to you as corporate
distributions, and none of our income, gains, losses or deductions would flow
through to you. Because a tax would be imposed upon us as a corporation, our
cash available for distribution to you would be substantially reduced.
Therefore, treatment of us as a corporation would result in a material
reduction in the after-tax return to the unitholders, likely causing a
substantial reduction in the value of our common units.

   A change in current law or a change in our business could cause us to be
treated as a corporation for federal income tax purposes or otherwise subject
us to entity-level taxation. The partnership agreement provides that, if a law
is enacted or existing law is modified or interpreted in a manner that causes
us to be treated as a corporation or otherwise subjects us to entity-level
taxation for federal, state or local income tax purposes, then the minimum
quarterly distribution and the target distribution levels will be adjusted to
reflect that impact on us.

                                       21

 A successful IRS contest of the federal income tax positions we take may
 adversely affect the market for common units and the costs of any contest will
 be borne by our unitholders and our general partners.

   We have not requested a ruling from the IRS with respect to any matter
affecting us. The IRS may adopt positions that differ from the conclusions of
our counsel expressed in this prospectus or from the positions we take. It may
be necessary to resort to administrative or court proceedings to sustain our
counsel's conclusions or the positions we take. A court may not concur with our
counsel's conclusions or the positions we take. Any contest with the IRS may
materially and adversely affect the market for our common units and the price
at which they trade. In addition, some or all of our unitholders and our
general partners will indirectly bear the costs of any contest with the IRS,
principally legal, accounting and related fees.

 You may be required to pay taxes on your share of our income even if you do
 not receive any cash distributions from us.

   You will be required to pay federal income taxes and, in some cases, state
and local income taxes on your share of our taxable income even if you do not
receive any cash distributions from us. You may not receive cash distributions
from us equal to your share of our taxable income or even equal to the actual
tax liability that results from the taxation of your share of our taxable
income.

 Tax gain or loss on disposition of common units could be different than
 expected.

   If you sell your common units, you will recognize gain or loss equal to the
difference between the amount realized and your tax basis in those common
units. Prior distributions to you in excess of the total net taxable income you
were allocated for a common unit which decreased your tax basis in that common
unit will, in effect, become taxable income to you if the common unit is sold
at a price greater than your tax basis in that common unit, even if the price
is less than your original cost. A substantial portion of the amount you
realize, whether or not representing gain, will likely be ordinary income to
you. Should the IRS successfully contest some positions we take, you could
recognize more gain on the sale of your common units than would be the case
under those positions, without the benefit of decreased income in prior years.
Also, if you sell your common units, you may incur a tax liability in excess of
the amount of cash you receive from the sale.

 Tax-exempt entities, regulated investment companies and foreign persons face
 unique tax issues from owning common units which may result in adverse tax
 consequences to them.

   Investment in common units by tax-exempt entities, including employee
benefit plans and individual retirement accounts (known as IRAs), regulated
investment companies (known as mutual funds) and non-U.S. persons raises issues
unique to them. For example, virtually all of our income allocated to
unitholders who are organizations exempt from federal income tax, may be
unrelated business taxable income and will be taxable to them. Very little of
our income will be qualifying income to a regulated investment company.
Distributions to non-U.S. persons will be reduced by withholding taxes, at the
highest effective tax rate applicable to individuals, and non-U.S. persons will
be required to file federal income tax returns and generally pay tax on their
share of our taxable income.

 We are registered as a tax shelter. This may increase the risk of an IRS audit
 of us or a unitholder.

   We are registered with the IRS as a "tax shelter." Our tax shelter
registration number is 01204000001. The tax laws require that some types of
entities, including some partnerships, register as "tax shelters" in response
to the perception that they claim tax benefits that may be unwarranted. As a
result, we may be audited by the IRS and tax adjustments could be made. Any
unitholder owning less than a 1% profits interest in us has very limited rights
to participate in the income tax audit process. Further, any adjustments in our
tax returns will lead to adjustments in your tax returns and may lead to audits
of your tax returns and adjustments of items unrelated to us. You will bear the
cost of any expense incurred in connection with an examination of your personal
tax return and indirectly bear a portion of the cost of an audit of us.

                                       22

 We will treat each purchaser of units as having the same tax benefits without
 regard to the units purchased. The IRS may challenge this treatment, which
 could adversely affect the value of the units.

   Because we cannot match transferors and transferees of common units, we will
adopt depreciation and amortization positions that do not conform with all
aspects of existing Treasury regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits available to you.
It also could affect the timing of these tax benefits or the amount of gain
from your sale of common units and could have a negative impact on the value of
the common units or result in audit adjustments to your tax returns. Please
read "Tax Considerations--Uniformity of Units" for a further discussion of the
effect of the depreciation and amortization positions we adopt.

 You will likely be subject to state and local taxes in states where you do not
 live as a result of an investment in the units.

   In addition to federal income taxes, you will likely be subject to other
taxes, including state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property now or in the future even
if you do not live in any of those jurisdictions. You will likely be required
to file state and local income tax returns and pay state and local income taxes
in some or all of the jurisdictions. Further, you may be subject to penalties
for failure to comply with those requirements. We presently anticipate that
substantially all of our income will be generated in the following states:
Arkansas, Florida, Georgia, Illinois, Indiana, Michigan, North Carolina, Ohio,
Oklahoma, South Carolina, Tennessee, Texas, Virginia and Wisconsin. Each of
these states, except Florida and Texas, imposes a personal income tax. If we
expand our operations into other states, you may have to file state and local
income tax returns in additional jurisdictions. If we conduct operations in
other states, you may be required to file state and local income tax returns in
additional jurisdictions. It is your responsibility to file all federal, state
and local tax returns. Our counsel has not rendered an opinion on the state or
local tax consequences of an investment in the common units.

                                       23

                                USE OF PROCEEDS

   We will receive net proceeds of approximately $30.2 million from the sale
of the 1,061,005 common units by us, together with a capital contribution from
our non-managing general partner of approximately $0.6 million to maintain its
2% general partner interest in our partnership, after deducting underwriting
discounts and estimated offering expenses. We intend to use all of the net
proceeds of this offering to repay a portion of our borrowings incurred in
connection with the acquisition of IPC and Pro Gas under our bank credit
facility. We will use the net proceeds from any exercise of the overallotment
option to further repay borrowings under our bank credit facility.

   As of June 17, 2002, total borrowings under our credit facility were
approximately $52.0 million and had a weighted average interest rate of 4.40%.
The credit facility has a maturity date of December 20, 2004. We incurred all
of our debt to fund acquisitions and for working capital purposes.

   We will not receive any proceeds from the sale of the 338,995 common units
by the selling unitholders.

                                      24

                                 CAPITALIZATION

   The following table shows (1) our historical capitalization as of March 31,
2002 on an actual basis, and (2) our pro forma capitalization as of March 31,
2002, as adjusted to reflect the sale of 1,061,005 common units in this
offering at a public offering price of $31.25 per unit and the application of
the net proceeds we receive in the offering as described under "Use of
Proceeds" as well as the issuance of the senior secured notes and the
application of the proceeds therefrom. We derived this table from, and it
should be read in conjunction with and is qualified in its entirety by
reference to, the historical and pro forma financial statements and the
accompanying notes included elsewhere in this prospectus.

                                               As of March 31, 2002
                                   --------------------------------------------
                                            Senior Secured Common Unit
                                            Note Offering   Offering      As
                                    Actual   Adjustments   Adjustments Adjusted
                                   -------- -------------- ----------- --------
                                                  (in thousands)
                                                           
Cash and cash equivalents......... $  2,475    $ (1,000)               $  1,475
                                   ========    ========                ========
Debt:
  Current portion of long-term
   debt........................... $  3,722    $    --      $    --    $  3,722
  Long-term bank debt, less
   current portion................  138,442     (85,000)     (30,857)    22,585
  Senior secured notes............      --       85,000                  85,000
                                   --------    --------     --------   --------
    Total debt....................  142,164         --       (30,857)   111,307
                                   --------    --------     --------   --------
Partners' capital:
  Common unitholders..............   49,514        (306)      30,216     79,424
  Senior subordinated
   unitholders....................   51,421        (276)                 51,145
  Junior subordinated
   unitholders....................    2,358         (48)                  2,310
  Non-managing general partner....    1,900         (13)         641      2,528
                                   --------    --------     --------   --------
  Total partners' capital.........  105,193        (643)      30,857    135,407
                                   --------    --------     --------   --------
    Total capitalization.......... $247,357    $   (643)    $    --    $246,714
                                   ========    ========     ========   ========

                                       25

                 PRICE RANGE OF COMMON UNITS AND DISTRIBUTIONS

   The common units are listed and traded on the Nasdaq National Market under
the symbol "NRGY." The common units began trading on July 26, 2001 at an
initial public offering price of $22.00 per common unit. The following table
shows the high and low closing sales prices per common unit, as reported by the
Nasdaq National Market, for the periods indicated. Distributions are shown in
the quarter for which they were paid. For each quarter, an identical cash
distribution was paid on all outstanding senior and junior subordinated units.

                                                              Cash Distributions
Period Ended                                     Low    High       Per Unit
- ------------                                    ------ ------ ------------------
                                                     
Fiscal 2002:
  June 30, 2002(a)............................. $29.75 $34.24
  March 31, 2002...............................  27.65  30.10       $0.660
  December 31, 2001............................  23.50  28.25        0.625
Fiscal 2001:
  September 30, 2001........................... $22.20 $27.45       $0.400(b)

- --------
(a) Through June 18, 2002.
(b) Reflects the pro rata portion of the $0.60 minimum quarterly distribution
    per unit, representing the period from the July 31, 2001 closing of the
    initial public offering through September 30, 2001.

   The last reported sale price of the common units on the Nasdaq on June 18,
2002 was $31.35. As of June 18, 2002, there were approximately 2,500 holders of
record of our common units.

                                       26

                            CASH DISTRIBUTION POLICY

Distributions of Available Cash

   General. Within approximately 45 days after the end of each quarter, we will
distribute all of our available cash to unitholders of record on the applicable
record date.

   Definition of Available Cash. We define available cash in the glossary, and
it generally means, for each fiscal quarter, all cash on hand at the end of the
quarter less the amount of cash that the managing general partner determines in
its reasonable discretion is necessary or appropriate to:

  .  provide for the proper conduct of our business,

  .  comply with applicable law, any of our debt instruments, or other
     agreements, or

  .  provide funds for distributions to unitholders (including units held by
     affiliates of Inergy Holdings) and to our non-managing general partner
     for any one or more of the next four quarters,

  plus all cash on hand on the date of determination of available cash for
  the quarter resulting from working capital borrowings made after the end of
  the quarter. Working capital borrowings are generally borrowings that are
  made under our working capital facility and in all cases are used solely
  for working capital purposes or to pay distributions to partners.

   Minimum Quarterly Distribution. Common units are entitled to receive
distributions from operating surplus of $0.60 per quarter, or $2.40 on an
annualized basis, before any distributions are paid on our subordinated units.
There is no guarantee that we will pay the minimum quarterly distribution on
the common units in any quarter, and we will be prohibited from making any
distributions to unitholders if it would cause an event of default under our
credit facility or the secured notes. As reflected below, our definition of
operating surplus contains an $8.5 million basket. This basket is a provision
that will enable us, if we choose, to distribute as operating surplus up to
$8.5 million of cash we receive in the future from non-operating sources, such
as asset sales, issuances of securities and long-term borrowings, that would
otherwise be distributed as capital surplus.

Operating Surplus and Capital Surplus

   General. All cash distributed to unitholders will be characterized either as
"operating surplus" or "capital surplus." We distribute available cash from
operating surplus differently than available cash from capital surplus.

   Definition of Operating Surplus. We define operating surplus in the
glossary, and for any period it generally means:

  .  our cash balance of $5.8 million at the closing of our initial public
     offering,

  .  plus $8.5 million (as described above),

  .  plus all of our cash receipts since the initial public offering,
     excluding cash from borrowings that are not working capital borrowings,
     sales of equity and debt securities and sales of assets outside the
     ordinary course of business,

  .  plus working capital borrowings made after the end of a quarter but
     before the date of determination of operating surplus for the quarter,

  .  less all of our operating expenditures since the initial public
     offering, including the repayment of working capital borrowings, but not
     the repayment of other borrowings, and including maintenance capital
     expenditures,

  .  less the amount of cash reserves that our managing general partner deems
     necessary or advisable to provide funds for future operating
     expenditures.

                                       27

   Definition of Capital Surplus. We also define capital surplus in the
glossary, and it will generally be generated only by:

  .  borrowings other than working capital borrowings,

  .  sales of debt and equity securities, and

  .  sales or other disposition of assets for cash, other than inventory,
     accounts receivable and other current assets sold in the ordinary course
     of business or as part of normal retirements or replacements of assets.

   Characterization of Cash Distributions. We will treat all available cash
distributed as coming from operating surplus until the sum of all available
cash distributed since we began operations equals the operating surplus as of
the most recent date of determination of available cash. We will treat any
amount distributed in excess of operating surplus, regardless of its source, as
capital surplus. We do not anticipate that we will make any distributions from
capital surplus.

Subordination Period

   General. During the subordination period, which we define below, the common
units have the right to receive distributions of available cash from operating
surplus in an amount equal to the minimum quarterly distribution of $0.60 per
quarter, plus any arrearages in the payment of the minimum quarterly
distribution on the common units from prior quarters, before any distributions
of available cash from operating surplus may be made on any junior or senior
subordinated units. The purpose of the subordinated units is to increase the
likelihood that during the subordination period there will be available cash to
be distributed on the common units. The majority of our senior subordinated
units are held by persons who received preferred equity in our predecessor when
we bought their propane business or when they made a preferred investment. Our
management owns the majority of our junior subordinated units and a portion of
our senior subordinated units.

   Definition of Subordination Period. We define the subordination period in
the glossary. The subordination period will extend until the first day of any
quarter beginning after June 30, 2006 for the senior subordinated units and
June 30, 2008 for the junior subordinated units that each of the following
tests are met:

  .  distributions of available cash from operating surplus on each of the
     outstanding common units and subordinated units equaled or exceeded the
     minimum quarterly distribution for each of the three consecutive, non-
     overlapping four-quarter periods immediately preceding that date,

  .  the adjusted operating surplus generated during each of the three
     immediately preceding non-overlapping four-quarter periods equaled or
     exceeded the sum of the minimum quarterly distributions on all of the
     outstanding common units and subordinated units during those periods on
     a fully diluted basis and the related distribution on the 2% general
     partner interest during those periods, and

  .  there are no arrearages in payment of the minimum quarterly distribution
     on the common units.

   Before the end of the subordination period, a portion of the senior
subordinated units may convert into common units on a one-for-one basis
immediately after the distribution of available cash to the partners in respect
of any quarter ending on or after:

  .  June 30, 2004 with respect to 25% of the senior subordinated units, and

  .  June 30, 2005 with respect to 25% of the senior subordinated units.

   Before the end of the subordination period, a portion of the junior
subordinated units may convert into common units on a one-for-one basis
immediately after the distribution of available cash to the partners in respect
of any quarter ending on or after:

  .  June 30, 2006 with respect to 25% of the junior subordinated units, and

  .  June 30, 2007 with respect to 25% of the junior subordinated units.

                                       28

   The early conversions will occur if at the end of the applicable quarter
each of the following occurs:

  .  distributions of available cash from operating surplus on the common
     units and the subordinated units equal or exceed the sum of the minimum
     quarterly distributions on all of the outstanding common units and
     subordinated units for each of the three non-overlapping four-quarter
     periods immediately preceding that date,

  .  the adjusted operating surplus generated during each of the three
     immediately preceding non-overlapping four-quarter periods equals or
     exceeds the sum of the minimum quarterly distributions on all of the
     outstanding common units and subordinated units during those periods on
     a fully diluted basis and the related distribution on the 2% general
     partner interest during those periods, and

  .  there are no arrearages in payment of the minimum quarterly distribution
     on the common units.

   However, the early conversion of the second 25% of the senior or junior
subordinated units, as applicable, may not occur until at least one year
following the early conversion of the first 25% of the senior or junior
subordinated units, as applicable.

   Notwithstanding the foregoing, all outstanding junior subordinated units may
convert into common units on a one-for-one basis immediately after the
distribution of available cash to the partners in respect of any quarter ending
on or after June 30, 2006, if each of the following tests is met:

  .  distributions of available cash from operating surplus on each of the
     outstanding common units and the subordinated units equaled or exceeded
     the sum of $2.80 for each of the three consecutive, non-overlapping
     four-quarter periods immediately preceding that date,

  .  the adjusted operating surplus generated during each of the three
     immediately preceding non-overlapping four-quarter periods equaled or
     exceeded the sum of $2.80 on all of the outstanding common units and
     senior and junior subordinated units during those periods on a fully
     diluted basis and the related distribution on the 2% general partner
     interest during those periods,

  .  all of the senior subordinated units have been converted into common
     units, and

  .  there are no arrearages in payment of the minimum quarterly distribution
     on the common units.

   Definition of Adjusted Operating Surplus. We define "adjusted operating
surplus" in the glossary and for any period as:

  .  operating surplus generated during that period,

  .  less any net increase in working capital borrowings during that period,

  .  less any net reduction in cash reserves for operating expenditures
     during that period not relating to an operating expenditure made during
     that period,

  .  plus any net decrease in working capital borrowings during that period,

  .  plus any net increase in cash reserves for operating expenditures during
     that period required by any debt instrument for the repayment of
     principal, interest or premium.

   Adjusted operating surplus is intended to reflect the cash generated from
operations during a particular period and therefore excludes net increases in
working capital borrowings and net drawdowns of reserves of cash generated in
prior periods.

   Effect of Expiration of the Subordination Period. Upon expiration of the
subordination period, each outstanding subordinated unit will convert into one
common unit and will then participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders remove our
managing general partner other than for cause, the subordination period will
end, any then-existing arrearages on the common units will terminate, and each
subordinated unit will immediately convert into one common unit.

                                       29

Distributions of Available Cash from Operating Surplus During the Subordination
Period

   Our partnership agreement requires us to make distributions of available
cash from operating surplus for any quarter during the subordination period in
the following manner:

  .  First, 98% to the common unitholders, pro rata, and 2% to the non-
     managing general partner until we distribute for each outstanding common
     unit an amount equal to the minimum quarterly distribution for that
     quarter,

  .  Second, 98% to the common unitholders, pro rata, and 2% to the non-
     managing general partner until we distribute for each outstanding common
     unit an amount equal to any arrearages in payment of the minimum
     quarterly distribution on the common units for any prior quarters during
     the subordination period,

  .  Third, 98% to the senior subordinated unitholders, pro rata, and 2% to
     the non-managing general partner until we distribute for each senior
     subordinated unit an amount equal to the minimum quarterly distribution
     for that quarter,

  .  Fourth, 98% to the junior subordinated unitholders, pro rata, and 2% to
     the non-managing general partner until we distribute for each junior
     subordinated unit an amount equal to the minimum quarterly distribution
     for that quarter, and

  .  Thereafter, in the manner described in "--Incentive Distribution Rights"
     below.

Distributions of Available Cash from Operating Surplus After the Subordination
Period

   Our partnership agreement requires us to make distributions of available
cash from operating surplus for any quarter following the subordination period
in the following manner:

  .  First, 98% to all unitholders, pro rata, and 2% to the non-managing
     general partner until we distribute for each outstanding unit an amount
     equal to the minimum quarterly distribution for that quarter, and

  .  Thereafter, in the manner described in "--Incentive Distribution Rights"
     below.

Incentive Distribution Rights

   Incentive distribution rights represent the right to receive an increasing
percentage of quarterly distributions of available cash from operating surplus
after the minimum quarterly distribution and the target distribution levels
have been achieved. Inergy Holdings, which owns our managing general partner
and substantially all of our non-managing general partner, currently holds the
incentive distribution rights, but may transfer these rights separately from
its general partner interest to an entity that controls or is controlled by the
managing general partner.

   If for any quarter:

  .  we have distributed available cash from operating surplus to the common
     and subordinated unitholders in an amount equal to the minimum quarterly
     distribution, and

  .  we have distributed available cash from operating surplus on outstanding
     common units in an amount necessary to eliminate any cumulative
     arrearages in payment of the minimum quarterly distribution,

then, we will distribute any additional available cash from operating surplus
for that quarter among the unitholders and the non-managing general partner in
the following manner:

  .  First, 98% to all unitholders, pro rata, and 2% to the non-managing
     general partner, until each unitholder receives a total of $0.66 per
     unit for that quarter (the "first target distribution"),

                                       30

  .  Second, 85% to all unitholders, pro rata, 2% to the non-managing general
     partner and 13% to Inergy Holdings, until each unitholder receives a
     total of $0.75 per unit for that quarter (the "second target
     distribution"),

  .  Third, 75% to all unitholders, pro rata, 2% to the non-managing general
     partner and 23% to Inergy Holdings, until each unitholder receives a
     total of $0.90 per unit for that quarter (the "third target
     distribution"), and

  .  Thereafter, 50% to all unitholders, pro rata, 2% to the non-managing
     general partner and 48% to Inergy Holdings.

   In each case, the amount of the target distribution set forth above is
exclusive of any distributions to common unitholders to eliminate any
cumulative arrearages in payment of the minimum quarterly distribution on the
common units.

Percentage Allocations of Available Cash from Operating Surplus

   The following table illustrates the percentage allocations of the additional
available cash from operating surplus among the unitholders, the non-managing
general partner and Inergy Holdings up to the various target distribution
levels. The amounts set forth under "Marginal Percentage Interest in
Distributions" are the percentage interests of the unitholders, non-managing
general partner and Inergy Holdings in any available cash from operating
surplus we distribute up to and including the corresponding amount in the
column "Total Quarterly Distribution Target Amount," until available cash we
distribute reaches the next target distribution level, if any. The percentage
interests shown for the unitholders and the non-managing general partner for
the minimum quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly distribution.

                                                                 Marginal Percentage
                                                              Interest in Distributions
                                                      -----------------------------------------
                         Total Quarterly Distribution              Non-Managing      Inergy
                                Target Amount         Unitholders General Partner Holdings, LLC
                         ---------------------------- ----------- --------------- -------------
                                                                      
Minimum Quarterly
 Distribution...........            $0.60                 98%            2%            --
First Target
 Distribution...........         up to $0.66              98%            2%            --
Second Target
 Distribution...........   above $0.66 up to $0.75        85%            2%             13%
Third Target
 Distribution...........   above $0.75 up to $0.90        75%            2%             23%
Thereafter..............         above $0.90              50%            2%             48%

Distributions from Capital Surplus

   How Distributions from Capital Surplus Will Be Made. We will make
distributions of available cash from capital surplus in the following manner:

  .  First, 98% to all unitholders, pro rata, and 2% to the non-managing
     general partner, until we distribute for each common unit that was
     issued in the initial public offering, an amount of available cash from
     capital surplus equal to the initial public offering price,

  .  Second, 98% to the common unitholders, pro rata, and 2% to the non-
     managing general partner, until we distribute for each common unit, an
     amount of available cash from capital surplus equal to any unpaid
     arrearages in payment of the minimum quarterly distribution on the
     common units, and

  .  Thereafter, we will make all distributions of available cash from
     capital surplus as if they were from operating surplus.

   Effect of a Distribution from Capital Surplus. The partnership agreement
treats a distribution of capital surplus as the repayment of the initial unit
price from the initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital surplus per
unit is referred to as the

                                       31

"unrecovered initial unit price." Each time a distribution of capital surplus
is made, the minimum quarterly distribution and the target distribution levels
will be reduced in the same proportion as the corresponding reduction in the
unrecovered initial unit price. Because distributions of capital surplus will
reduce the minimum quarterly distribution, after any of these distributions are
made, it may be easier for Inergy Holdings to receive incentive distributions
and for the subordinated units to convert into common units. However, any
distribution of capital surplus before the unrecovered initial unit price is
reduced to zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.

   Once we distribute capital surplus on a unit in an amount equal to the
initial unit price, we will reduce the minimum quarterly distribution and the
target distribution levels to zero and we will make all future distributions
from operating surplus, with 50% being paid to the holders of units, 2% to our
non-managing general partner and 48% to Inergy Holdings.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

   In addition to adjusting the minimum quarterly distribution and target
distribution levels to reflect a distribution of capital surplus, we will
proportionately adjust the minimum quarterly distribution, target distribution
levels, unrecovered initial unit price, the number of common units issuable
during the subordination period without a unitholder vote and the number of
common units into which a subordinated unit is convertible if we combine our
units into fewer units or subdivide our units into a greater number of units.
In addition, if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us to become taxable as a corporation or
otherwise subject to taxation as an entity for federal, state or local income
tax purposes, we will reduce the minimum quarterly distribution and the target
distribution levels by multiplying the same by one minus the sum of the highest
marginal federal corporate income tax rate that could apply and any increase in
the effective overall state and local income tax rates. For example, if we
became subject to a maximum marginal federal, and effective state and local
income tax rate of 38%, then the minimum quarterly distribution and the target
distributions levels would each be reduced to 62% of their previous levels.

Distributions of Cash Upon Liquidation

   If we dissolve in accordance with the partnership agreement, we will sell or
otherwise dispose of our assets in a process called liquidation. We will first
apply the proceeds of liquidation to the payment of our creditors. We will
distribute any remaining proceeds to the unitholders and our non-managing
general partner, in accordance with their capital account balances, as adjusted
to reflect any gain or loss upon the sale or other disposition of our assets in
liquidation.

   The allocations of gain and loss upon liquidation are intended, to the
extent possible, to entitle the holders of outstanding common units to a
preference over the holders of outstanding subordinated units upon the
liquidation of Inergy, to the extent required to permit common unitholders to
receive their unrecovered initial unit price plus the minimum quarterly
distribution for the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on the common
units. However, there may not be sufficient gain upon our liquidation to enable
the holders of common units to fully recover all of these amounts, even though
there may be cash available for distribution to the holders of subordinated
units. Any further net gain recognized upon liquidation will be allocated in a
manner that takes into account the incentive distribution rights of Inergy
Holdings.

   Manner of Adjustments for Gain. The manner of the adjustment is set forth in
the partnership agreement. If our liquidation occurs before the end of the
subordination period, we will allocate any gain to the partners in the
following manner:

  .  First, to the non-managing general partner and the holders of units who
     have negative balances in their capital accounts to the extent of and in
     proportion to those negative balances, which are not expected,

                                       32

  .  Second, 98% to the common unitholders, pro rata, and 2% to the non-
     managing general partner until the capital account for each common unit
     is equal to the sum of:

   (1) the unrecovered initial unit price for that common unit, plus

   (2) the amount of the minimum quarterly distribution for the quarter
       during which our liquidation occurs, plus

   (3) any unpaid arrearages in payment of the minimum quarterly
       distribution on that common unit,

  .  Third, 98% to the senior subordinated unitholders, pro rata, and 2% to
     the non-managing general partner until the capital account for each
     senior subordinated unit is equal to the sum of:

   (1) the unrecovered initial unit price on that senior subordinated unit,
       and

   (2) the amount of the minimum quarterly distribution for the quarter
       during which our liquidation occurs,

  .  Fourth, 98% to the junior subordinated unitholders, pro rata, and 2% to
     the non-managing general partner until the capital account for each
     junior subordinated unit is equal to the sum of:

   (1) the unrecovered initial unit price on that junior subordinated unit,
       and

   (2) the amount of the minimum quarterly distribution for the quarter
       during which our liquidation occurs,

  .  Fifth, 98% to all unitholders, pro rata, and 2% to the non-managing
     general partner, until we allocate under this paragraph an amount per
     unit equal to:

   (1) the sum of the excess of the first target distribution per unit over
       the minimum quarterly distribution per unit for each quarter of our
       existence, less

   (2) the cumulative amount per unit of any distributions of available cash
       from operating surplus in excess of the minimum quarterly
       distribution per unit that we distributed 98% to the unitholders, pro
       rata, and 2% to our non-managing general partner for each quarter of
       our existence,

  .  Sixth, 85% to all unitholders, pro rata, 2% to the non-managing general
     partner and 13% to Inergy Holdings, until we allocate under this
     paragraph an amount equal to:

   (1) the sum of the excess of the second target distribution per unit over
       the first target distribution per unit for each quarter of our
       existence, less

   (2) the cumulative amount per unit of any distributions of available cash
       from operating surplus in excess of the first target distribution per
       unit that we distributed 85% to the unitholders, pro rata, 2% to our
       non-managing general partner and 13% to Inergy Holdings for each
       quarter of our existence,

  .  Seventh, 75% to all unitholders, pro rata, 2% to the non-managing
     general partner and 23% to Inergy Holdings, until we allocate under this
     paragraph an amount per unit equal to:

   (1) the sum of the excess of the third target distribution per unit over
       the second target distribution per unit for each quarter of our
       existence, less

   (2) the cumulative amount per unit of any distributions of available cash
       from operating surplus in excess of the second target distribution
       per unit that we distributed 75% to the unitholders, pro rata, 2% to
       our managing general partner and 23% to Inergy Holdings for each
       quarter of our existence,

  .  Thereafter, 50% to all unitholders, pro rata, 2% to the non-managing
     general partner and 48% to Inergy Holdings.

   If the liquidation occurs after the end of the subordination period, the
distinction between common units, senior subordinated units and junior
subordinated units will disappear, so that clause (3) of the second priority
above and all of the third and fourth priorities above will no longer be
applicable.

                                       33

   Manner of Adjustments for Losses. Upon our liquidation, we will generally
allocate any loss to our non-managing general partner and the unitholders in
the following manner:

  .  First, 98% to holders of junior subordinated units in proportion to the
     positive balances in their capital accounts and 2% to our non-managing
     general partner until the capital accounts of the holders of the junior
     subordinated units have been reduced to zero,

  .  Second, 98% to the holders of senior subordinated units in proportion to
     the positive balances in their capital accounts and 2% to our non-
     managing general partner until the capital accounts of the holders of
     the senior subordinated units have been reduced to zero,

  .  Third, 98% to the holders of common units in proportion to the positive
     balances in their capital accounts and 2% to our non-managing general
     partner until the capital accounts of the common unitholders have been
     reduced to zero, and

  .  Thereafter, 100% to our non-managing general partner.

   If the liquidation occurs after the end of the subordination period, the
distinction between common units, senior subordinated units and junior
subordinated units will disappear, so that all of the first and second bullets
point above will no longer be applicable.

   Adjustments to Capital Accounts Upon the Issuance of Additional Units. We
will make adjustments to capital accounts upon the issuance of additional
units. In doing so, we will allocate any unrealized, and, for tax purposes,
unrecognized gain or loss resulting from the adjustments to the unitholders and
our managing general partner in the same manner as we allocate gain or loss
upon liquidation. In the event that we make positive interim adjustments to the
capital accounts, we will allocate any later negative adjustments to the
capital accounts resulting from the issuance of additional units or upon our
liquidation in a manner which results, to the extent possible, in the capital
account balances of our non-managing general partner equaling the amount which
would have been in its capital account balance if no earlier positive
adjustments to the capital accounts had been made.

                                       34

             UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
  For the Year Ended September 30, 2001 and for the Six Months Ended March 31,
                                      2002

   The unaudited pro forma consolidated balance sheet of Inergy, L.P. as of
March 31, 2002, was prepared to reflect the effects of this offering and the
senior secured notes offering as if they had been completed as of March 31,
2002. The unaudited pro forma consolidated statements of income of Inergy, L.P.
for the year ended September 30, 2001 and for the six months ended March 31,
2002 were prepared to reflect the effects of the acquisitions of the Hoosier
Propane Group, Pro Gas and IPC, our initial public offering, this offering and
the senior secured notes offering, as if all such transactions took place on
October 1, 2000.

   The unaudited pro forma consolidated financial statements of Inergy, L.P.
have been derived from: the audited historical consolidated statements of
operations of Inergy Partners, LLC, Inergy, L.P. and IPC for the year ended
September 30, 2001; the audited historical combined statement of income of the
Hoosier Propane Group for the three months ended December 31, 2000; the
unaudited historical consolidated financial statements of Inergy, L.P. for the
six months ended March 31, 2002; the unaudited historical combined statements
of income of Pro Gas until the date of its acquisition; and the unaudited
historical consolidated statement of income of IPC from October 1, 2001 until
the date of its acquisition, in each case, after giving effect to the pro forma
adjustments discussed below. Therefore, the unaudited pro forma consolidated
statement of income for the six months ended March 31, 2002 reflects one month
of pre-acquisition operations of Pro Gas and approximately two and one-half
months of pre-acquisition operations of IPC, and the unaudited pro forma
consolidated statement of income for the year ended September 30, 2001 reflects
three months of pre-acquisition operations of the Hoosier Propane Group and
twelve months of pre-acquisition operations of Pro Gas and IPC.

   In preparing the unaudited pro forma consolidated financial statements of
Inergy, L.P., we have made four sets of adjustments to the historical financial
statements. The first set of adjustments is acquisition related and reflects:

  .  the acquisitions in purchase business combinations of the assets of the
     Hoosier Propane Group in January 2001, Pro Gas in November 2001 and IPC
     in December 2001, including the financing in connection with these
     acquisitions. The pre-acquisition historical results of operations for
     each acquired company are presented separately from acquisition
     adjustments. The consideration paid and purchase price allocation of
     each acquisition is as follows:

                                                          Hoosier
                                                          Propane
                                                           Group  Pro Gas  IPC
                                                          ------- ------- -----
                                                              (in millions)
                                                                 
       Cash..............................................  $56.0   $10.9  $74.6
       Assumed liabilities...............................    5.6     0.8    2.5
       9% redeemable preferred interests.................    7.4     --     --
       9% subordinated debentures........................    5.0     --     --
       5% seller note payable............................    --      0.8    --
       Common units......................................    --      --    19.7
                                                           -----   -----  -----
                                                           $74.0   $12.5  $96.8
                                                           =====   =====  =====
       Property, plant and equipment.....................  $34.9   $10.9  $45.9
       Goodwill..........................................   25.2     --    15.0
       Customer accounts.................................   10.5     --    27.4
       Covenant not to compete...........................    0.5     1.3    1.0
       Net current assets................................    2.9     0.3    7.5
                                                           -----   -----  -----
                                                           $74.0   $12.5  $96.8
                                                           =====   =====  =====

                                       35

             We determined the fair value of the property and equipment
             acquired by reference to replacement cost values readily
             available for the assets acquired (predominantly tanks). The
             values of customer accounts represent the discounted present
             values of future profits on customer accounts acquired and were
             determined through consultations with, and assistance received
             from, valuation and appraisal professionals. The values of
             covenants not to compete represent the discounted present value
             of future payments to contracted individuals. The book value of
             current assets acquired was generally considered fair value due
             to their rapid turnover.

  .   financing the Hoosier Propane Group acquisition through the issuance
      of: 9% redeemable preferred interests in our predecessor (all of which
      were converted into senior subordinated units at the initial public
      offering) to certain former owners of the Hoosier Propane Group ($7.4
      million) and other new and existing members ($16.1 million in cash);
      $5.0 million in subordinated indebtedness; and the incurrence of $78.3
      million of indebtedness under our bank credit facility, less a
      repayment of $36.1 million of indebtedness and accrued interest
      incurred in connection with previous acquisitions,

  .   financing the Pro Gas acquisition through the incurrence of $10.9
      million of indebtedness under our bank credit facility, and

  .   financing the IPC acquisition through: the incurrence of $132.0 million
      of indebtedness under our amended bank credit facility (including $70.0
      million under the IPC acquisition term loan and $62.0 million under our
      revolving acquisition facility), less a repayment of $57.4 million of
      indebtedness and accrued interest incurred in connection with the above
      acquisitions; and the issuance of $19.7 million of common units.

   The second set of adjustments reflects our initial public offering
completed on July 31, 2001, including:

  .  the initial public offering of 1,840,000 common units of Inergy, L.P. at
     an initial public offering price of $22.00 per common unit,

  .  the payment of approximately $6.2 million of underwriting fees and
     commissions and other fees and expenses associated with the initial
     public offering, and

  .  the application of the net proceeds of the offering to retire $5.0
     million of the subordinated debt and $29.3 million of bank loans assumed
     to be outstanding for the ten-month period immediately prior to the
     initial public offering.

   The third set of adjustments reflects this offering, including:

  .  the public offering of 1,061,005 common units of Inergy, L.P. at a
     public offering price of $31.25 per common unit,

  .  the contribution by Inergy Partners, LLC to Inergy L.P. of $0.6 million
     to maintain its 2% general partner interest,

  .  the payment of approximately $2.9 million of underwriting fees and
     commissions and other fees and expenses associated with this offering,
     and

  .  the application of the net proceeds of this offering to repay $30.8
     million of indebtedness under the bank credit facility.

   The fourth set of adjustments reflects the senior secured notes offering,
including:

  .  the private placement of $85.0 million senior secured notes with a
     weighted average interest rate of 9.07% and a weighted average maturity
     of 5.9 years, as follows: $35.0 million principal amount of 8.85% senior
     secured notes with a 5-year maturity, $25.0 million principal amount of
     9.10% senior secured notes with a 6-year maturity, and $25.0 million
     principal amount of 9.34% senior secured notes with a 7-year maturity,

                                      36

  .  the payment of approximately $1.0 million of placement agent fees and
     other fees and expenses associated with the senior secured notes
     offering, capitalized as deferred financing costs and amortized over the
     weighted average life of the senior secured notes,

  .  the application of the proceeds of the note offering to repay $85.0
     million of indebtedness under the bank credit facility with an average
     interest rate of 4.60% for the six months ended March 31, 2002 and 7.60%
     for the year ended September 30, 2001, and

  .   the write off of the net deferred financing costs of $643,000
      associated with the retirement of the IPC acquisition term loan.

   The unaudited pro forma consolidated financial statements do not purport to
present the results of operations of Inergy, L.P. had the transactions
described above actually been completed as of the dates indicated. In addition,
the unaudited pro forma consolidated financial statements are not necessarily
indicative of the results of future operations of Inergy, L.P. and should be
read in conjunction with the audited historical financial statements and notes
thereto of Inergy Partners, LLC, Inergy, L.P., the Hoosier Propane Group and
IPC appearing elsewhere in this prospectus.

                                       37

                                  INERGY, L.P.

                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                 March 31, 2002
                                 (in thousands)

                                             Inergy, L.P. Adjustments  Pro Forma
                                             ------------ -----------  ---------
                                                              
                   ASSETS
Current assets:
 Cash.......................................   $  2,475    $ 33,797 A  $  1,475
                                                             (2,940)B
                                                            (30,857)C
                                                             85,000 D
                                                            (85,000)D
                                                             (1,000)D
 Accounts receivable, net...................     24,111                  24,111
 Inventories................................     16,591                  16,591
 Prepaid expenses and other current assets..      1,975                   1,975
 Assets from price risk management
  activities................................      8,897                   8,897
                                               --------    --------    --------
Total current assets........................     54,049      (1,000)     53,049
Property, plant and equipment, at cost......    134,853                 134,853
 Less accumulated depreciation..............     (9,378)                 (9,378)
                                               --------    --------    --------
Net property, plant and equipment...........    125,475                 125,475
Intangible assets:
 Covenants not to compete...................      6,124                   6,124
 Deferred financing costs...................      4,977       1,000 D     5,334
                                                               (643)E
 Customer accounts..........................     41,411                  41,411
 Goodwill...................................     47,053                  47,053
                                               --------    --------    --------
                                                 99,565         357      99,922
 Less accumulated amortization..............     (6,489)                 (6,489)
                                               --------    --------    --------
Net intangible assets.......................     93,076         357      93,433
Other.......................................        473                     473
                                               --------    --------    --------
Total assets................................   $273,073    $   (643)   $272,430
                                               ========    ========    ========
     LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
 Accounts payable...........................   $  9,041    $           $  9,041
 Accrued expenses...........................      6,743                   6,743
 Customer deposits..........................      5,314                   5,314
 Liabilities from price risk management
  activities................................      4,618                   4,618
 Current portion of long-term debt..........      3,722                   3,722
                                               --------    --------    --------
Total current liabilities...................     29,438                  29,438
Long-term debt, less current portion........    138,442     (30,857)C   107,585
                                                             85,000 D
                                                            (85,000)D
Partners' capital:
 Common unitholders (2,617,872 units issued
  and outstanding, actual, and 3,678,877
  units, pro forma).........................     49,514      33,156 A    79,424
                                                             (2,940)B
                                                               (306)E
 Senior subordinated unitholders (3,313,367
  units issued and outstanding, actual and
  pro forma)................................     51,421        (276)E    51,145
 Junior subordinated unitholders (572,542
  units issued and outstanding, actual and
  pro forma)................................      2,358         (48)E     2,310
 Non-managing general partner (2% interest
  with dilutive effect equivalent to 132,730
  units issued and outstanding, actual, and
  154,383, pro forma).......................      1,900         641 A     2,528
                                                                (13)E
                                               --------    --------    --------
Total partners' capital.....................    105,193      30,214     135,407
                                               --------    --------    --------
Total liabilities and partners' capital.....   $273,073    $   (643)   $272,430
                                               ========    ========    ========

                                       38

                                  INERGY, L.P.

              UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
                    For the six months ended March 31, 2002
                      (in thousands, except per unit data)

                                                           Acquisition             Offering    Pro Forma
                          Inergy, L.P. Pro Gas(F) IPC(G)   Adjustments Pro Forma  Adjustments As Adjusted
                          ------------ ---------- -------  ----------- ---------  ----------- -----------
                                                                         
Revenues................    $164,060     $1,227   $13,536     $ --     $178,823     $   --     $178,823
Cost of product sold....     113,787        793     5,404       --      119,984         --      119,984
                            --------     ------   -------     -----    --------     -------    --------
Gross profit............      50,273        434     8,132       --       58,839         --       58,839
Expenses:
 Operating and
  administrative........      23,326        267     4,455       --       28,048         --       28,048
 Depreciation and
  amortization..........       5,145         53     1,649         4 H     6,258         --        6,258
                                                               (593)I
                            --------     ------   -------     -----    --------     -------    --------
Operating income........      21,802        114     2,028       589      24,533         --       24,533
Other income (expense):
 Interest expense.......      (3,236)        (1)     (842)     (143)J    (4,344)        (85)N    (5,620)
                                                               (122)K                   709 O
                                                                                     (1,900)P
 Interest income........         --           6       --        --            6         --            6
 Gain (loss) on sale of
  property, plant and
  equipment.............        (119)       --        --        --         (119)        --         (119)
 Finance charges........          85        --        --        --           85         --           85
 Other..................          36        --          3       --           39         --           39
                            --------     ------   -------     -----    --------     -------    --------
Income before income
 taxes..................      18,568        119     1,189       324      20,200      (1,276)     18,924
Provision for income
 taxes..................          52        --        --        --           52         --           52
                            --------     ------   -------     -----    --------     -------    --------
Net income..............    $ 18,516     $  119   $ 1,189     $ 324    $ 20,148     $(1,276)   $ 18,872
                            ========     ======   =======     =====    ========     =======    ========
Partners' interest
 information:
 Non-managing general
  partner's interest in
  net income............    $    370                                   $    403                $    377
                            ========                                   ========                ========
Limited partners'
 interest in net income:
 Common unit interest...    $  6,702                                   $  7,948                $  8,994
 Senior subordinated
  unit interest.........       9,758                                     10,059                   8,101
 Junior subordinated
  unit interest.........       1,686                                      1,738                   1,400
                            --------                                   --------                --------
 Total limited partners'
  interest in net
  income................    $ 18,146                                   $ 19,745                $ 18,495
                            ========                                   ========                ========
Net income per limited
 partner unit:
 Basic..................    $   2.94                                   $   3.04                $   2.44
                            ========                                   ========                ========
 Diluted................    $   2.90                                   $   2.99                $   2.42
                            ========                                   ========                ========
Weighted average limited
 partners' units
 outstanding:
 Basic..................       6,162                            342 L     6,504       1,061 Q     7,565
                            ========                          =====    ========     =======    ========
 Diluted................       6,249                            346 M     6,595       1,061 Q     7,656
                            ========                          =====    ========     =======    ========

                                       39

                                  INERGY, L.P.

              UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
                     For the year ended September 30, 2001
                      (in thousands, except per unit data)

                          Inergy, L.P. Hoosier                         IPO and                          Pro Forma
                              and      Propane                       Acquisition             Offering      As
                          Predecessor  Group(R)  Pro Gas(S)   IPC    Adjustments Pro Forma  Adjustments Adjusted
                          ------------ --------  ---------- -------  ----------- ---------  ----------- ---------
                                                                                
Revenues................    $223,139   $31,541    $19,320   $76,420    $   --    $350,420     $   --    $350,420
Cost of product sold....     182,582    25,172     12,995    37,761        --     258,510         --     258,510
                            --------   -------    -------   -------    -------   --------     -------   --------
Gross profit............      40,557     6,369      6,325    38,659        --      91,910         --      91,910
Expenses:
 Operating and
  administrative........      23,501     2,538      3,757    22,322        --      52,118         --      52,118
 Depreciation and
  amortization..........       6,532       373        639     7,019         33 H   13,066                 13,066
                                                                        (2,201)I
                                                                           671 T
                            --------   -------    -------   -------    -------   --------     -------   --------
 Operating income.......      10,524     3,458      1,929     9,318      1,497     26,726         --      26,726
Other income (expense):
 Interest expense.......      (6,670)     (246)       (32)   (6,297)      (652)J  (12,642)       (170)N  (11,719)
                                                                         1,255 K                2,344 O
                                                                                               (1,251)P
 Interest income........         --         57        181       --         --         238         --         238
 Gain (loss) on sale of
  property, plant and
  equipment.............          37        10         (1)      --         --          46         --          46
 Finance charges........         290        12        --        --         --         302         --         302
 Other..................         168        78        --        --         --         246         --         246
                            --------   -------    -------   -------    -------   --------     -------   --------
Income before income
 taxes..................       4,349     3,369      2,077     3,021      2,100     14,916         923     15,839
Provision for income
 taxes..................         --        --          39       --         --          39         --          39
                            --------   -------    -------   -------    -------   --------     -------   --------
Net income..............    $  4,349   $ 3,369    $ 2,038   $ 3,021    $ 2,100   $ 14,877     $   923   $ 15,800
                            ========   =======    =======   =======    =======   ========     =======   ========
Net income for the
 period from October 1,
 2000 to July 31, 2001
 attributable to Inergy,
 L.P. predecessor.......    $  6,664
                            ========
Net loss for the period
 from July 31, 2001
 through September 30,
 2001 attributable to
 Inergy, L.P. following
 initial public
 offering...............    $ (2,315)
                            ========
Partners' interest
 information for the
 period from July 31,
 2001 through September
 30, 2001, actual (the
 year ended September
 30, 2001, pro forma):
Non-managing general
 partner's interest in
 net income (loss):.....    $    (46)                                            $    298               $    316
                            ========                                             ========               ========
Limited partners'
 interest in net income
 (loss):
 Common unit interest:
 Allocation of net
  income (loss).........    $   (729)                                            $  5,869               $  7,530
 Less beneficial
  conversion value
  allocated to senior
  subordinated units....      (8,600)                                    8,600 U      --                     --
                            --------                                             --------               --------
 Net common unit
  interest..............      (9,329)                                               5,869                  7,530
 Senior subordinated
  interest:
 Allocation of net
  loss..................      (1,313)                                               7,427                  6,782
 Plus beneficial
  conversion value
  allocated to senior
  subordinated units....       8,600                                    (8,600)U      --                     --
                            --------                                             --------               --------
 Net senior subordinated
  unit interest.........       7,287                                                7,427                  6,782
 Junior subordinated
  unit interest.........        (227)                                               1,283                  1,172
                            --------                                             --------               --------
 Total limited partners'
  interest in net income
  (loss)................    $ (2,269)                                            $ 14,579               $ 15,484
                            ========                                             ========               ========
Net income (loss) per
 limited partner unit
 Basic..................    $  (0.40)                                            $   2.24               $   2.05
                            ========                                             ========               ========
 Diluted................    $  (0.40)                                            $   2.22               $   2.03
                            ========                                             ========               ========
Weighted average limited
 partners' units
 outstanding
 Basic..................       5,726                                       778 L    6,504       1,061 Q    7,565
                            ========                                   =======   ========     =======   ========
 Diluted................       5,726                                       843 M    6,569       1,061 Q    7,630
                            ========                                   =======   ========     =======   ========

                                       40

                                  INERGY, L.P.

                          NOTES TO UNAUDITED PRO FORMA
                       CONSOLIDATED FINANCIAL STATEMENTS

                      Six Months Ended March 31, 2002 and
                         Year Ended September 30, 2001

(A) Reflects the gross proceeds to Inergy, L.P. of $33.1 million from the
    issuance and sale of 1,061,005 common units at a public offering price of
    $31.25 per common unit, together with a capital contribution from the non-
    managing general partner of approximately $0.6 million to maintain its 2%
    general partner interest.

(B) Reflects the payment of the underwriters' discounts and commissions and
    offering expenses, estimated to be $2.9 million.

(C) Reflects the repayment of borrowings under our bank credit facility using
    the net proceeds from the sale of common units in this offering.

(D) Reflects the $85.0 million senior secured notes offering with net proceeds
    used to pay down indebtedness under our bank credit facility. In
    conjunction with the senior secured notes offering, a payment of $1.0
    million is estimated for placement agent fees and other fees and expenses.

(E) Reflects the allocation of the write-off of the net deferred financing
    costs of $643,000 associated with the retirement of the IPC acquisition
    term loan. The dollar amounts assigned are based on the pro rata number of
    units of each class issued and outstanding, pro forma as adjusted. This
    amount is not reflected in the accompanying pro forma statements of income
    but will be included in our financial statements upon the closing of the
    secured notes offering.

(F) Includes the historical combined operating results of Pro Gas for the
    period from October 1, 2001 to October 31, 2001 (immediately prior to the
    acquisition).

(G) Includes the historical consolidated operating results of IPC for the
    period from October 1, 2001 to December 19, 2001 (immediately prior to the
    acquisition).

(H) Reflects pro forma depreciation and amortization based on the portion of
    the purchase price of Pro Gas allocated to property, plant and equipment
    and intangible assets, as follows:

                                                      Depreciation and Amortization
                                                     -------------------------------
                                                      Year Ended
                                           Composite September 30, Six Months Ended
                                Amount      Life(a)      2001      March 31, 2002(b)
                            -------------- --------- ------------- -----------------
                                              (in
                            (in thousands)  years)           (in thousands)
                                                       
   Property, plant and
    equipment
    (excluding land).......     $9,521       19.87       $479             $41
   Covenants not to
    compete................      1,348        7.00        193              16
                                                         ----             ---
                                                          672              57
   Historical depreciation
    and amortization
    expense of Pro Gas.....                               639              53
                                                         ----             ---
   Pro forma adjustment to
    depreciation and
    amortization expense...                              $ 33             $ 4
                                                         ====             ===

  --------
  (a) The composite life is calculated by taking the weighted average lives
      of the assets. Propane tanks, which were allocated $7.3 million of the
      $9.5 million allocated to property, plant and equipment, are
      depreciated over 30 years; buildings are depreciated over 25 years; and
      office furniture and equipment, vehicles and other plant equipment are
      depreciated over four to eight years.
  (b)  Pro forma effect is only for the period from October 1, 2001 to
       October 31, 2001 (immediately prior to the acquisition).

                                       41

(I)  Reflects pro forma depreciation and amortization based on the portion of
     the purchase price of IPC allocated to property, plant and equipment and
     intangible assets, as follows:

                                                     Depreciation and Amortization
                                                     ------------------------------
                                                      Year Ended   Six Months Ended
                                           Composite September 30,    March 31,
                                Amount      Life(a)      2001          2002(b)
                            -------------- --------- ------------- ----------------
                                              (in
                            (in thousands)  years)           (in thousands)
                                                       
   Property, plant and
    equipment (excluding
    land)..................    $44,013       15.77      $ 2,791         $  612
   Covenants not to
    compete................      1,000        5.00          200             44
   Customer accounts.......     27,411       15.00        1,827            400
                                                        -------         ------
                                                          4,818          1,056
   Historical depreciation
    and amortization
    expense of IPC.........                               7,019          1,649
                                                        -------         ------
   Pro forma adjustment to
    depreciation and
    amortization expense...                             $(2,201)        $ (593)
                                                        =======         ======

  --------
  (a)  The composite life is calculated by taking the weighted average lives
       of the assets. Propane tanks, which were allocated $29.4 million of
       the $44.0 million allocated to property, plant and equipment, are
       depreciated over 30 years; buildings are depreciated over 25 years;
       and office furniture and equipment, vehicles and other plant equipment
       are depreciated over four to eight years. Goodwill recorded in
       connection with this acquisition is not amortized in accordance with
       SFAS No. 142.
  (b)  Pro forma effect is only for the period from October 1, 2001 to
       December 19, 2001 (immediately prior to the acquisition).

(J)  Reflects amortization of $2.0 million of debt issuance costs incurred in
     connection with the IPC acquisition over the three-year term of our bank
     credit facility.

(K)  Reflects the adjustment to interest expense resulting from the acquisition
     related transactions described on pages 35-37, and our initial public
     offering, reconciled as follows:

                                                 Year Ended   Six Months Ended
                                                September 30,    March 31,
                                                    2001            2002
                                                ------------- ----------------
                                                        (in thousands)
                                                        
   Inergy's historical interest expense
    attributable to debt refinanced in
    connection with the acquisition of IPC,
    interest based on LIBOR plus 2.0% to 3.5%..    $(6,246)       $(2,689)
   Interest expense related to the debt of the
    Hoosier Propane Group, Pro Gas and IPC.....     (6,575)          (843)
   Pro forma interest expense attributable to
    the financing of the IPC acquisition and
    the refinancing of existing indebtedness:
     Interest on bank credit facility at
      average LIBOR rates in effect during the
      year ended September 30, 2001 and the six
      months ended March 31, 2002 plus 2.50%
      spread, ranging from 6.20% to 8.24% for
      the year ended September 30, 2001 and
      4.58% to 4.85% for the six months ended
      March 31, 2002...........................     11,245          3,494
     Interest on assumed seller notes payable
      at an average of 8.12% per annum.........        321            160
                                                   -------        -------
                                                    11,566          3,654
                                                   -------        -------
   Pro forma adjustment to interest expense....    $(1,255)       $   122
                                                   =======        =======

                                       42

  The interest rates used in determining the amount of pro forma interest
  expense were based upon Inergy's weighted average borrowing rate under its
  bank credit facility. Assuming a change in the interest rate on Inergy,
  L.P.'s floating rate debt of 1/8%, interest expense would have been
  approximately $184,000 and $95,000 greater or lesser than the amounts shown
  above for the fiscal year ended September 30, 2001 and the six months ended
  March 31, 2002, respectively.

(L)  Reflects the issuance of: 394,601 common units to IPCH Acquisition Corp.
     in conjunction with the IPC acquisition, 365,019 common units to former
     IPC shareholders, and 18,252 common units to certain members of IPC
     management who continue as employees of Inergy, L.P. For the six months
     ended March 31, 2002, these units are weighted from October 1, 2001
     through December 19, 2001 prior to the acquisition.

(M)  Reflects the additional common units related to Inergy, L.P. options
     previously considered antidilutive in the historical financial statements
     and additional common units resulting from the issuance of options to
     certain members of IPC management who continue as employees of Inergy,
     L.P. For the six months ended March 31, 2002, the common units resulting
     from the issuance of options are weighted from October 1, 2001 through
     December 19, 2001 prior to the acquisition.

(N)  Reflects amortization of $1.0 million of debt issuance costs expected to
     be incurred in connection with the senior secured notes offering over 5.9
     years, the weighted average life of the notes.

(O)  Reflects reduction of interest expense resulting from the repayment of a
     portion of our bank credit facility borrowings with an average interest
     rate of 7.60% for the year ended September 30, 2001 and 4.60% for the six
     months ended March 31, 2002 with the net proceeds from this offering.

(P)  Reflects increased interest expense resulting from refinancing $85.0
     million of the existing indebtedness under our bank credit facility with
     an average interest rate of 7.60% for the year ended September 30, 2001
     and 4.60% for the six months ended March 31, 2002 with proceeds from the
     senior secured notes offering with an average interest rate of 9.07%.

(Q)  Reflects the issuance of 1,061,005 common units offered by Inergy, L.P. in
     this offering.

(R)  Includes the historical combined operating results of the Hoosier Propane
     Group for the period from October 1, 2000 to December 31, 2000
     (immediately prior to the acquisition).

                                       43

(S) Includes the historical combined operating results of Pro Gas for the
    period from October 1, 2000 to September 30, 2001.

(T) Reflects pro forma depreciation and amortization based on the portion of
    the purchase price of the Hoosier Propane Group allocated to property,
    plant and equipment and intangible assets (including goodwill because the
    acquisition was completed prior to July 1, 2001), as follows:

                                                               Depreciation and
                                                                 Amortization
                                                               ----------------
                                                                  Year Ended
                                                     Composite  September 30,
                                          Amount      Life(a)      2001(b)
                                      -------------- --------- ----------------
                                                        (in
                                      (in thousands)  years)    (in thousands)
                                                      
   Property, plant and equipment
    (excluding land).................    $33,423       19.67        $ 428
   Covenants not to compete..........        465        7.00           17
   Customer accounts.................     10,500       15.00          176
   Goodwill..........................     25,183       15.00          423
                                                                    -----
                                                                    1,044
   Historical depreciation and
    amortization expense of Hoosier
    for the period October 1, 2000 to
    December 31, 2000................                                 373
                                                                    -----
   Pro forma adjustment to
    depreciation and amortization
    expense..........................                               $ 671
                                                                    =====

  --------
  (a) The composite life is calculated by taking the weighted average lives
      of the assets. Propane tanks, which were allocated $25.3 million of the
      $33.4 million allocated to property, plant and equipment, are
      depreciated over 30 years; buildings are depreciated over 25 years; and
      office furniture and equipment, vehicles and other plant equipment are
      depreciated over four to eight years.
  (b) Pro forma effect is only for the period from October 1, 2000 to
      December 31, 2000 (immediately prior to the acquisition).

(U) Reflects an elimination in the beneficial conversion value of $8.6 million
    allocated to senior subordinated units with a corresponding decrease in
    common unit capital, and initially recognized upon completion of the
    initial public offering, assuming our initial public offering occurred
    immediately prior to October 1, 2000.

                                       44

                SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

   The following table sets forth selected financial data and other operating
data of Inergy, L.P., our predecessor, Inergy Partners, LLC, the Hoosier
Propane Group and IPC. The selected historical financial data of Inergy
Partners, LLC for the period from November 8, 1996 (date of formation) to
September 30, 1997, and the years ended September 30, 1998, 1999 and 2000 and
as of September 30, 1997, 1998, 1999 and 2000 are derived from the audited
financial statements of Inergy Partners, LLC. The selected historical financial
data of Inergy, L.P. as of and for the year ended September 30, 2001 are
derived from the audited financial statements of Inergy Partners, LLC and
Inergy, L.P. The selected historical financial data of Inergy Partners, LLC and
Inergy, L.P. for the six months ended March 31, 2001 and 2002 are derived from
the unaudited financial statements of Inergy Partners, LLC and Inergy, L.P. The
historical financial data of Inergy Partners, LLC and Inergy, L.P. include the
results of operations of the Hoosier Propane Group from January 1, 2001, the
effective date of the acquisition, which closed on January 12, 2001, the
results of operations of Pro Gas from November 1, 2001, the date of
acquisition, and the results of operations of IPC from December 20, 2001, the
effective date of the acquisition. The selected historical financial data for
the Hoosier Propane Group as of and for the years ended September 30, 1998,
1999 and 2000 and the three months ended December 31, 2000 are derived from the
audited financial statements of the Hoosier Propane Group. The selected
historical financial data of the Hoosier Propane Group for the three months
ended December 31, 1999 are derived from the unaudited financial statements of
the Hoosier Propane Group. The selected historical financial data for IPC as of
and for the years ended September 30, 1999, 2000 and 2001 are derived from the
audited financial statements of IPC.

   In the opinion of our management, each of the unaudited financial statements
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the financial position and results of operations for the
unaudited periods. Operating results for the six months ended March 31, 2002
are not necessarily indicative of the results that can be expected for the
entire year ending September 30, 2002.

   "EBITDA" shown in the table below is defined as income before income taxes,
plus interest expense and depreciation and amortization expense, less interest
income. EBITDA should not be considered an alternative to net income, income
before income taxes, cash flows from operating activities, or any other measure
of financial performance calculated in accordance with generally accepted
accounting principles as those items are used to measure operating performance,
liquidity or ability to service debt obligations. We believe that EBITDA
provides additional information for evaluating our ability to make the minimum
quarterly distribution and is presented solely as a supplemental measure.
EBITDA, as we define it, may not be comparable to EBITDA or similarly titled
measures used by other corporations or partnerships.

                                       45

   The data in the following tables should be read together with and are
qualified in their entirety by reference to, the historical financial
statements and the accompanying notes included in this prospectus. The tables
should be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                                          Inergy Partners, LLC and Inergy, L.P.
                            --------------------------------------------------------------------------
                             November 8,                                            Six Months Ended
                               1996 to        Years ended September 30,                 March 31,
                            September 30, -------------------------------------     ------------------
                                1997       1998      1999      2000      2001         2001      2002
                            ------------- -------  --------  --------  --------     --------  --------
                                                                                       (unaudited)
                                                      (in thousands)
                                                                         
Statement of Operations
 Data:
Revenues..................     $ 6,966    $ 7,507  $ 19,211  $ 93,595  $223,139     $170,439  $164,060
Cost of product sold......       4,366      4,215    13,754    81,636   182,582      141,425   113,787
                               -------    -------  --------  --------  --------     --------  --------
Gross profit..............       2,600      3,292     5,457    11,959    40,557       29,014    50,273
Expenses:
 Operating and
  administrative(a).......       2,196      2,424     4,119     8,990    23,501       11,464    23,326
 Depreciation and
  amortization............         325        394       690     2,286     6,532        2,588     5,145
                               -------    -------  --------  --------  --------     --------  --------
Operating income..........          79        474       648       683    10,524       14,962    21,802
Other income (expense):
 Interest expense.........        (398)      (569)     (962)   (2,740)   (6,670)      (3,020)   (3,236)
 Gain (loss) on sale of
  property, plant and
  equipment...............         --         --        101       --         37          --       (119)
 Finance charges..........          44         59        79       176       290          158        85
 Other....................           1          1         5        59       168           87        36
                               -------    -------  --------  --------  --------     --------  --------
Income (loss) before
 income taxes.............        (274)       (35)     (129)   (1,822)    4,349       12,187    18,568
Provision for income
 taxes....................         --         --         56         7       --           --         52
                               -------    -------  --------  --------  --------     --------  --------
Net income (loss).........     $  (274)   $   (35) $   (185) $ (1,829) $  4,349     $ 12,187  $ 18,516
                               =======    =======  ========  ========  ========     ========  ========
Net income (loss) per
 limited partner unit:
 Basic....................                                             $  (0.40)(b)           $   2.94
                                                                       ========               ========
 Diluted..................                                             $  (0.40)(b)           $   2.90
                                                                       ========               ========
Weighted average limited
 partners' units
 outstanding:
 Basic....................                                                5,726 (b)              6,162
                                                                       ========               ========
 Diluted..................                                                5,726 (b)              6,249
                                                                       ========               ========
Balance Sheet Data (end of
 period):
Current assets............     $ 2,282    $ 2,119  $ 11,390  $ 22,199  $ 36,920     $ 31,306  $ 54,049
Total assets..............       8,457     10,230    38,896    68,924   155,653      150,373   273,073
Long-term debt, including
 current portion..........       5,382      5,694    22,337    34,927    54,132       84,398   142,164
Redeemable preferred
 members' interest........         --         --        --     10,896       --        34,313       --
Members' equity/partners'
 capital..................       1,209      2,611     5,269     2,972    72,754       14,453   105,193
Other Financial Data:
EBITDA (unaudited)........     $   449    $   928  $  1,523  $  3,204  $ 17,551     $ 17,795  $ 26,949
Net cash provided by (used
 in) operating
 activities...............         555        362      (774)     (222)    4,659        2,594    10,633
Net cash used in investing
 activities...............      (6,640)      (727)  (13,130)  (12,464)  (64,025)     (60,179)  (88,966)
Net cash provided by
 financing activities.....       6,114        336    14,056    13,907    60,164       59,740    78,637
Maintenance capital
 expenditures(c)
 (unaudited)..............         -- (d)      61       156       283     1,901          551       637
Other Operating Data
 (unaudited):
Retail propane gallons
 sold.....................       4,765      5,612     8,006    18,112    46,750       34,031    60,547
Wholesale propane gallons
 sold.....................         N/A        N/A    24,735   146,644   238,649      161,768   231,079
Reconciliation of Net
 Income (Loss) to EBITDA:
Net income (loss).........     $  (274)   $   (35) $   (185) $ (1,829) $  4,349     $ 12,187  $ 18,516
Plus:
 Income taxes.............         --         --         56         7       --           --         52
 Interest expense.........         398        569       962     2,740     6,670        3,020     3,236
 Depreciation and
  amortization expense....         325        394       690     2,286     6,532        2,588     5,145
                               -------    -------  --------  --------  --------     --------  --------
Less:                              449        928     1,523     3,204    17,551       17,795    26,949
 Interest income..........         --         --        --        --        --           --        --
                               -------    -------  --------  --------  --------     --------  --------
EBITDA....................     $   449    $   928  $  1,523  $  3,204  $ 17,551     $ 17,795  $ 26,949
                               =======    =======  ========  ========  ========     ========  ========

- --------
(a) The historical financial statements include non-cash charges related to
    amortization of deferred compensation of $78,000, $79,000 and $234,000 for
    the years ended September 30, 1999, 2000 and 2001, respectively, and
    $39,000 for the six month period ended March 31, 2001.
(b) Amounts relate to the net loss incurred by Inergy, L.P. and the weighted
    average limited partners' units outstanding for the period from July 31,
    2001 (the closing date of our initial public offering) through September
    30, 2001. See pages F-4 and F-5.
(c) Capital expenditures fall generally into three categories: (1) growth
    capital expenditures, which include expenditures for the purchase of new
    propane tanks and other equipment to facilitate expansion of our retail
    customer base, (2) maintenance capital expenditures, which include
    expenditures for repair and replacement of property, plant and equipment,
    and (3) acquisition capital expenditures.
(d) Maintenance capital expenditures are not available for this period.

                                       46

                                                    Independent Propane
                                                      Company Holdings
                                                 ----------------------------
                                                 Years ended September 30,
                                                 ----------------------------
                                                   1999      2000      2001
                                                 --------  --------  --------
                                                       (in thousands)
                                                            
Statement of Income Data:
Sales........................................... $ 44,990  $ 58,973  $ 76,420
Cost of sales...................................   16,037    28,329    37,761
                                                 --------  --------  --------
Gross profit....................................   28,953    30,644    38,659
Operating expenses:
 Selling, general and administrative............   21,305    21,923    22,322
 Depreciation and amortization..................    5,544     6,883     7,019
                                                 --------  --------  --------
Operating profit................................    2,104     1,838     9,318
 Interest expense, net..........................    5,095     7,394     6,297
                                                 --------  --------  --------
Net income (loss)............................... $ (2,991) $ (5,556) $  3,021
                                                 ========  ========  ========
Balance Sheet Data (end of period):
Current assets.................................. $  7,692  $ 10,639  $ 10,688
Total assets....................................   71,966    75,408    71,078
Long-term debt, including current portion.......   53,412    61,408    54,966
Stockholders' deficit...........................  (21,495)  (31,997)  (34,653)
Other Financial Data:
EBITDA (unaudited).............................. $  7,648  $  8,721  $ 16,337
Net cash provided by operating activities.......    2,927       784    10,099
Net cash used in investing activities...........  (21,834)   (8,054)   (2,997)
Net cash provided by (used in) financing
 activities.....................................   18,763     7,378    (6,908)
Maintenance capital expenditures (a)
 (unaudited)....................................    2,642     1,345     1,316
Other Operating Data (unaudited):
Retail propane gallons sold.....................   43,591    45,141    49,763
Reconciliation of Net Income (Loss) to EBITDA:
Net income (loss)............................... $ (2,991) $ (5,556) $  3,021
Plus:
 Interest expense, net..........................    5,095     7,394     6,297
 Depreciation and amortization expense..........    5,544     6,883     7,019
                                                 --------  --------  --------
                                                    7,648     8,721    16,337
Less:
 Interest income................................      --        --        --
                                                 --------  --------  --------
EBITDA.......................................... $  7,648  $  8,721  $ 16,337
                                                 ========  ========  ========

- --------
(a) Capital expenditures fall generally into three categories: (1) growth
    capital expenditures, which include expenditures for the purchase of new
    propane tanks and other equipment to facilitate expansion of our retail
    customer base, (2) maintenance capital expenditures, which include
    expenditures for repair and replacement of property, plant and equipment,
    and (3) acquisition capital expenditures.

                                       47

                                            Hoosier Propane Group
                                   -------------------------------------------
                                                               Three Months
                                    Years ended September          Ended
                                             30,               December 31,
                                   -------------------------  ----------------
                                    1998     1999     2000     1999     2000
                                   -------  -------  -------  -------  -------
                                                                (unaudited)
                                               (in thousands)
                                                        
Statement of Income Data:
Revenues.......................... $55,740  $43,678  $65,595  $20,780  $31,541
Costs of product sold.............  42,823   28,889   49,049   15,604   25,172
                                   -------  -------  -------  -------  -------
Gross profit......................  12,917   14,789   16,546    5,176    6,369
Expenses:
 Operating and administrative.....   7,617    8,274    9,375    2,493    2,538
 Depreciation and amortization....   1,529    1,690    1,623      389      373
                                   -------  -------  -------  -------  -------
Operating income..................   3,771    4,825    5,548    2,294    3,458
Other income (expense):
 Interest expense.................    (594)    (941)  (1,029)    (287)    (246)
 Interest income..................     239      205      230       32       57
 Gain (loss) on sales of property,
  plant and equipment.............     (43)     (63)      51       17       10
 Other............................     158      130      184       81       90
                                   -------  -------  -------  -------  -------
Net income........................ $ 3,531  $ 4,156  $ 4,984  $ 2,137  $ 3,369
                                   =======  =======  =======  =======  =======
Balance Sheet Data (end of
 period):
Current assets.................... $11,680  $11,431  $ 8,377  $12,408  $18,677
Total assets......................  32,237   36,079   33,117   37,707   43,298
Long-term debt, including current
 portion..........................   7,711    9,543    7,559    9,868    6,268
Stockholders' equity..............  13,910   15,700   16,506   17,479   18,798
Other Financial Data:
EBITDA (unaudited)................ $ 5,415  $ 6,582  $ 7,406  $ 2,781  $ 3,931
Net cash provided by (used in)
 operating activities.............   8,845    1,152    9,274    3,734     (321)
Net cash used in investing
 activities.......................  (4,648)  (4,893)  (1,527)    (615)    (239)
Net cash provided by (used in)
 financing activities.............  (2,640)   2,540   (7,822)  (1,007)   1,569
Maintenance capital expenditures
 (a) (unaudited)..................     968      795      764      198      117
Other Operating Data (unaudited):
Retail propane gallons sold.......  17,440   22,780   22,911    7,228    8,581
Wholesale propane gallons sold....  89,706   63,804   68,801   29,202   23,686
Reconciliation of Net Income to
 EBITDA:
Net income........................ $ 3,531  $ 4,156  $ 4,984  $ 2,137  $ 3,369
Plus:
 Interest expense.................     594      941    1,029      287      246
 Depreciation and amortization
  expense.........................   1,529    1,690    1,623      389      373
                                   -------  -------  -------  -------  -------
                                     5,654    6,787    7,636    2,813    3,988
Less:
 Interest income..................     239      205      230       32       57
                                   -------  -------  -------  -------  -------
EBITDA............................ $ 5,415  $ 6,582  $ 7,406  $ 2,781  $ 3,931
                                   =======  =======  =======  =======  =======

- --------
(a) Capital expenditures fall generally into three categories: (1) growth
    capital expenditures, which include expenditures for the purchase of new
    propane tanks and other equipment to facilitate expansion of our retail
    customer base, (2) maintenance capital expenditures, which include
    expenditures for repair and replacement of property, plant and equipment,
    and (3) acquisition capital expenditures.

                                       48

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

   You should read the following discussion of our financial condition and
results of operations in conjunction with the historical financial statements
included in this prospectus. For more detailed information regarding the basis
of presentation for the following information, you should read the notes to the
historical and pro forma financial statements included in this prospectus.

General

   We are a Delaware limited partnership recently formed to own and operate a
rapidly growing retail and wholesale propane marketing and distribution
business. For the fiscal year ended September 30, 2001, on a pro forma combined
basis we sold approximately 117 million gallons of propane to retail customers
and approximately 262 million gallons of propane to wholesale customers. Our
retail business includes the retail marketing, sale and distribution of
propane, including the sale and lease of propane supplies and equipment, to
residential, commercial, industrial and agricultural customers. In addition to
our retail business, we operate a wholesale supply, marketing and distribution
business, providing propane procurement, transportation, supply and price risk
management services to our customer service centers, as well as to independent
dealers and multistate marketers and, to a lesser extent, selling propane as
standby fuel to industrial end-users.

   The results of operations discussed below are those of Inergy, L.P. on and
after July 31, 2001, the date of the initial public offering, and our
predecessor, Inergy Partners, LLC prior to July 31, 2001. Audited financial
statements for Inergy, L.P. and Inergy Partners, LLC are included elsewhere in
this prospectus.

   Since the inception of our predecessor in November 1996, we have acquired 13
propane companies for an aggregate purchase price of approximately $230
million, including working capital, assumed liabilities and acquisition costs.
For a more detailed description of our predecessor, please read "Guide to
Reading this Prospectus." These acquisitions have significantly increased the
size of our operations over the periods discussed below and, accordingly,
impact the comparability of the financial results presented. Our most recent
acquisitions include:

  . The acquisition of IPC on December 19, 2001. At the time of the
    acquisition, IPC had annual sales of approximately 49.8 million retail
    gallons.

  . The acquisition of Pro Gas on November 1, 2001. At the time of the
    acquisition, Pro Gas had annual sales of approximately 12.4 million
    retail gallons.

  . The acquisition of the Hoosier Propane Group on January 12, 2001,
    effective January 1, 2001. At the time of the acquisition, the Hoosier
    Propane Group had annual sales of approximately 22.9 million retail
    gallons and 68.8 million wholesale gallons.

  . The acquisition of Country Gas Company, Inc. on June 1, 2000. At the time
    of the acquisition, Country Gas had annual sales of approximately 9.9
    million retail gallons.

   On a pro forma basis in the fiscal year ended September 30, 2001, we sold
approximately 72% of our retail gallons to residential customers, 20% to
industrial and commercial customers and 8% to agricultural customers. Sales to
residential customers during that period accounted for approximately 75% of our
pro forma retail gross profit on propane sales, reflecting the higher
profitability of this segment of the business.

   The retail distribution business is largely seasonal due to propane's
primary use as a heating source in residential and commercial buildings. As a
result, cash flows from operations are highest from November through April when
customers pay for propane purchased during the six-month peak heating season of
October through March. On a pro forma basis in the fiscal year ended September
30, 2001, approximately 75% of our retail propane volume and approximately 73%
of our gross profit was attributable to sales during this six-month period. We
generally experience losses in the six-month, off season of April through
September.

                                       49

   Because a substantial portion of our propane is used in the weather-
sensitive residential markets, the temperatures realized in our areas of
operations, particularly during the six-month peak heating season, have a
significant effect on our financial performance. In any given area, warmer-
than-normal temperatures will tend to result in reduced propane use, while
sustained colder-than-normal temperatures will tend to result in greater
propane use. Therefore, we use information on normal temperatures in
understanding how historical results of operations are affected by temperatures
that are colder or warmer than normal and in preparing forecasts of future
operations, which are based on the assumption that normal weather will prevail
in each of our regions. "Heating degree days" are a general indicator of
weather impacting propane usage and are calculated by taking the difference
between 65 degrees and the average temperature of the day (if less than 65
degrees).

   In determining actual and normal weather for a given period of time, we
compare the actual number of heating degree days for such period to the average
number of heating degree days for a longer time period assumed to more
accurately reflect the average normal weather, in each case as such information
is published by the National Oceanic and Atmospheric Administration, for each
measuring point in each of our regions. When we discuss "normal" weather in our
results of operations presented below, we are referring to a 30 year average
consisting of the years 1961 through 1990. We then calculate weighted averages,
based on retail volumes attributable to each measuring point, of actual and
normal heating degree days within each region. Based on this information, we
calculate a ratio of actual heating degree days to normal heating degree days,
first on a regional basis and then on a partnership-wide basis.

   Although we believe that comparing temperature information for a given
period of time to "normal" temperatures is helpful for an understanding of our
results of operations, when comparing variations in weather to changes in total
revenues or operating profit, we draw your attention to the fact that a portion
of our total revenues is not weather-sensitive and other factors such as price,
competition, product supply costs and customer mix also affect the results of
operations. For example, our sales to industrial customers are generally not
sensitive to fluctuations in the weather. Sales to residential customers
ordinarily generate higher margins than sales to other customer groups, such as
commercial or agricultural customers.

   The propane business is a "margin-based" business where the level of
profitability is largely dependent on the difference between sales prices and
product cost. The unit cost of propane is subject to volatile changes as a
result of product supply or other market conditions. Propane unit cost changes
can occur rapidly over a short period of time and can impact margins. There is
no assurance that we will be able to fully pass on product cost increases,
particularly when product costs increase rapidly. We have generally been
successful in passing on higher propane costs to our customers and have
historically maintained or increased our gross margin per gallon in periods of
rising costs. In periods of increasing costs, we have experienced a decline in
our gross profit as a percentage of revenues. In periods of decreasing costs,
we have experienced an increase in our gross profit as a percentage of
revenues. Retail sales generate significantly higher margins than wholesale
sales and sales to residential customers generally generate higher margins than
sales to our other retail customers.

   We believe our wholesale supply, marketing and distribution business
complements our retail distribution business. For the fiscal year ended
September 30, 2001, on a pro forma combined basis, we sold approximately 262
million gallons of propane on a wholesale basis. Although sales to wholesale
customers would have accounted for approximately 69% of our total volumes on a
pro forma basis, such sales would have accounted for only 7% of our pro forma
gross profit from propane sales, reflecting the lower margins our wholesale
business generates. Through our wholesale operations, we also offer price risk
management services to propane retailers and other related businesses through a
variety of financial and other instruments, including:

  . forward contracts involving the physical delivery of propane;

  . swap agreements which require payments to (or receipt of payments from)
    counterparties based on the differential between a fixed and variable
    price for propane; and

  . options, futures contracts on the New York Mercantile Exchange and other
    contractual arrangements.

                                       50

   We purchase a portion of our propane (approximately 50% of a given typical
year's projected propane needs) pursuant to agreements with terms of one year
that contain various pricing formulas. The balance of our propane needs are
satisfied in the spot market. On a pro forma basis, during the fiscal year
ended September 30, 2001, two suppliers each provided approximately 10% of our
propane supplies, and no other single supplier provided more than ten percent
of our total propane supply for the year ended September 30, 2001. On May 1,
2002, we entered into a one-year contract with Sunoco Inc. (R&M) to purchase
all of its propane production at its Toledo, Ohio refinery. Current annual
production at this refinery is 62 million gallons.

   We engage in hedging transactions to reduce the effect of price volatility
on our product costs and to help ensure the availability of propane during
periods of short supply. We attempt to balance our contractual portfolio by
purchasing volumes only when we have a matching purchase commitment from our
wholesale customers. However, we may experience net unbalanced positions from
time to time which we believe to be immaterial in amount. In addition to our
ongoing policy to maintain a balanced position, for accounting purposes we are
required, on an ongoing basis, to track and report the market value of our
purchase obligations and our sales commitments.

   In addition to the revenues we generate from our retail and wholesale
propane operations, we generate additional revenues from truck fabrication and
maintenance as well as from sales of propane appliance and propane service
operations.

Inergy, L.P. and Inergy Partners, LLC

   The results of operations discussed below are those of Inergy, L.P. on and
after July 31, 2001, the date of the initial public offering, and our
predecessor, Inergy Partners, LLC prior to July 31, 2001. Audited and unaudited
financial statements for Inergy, L.P. and Inergy Partners, LLC are included
elsewhere in this prospectus. The results discussed below include the results
of operations of Country Gas beginning on June 1, 2000, the date of its
acquisition, the results of operations of the Hoosier Propane Group beginning
on January 1, 2001, the effective date of its acquisition, the results of
operations of Pro Gas beginning on November 1, 2001, the effective date of its
acquisition, and the results of operations of IPC beginning on December 20,
2001, the effective date of its acquisition. For a more detailed description of
our predecessor, please read "Guide to Reading this Prospectus."

 Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001

   Volume. During the six months ended March 31, 2002, we sold 60.5 million
retail gallons of propane, an increase of 26.5 million gallons, or 78%, from
the 34.0 million retail gallons sold during the six months ended March 31,
2001. The increase in retail sales volume was principally due to the January
2001 acquisition of Hoosier, the November 2001 acquisition of Pro Gas and the
December 2001 acquisition of IPC (in the aggregate, 32.9 million gallons). The
increases associated with these acquisitions were partially offset by weather
that was approximately 18% warmer in the six months ended March 31, 2002 as
compared to the same period in 2001 in our retail areas of operations.

   Wholesale gallon sales increased 69.3 million gallons, or 43%, to 231.1
million gallons in the six months ended March 31, 2002 from 161.8 million
gallons in the six months ended March 31, 2001. This increase was attributable
to the Hoosier acquisition, partially offset by a decrease due to weather that
was approximately 20% warmer in the six months ended March 31, 2002 as compared
to the same period in 2001 in our wholesale areas of operations.

   Revenues. Revenues in the six months ended March 31, 2002 were $164.1
million, a decrease of $6.3 million, or 4%, from $170.4 million of revenues for
the six months ended March 31, 2001. Revenues from retail propane sales were
$66.5 million in the six months ended March 31, 2002, an increase of $18.3
million, or 38%, from $48.2 million for the same six-month period in 2001. This
increase was primarily attributable to

                                       51

acquisition related volume (approximately $33.4 million), partially offset by
lower selling prices of propane (approximately $10.8 million) and volume
decreases (approximately $4.3 million) primarily due to warmer weather in the
six months ended March 31, 2002. Other retail revenues increased approximately
$2.4 million, or 46%, from $5.2 million in the six months ended March 31, 2001
to $7.6 million in the six months ended March 31, 2002 due to acquisitions.
These revenues consist of transportation revenues, tank rentals, heating oil
sales, appliance sales and service. Revenues from wholesale propane sales were
$89.8 million (after elimination of sales to our retail operations) in the six
months ended March 31, 2002, a decrease of $27.2 million, or 23%, from $117.0
million (after elimination of sales to our retail operations) for the six
months ended March 31, 2001. This decrease was attributable to decreased
selling prices as a result of the lower cost of propane.

   Cost of Product Sold. Cost of product sold in the six months ended March 31,
2002 was $113.8 million, a decrease of $27.6 million, or 20%, from cost of
product sold of $141.4 million in the same six-month period in 2001. This
decrease was attributable to an approximate 46% decrease in the average cost of
propane, partially offset by an increase in both wholesale and retail propane
volumes as discussed above.

   Gross Profit. Retail gross profit was $46.9 million in the six months ended
March 31, 2002 compared to $24.3 million in the six months ended March 31,
2001, an increase of $22.6 million, or 93%. This increase was primarily
attributable to an increase in retail gallons sold (approximately $17.9
million) and an increase in margin per gallon (approximately $1.9 million).
Wholesale gross profit was $3.4 million (after elimination of gross profit
attributable to our retail operations) in the six months ended March 31, 2002
compared to $4.8 million (after elimination of gross profit attributable to our
retail operations) in the same six-month period in 2001, a decrease of $1.4
million. This decrease was attributable to a decrease in margin per gallon
partially offset by an increase in wholesale volumes.

   Operating and Administrative Expenses. Operating and administrative expenses
increased $11.8 million, or 103%, to $23.3 million for the six months ended
March 31, 2002 as compared to $11.5 million in the same period in 2001. This
increase resulted from the acquisitions discussed above and, to a lesser
extent, an increase in insurance costs as a result of higher premiums and self
insured retention amounts, and an increase in personnel costs associated with
our growth and the completion of the initial public offering in July 2001.

   Depreciation and Amortization. Depreciation and amortization increased $2.5
million, or 99%, to $5.1 million in the six months ended March 31, 2002 from
$2.6 million in the same six-month period in 2001 primarily as a result of the
Hoosier, Pro Gas and IPC acquisitions.

   Interest Expense. Interest expense increased $0.2 million, or 7%, to $3.2
million in the six months ended March 31, 2002 as compared to $3.0 million for
the six months ended March 31, 2001. This increase is the result of additional
debt outstanding during 2002 as compared to 2001, partially offset by lower
interest rates in 2002.

   Net Income. Net income increased $6.3 million, or 52%, to $18.5 million in
the six months ended March 31, 2002 from $12.2 million in the same six-month
period in 2001. This increase in net income was attributable to the increase in
gross profit partially offset by an increase in operating and administrative
expenses, depreciation and amortization expenses.

   EBITDA. In the six months ended March 31, 2002, EBITDA increased $9.1
million, or 51%, to $26.9 million from $17.8 million in the same period of
fiscal 2001. The increase was primarily attributable to increased sales volumes
partially offset by an increase in operating and administrative expenses.

 Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September
 30, 2000

   Volume. During fiscal 2001, we sold 46.8 million retail gallons of propane,
an increase of 28.7 million gallons, or 158%, from the 18.1 million retail
gallons sold in fiscal 2000. The increase in retail sales volume was
principally due to the acquisitions of Country Gas (7.6 million gallons) and
the Hoosier Propane Group

                                       52

(16.3 million gallons). The remaining 4.8 million gallon increase was
attributable to internal growth and the fact that the year ended September 30,
2001 was approximately 15.8% colder than the year ended September 30, 2000 and
approximately 1.4% colder than normal in our retail areas of operation.

   Wholesale gallon sales increased 92.0 million gallons, or 63%, to 238.6
million gallons in fiscal 2001 from 146.6 million gallons in fiscal 2000. This
increase was attributable to the continued growth of our wholesale sales
operations, which were initiated after the fiscal 1999 winter season, and the
acquisition of the Hoosier Propane Group. In addition, fiscal 2001 was
approximately 8% colder than fiscal 2000 and slightly warmer than normal in our
wholesale areas of operations.

   Revenues. Revenues in fiscal 2001 were $223.1 million, an increase of $129.5
million, or 138%, over $93.6 million of revenues in fiscal 2000. Revenues from
retail propane sales increased $41.7 million, or 221%, from $18.9 million in
fiscal 2000 to $60.6 million in fiscal 2001. This increase was attributable to
the acquisitions of Country Gas ($10.5 million) and the Hoosier Propane Group
($19.9 million) and higher sales prices ($4.6 million), with the remaining
increase ($6.7 million) due to volume increases due to growth and colder
weather in our retail areas of operations. Revenues from wholesale propane
sales increased $81.7 million, or 116%, from $70.1 million (after elimination
of sales to our retail operations) in fiscal 2000 to $151.8 million (after
elimination of sales to our retail operations) in fiscal 2001. Approximately
$23.1 million resulted from increased selling prices and the remaining $58.6
million was attributed to our growth and colder weather described above. Other
retail revenues increased approximately $6.1 million, or 133%, from $4.6
million in fiscal 2000 to $10.7 million in fiscal 2001. This increase was
primarily due to transportation revenues of $6.0 million attributable to the
acquisition of the Hoosier Propane Group. Other retail revenues also consist of
tank rentals, heating oil sales, appliance sales and service.

   Cost of Product Sold. Cost of product sold in fiscal 2001 was $182.6
million, an increase of $101.0 million, or 124%, over fiscal 2000 cost of sales
of $81.6 million. The increase was principally attributable to the significant
increases in wholesale and retail volumes (approximately $75.9 million) and an
approximate 28% increase in the average cost of propane (approximately $21.7
million). In addition, we recorded a charge to cost of product sold in fiscal
2001 of approximately $0.6 million associated with a third party who was
involuntarily petitioned into bankruptcy in December 2001.

   Gross Profit. Retail gross profit was $34.6 million in fiscal 2001 compared
to $10.7 million in fiscal 2000, an increase of $23.9 million, or 223%. This
increase was primarily attributable to higher retail gallons (approximately
$17.4 million) and an increase in margin per gallon (approximately $3.7
million). Wholesale gross profit was $5.9 million (after elimination of gross
profit attributable to our retail operations) in fiscal 2001 compared to $1.3
million (after elimination of gross profit attributable to our retail
operations) in fiscal 2000, an increase of $4.6 million, or 368%. This increase
was attributable to higher wholesale gallon sales in fiscal 2001, including the
acquisition of the wholesale operations within the Hoosier Propane Group
(approximately $2.3 million), and an increase in gross profit per gallon
(approximately $2.3 million).

   Operating and Administrative Expenses. Operating and administrative expenses
were $23.5 million in fiscal 2001 as compared to $9.0 million in fiscal 2000,
an increase of $14.5 million, or 161%. This increase primarily resulted from
acquisitions and personnel costs, including performance incentives accrued as a
result of the increased profitability, with the remaining increase primarily
attributable to higher vehicle fuel and maintenance costs as a result of the
increased retail volumes.

   Depreciation and Amortization. Depreciation and amortization increased $4.2
million, or 186%, to $6.5 million in fiscal 2001 from $2.3 million in fiscal
2000. This increase was primarily a result of the Country Gas and the Hoosier
Propane Group acquisitions, which included property, plant and equipment and
intangible assets of approximately $88.6 million.

                                       53

   Interest Expense. Interest expense increased $4.0 million, or 143%, to $6.7
million in fiscal 2001 from $2.7 million in fiscal 2000. This increase was
primarily a result of the higher average outstanding borrowings in fiscal 2001
over fiscal 2000 associated with the debt incurred in the Country Gas and the
Hoosier Propane Group acquisitions. In addition, included in interest expense
in fiscal 2001 is a charge of $0.5 million associated with the early
termination of an interest rate swap agreement that was terminated by Inergy
Partners, LLC immediately prior to the initial public offering.

   Net Income (Loss). Net income increased $6.1 million to $4.3 million in
fiscal 2001 from a net loss of $1.8 million in fiscal 2000. This increase in
net income was attributable to the increase in gross profit in an amount
greater than the increases in operating and administrative expenses and
depreciation and amortization expense partially offset by an increase in
interest expense as a result of higher average outstanding borrowings
associated with the acquisitions.

   EBITDA. EBITDA increased $14.3 million, or 448%, to $17.5 million in fiscal
2001 from $3.2 million in fiscal 2000. The increase in EBITDA was attributable
to increased retail and wholesale volumes and margin per gallon associated with
our retail and wholesale sales partially offset by increased operating and
administrative expenses.

 Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September
 30, 1999

   Volume. During fiscal 2000, Inergy Partners, LLC sold 18.1 million retail
gallons of propane, an increase of 10.1 million gallons, or 126%, from the 8.0
million retail gallons sold in fiscal 1999. This increase was primarily
attributable to the acquisition of six retail propane distributors during
fiscal 1999 and two retail propane distributors in fiscal 2000 (8.6 million
gallons). The balance of the increase (1.5 million gallons) was attributable to
a winter that was slightly colder in fiscal 2000 than in fiscal 1999 as well as
internal growth. Fiscal 2000 was 17% warmer than normal in our retail areas of
operation.

   Wholesale gallon sales increased 121.9 million gallons, or 493%, to 146.6
million gallons in fiscal 2000 from 24.7 million gallons in fiscal 1999. This
increase was attributable to the growth of our wholesale sales operations,
which were initiated after the fiscal 1999 winter season. Fiscal 2000 was
approximately 11% warmer than normal in our wholesale areas of operations.

   Revenues. Revenues in fiscal 2000 were $93.6 million, an increase of $74.4
million, or 387%, over $19.2 million of revenues in fiscal 1999. Revenues from
retail propane sales increased $12.1 million, or 178%, from $6.8 million in
fiscal 1999 to $18.9 million in fiscal 2000. This increase is attributable to
our retail acquisitions (approximately $7.8 million), higher selling prices
(approximately $3.0 million) and slightly colder weather and internal growth.
Other retail revenues increased approximately $1.6 million, or 53%, to $4.6
million in fiscal 2000 from $3.0 million in fiscal 1999. These revenues consist
of tank rentals, heating oil sales, appliance sales and service and were
attributable to our retail acquisitions in fiscal 1999 and 2000. Revenues from
wholesale propane sales increased $60.7 million, or 650%, from $9.4 million
(after elimination of sales to our retail operations) in fiscal 1999 to $70.1
million (after elimination of sales to our retail operations) in fiscal 2000.
This increase was a result of the growth of our wholesale operations.

   Cost of Product Sold. Cost of product sold in fiscal 2000 was $81.6 million,
an increase of $67.8 million, or 494%, over fiscal 1999 cost of sales of $13.8
million. The increase was attributable to the significant increases in
wholesale and retail volumes and an approximate 29% increase in the average
cost of propane.

   Gross Profit. Retail gross profit was $10.7 million in fiscal 2000 compared
to $4.9 million in fiscal 1999, an increase of $5.8 million, or 120%. This
increase was attributable to higher retail gallons and a slight increase in
margin per gallon. Wholesale gross profit was $1.3 million (after elimination
of gross profit attributable to

                                       54

our retail operations) in fiscal 2000 compared to $0.5 million (after
elimination of gross profit attributable to our retail operations) in fiscal
1999, an increase of $0.8 million, or 148%. This increase was attributable to
higher wholesale gallon sales in fiscal 2000 partially offset by a decrease in
gross profit per gallon.

   Operating and Administrative Expenses. Operating and administrative expenses
were $9.0 million in fiscal 2000 as compared to $4.1 million in fiscal 1999, an
increase of $4.9 million, or 118%. This increase primarily resulted from
acquisitions.

   Depreciation and Amortization. Depreciation and amortization increased $1.6
million, or 231%, to $2.3 million in fiscal 2000 from $0.7 million in fiscal
1999. This increase was attributable to depreciation and amortization of
acquired assets, including intangible assets and, to a lesser extent, the
amortization of acquisition financing costs.

   Net Loss. Net loss increased $1.6 million to $1.8 million in fiscal 2000
from $0.2 million in fiscal 1999. This increase in net loss was primarily
attributable to an increase in interest expense of $1.8 million, most of which
was incurred in connection with acquisitions.

   EBITDA. EBITDA increased $1.7 million, or 110%, to $3.2 million in fiscal
2000 from $1.5 million in fiscal 1999. The increase in EBITDA was attributable
to increased retail and wholesale volumes, largely offset by higher operating
and administrative expenses.

Independent Propane Company

   Our acquisition of IPC was completed effective December 20, 2001. The
audited financial statements of IPC are included in this prospectus.

 Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September
 30, 2000

   Volume. During fiscal 2001, IPC sold 49.8 million retail gallons of propane,
an increase of 4.7 million gallons, or 10%, from the 45.1 million retail
gallons sold in fiscal 2000. During fiscal year 2000, IPC made 9 acquisitions
of small retail propane dealers that accounted for 0.9 million gallons of the
4.7 million gallon increase. The remaining increase in retail sales volume was
principally due to colder than normal weather in IPC's retail areas of
operations and internal growth.

   Sales. Sales in fiscal 2001 were $76.4 million, an increase of $17.4
million, or 30%, over $59.0 million of sales in fiscal 2000. This increase was
attributable to higher sales prices and volume increases due to colder weather
in IPC's retail areas of operations and internal growth.

   Cost of Sales. Cost of sales in fiscal 2001 was $37.8 million, an increase
of $9.5 million, or 33%, over fiscal 2000 cost of sales of $28.3 million. The
increase was attributable to the increases in retail volumes and an increase in
the average cost of propane.

   Gross Profit. Gross profit was $38.7 million in fiscal 2001 compared to
$30.6 million in fiscal 2000, an increase of $8.1 million, or 26%. This
increase was primarily attributable to the increase in retail gallons and an
increase in average propane margin per gallon.

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $22.3 million in fiscal 2001 as compared to $21.9
million in fiscal 2000, an increase of $0.4 million, or 2%. This increase
reflects incremental operating costs primarily resulting from increased labor
costs and vehicle expenses associated with increased gallon volume.

   Depreciation and Amortization. Depreciation and amortization increased $0.1
million to $7.0 million in fiscal 2001 from $6.9 million in fiscal 2000.

                                       55

   Net Income (Loss). Net income increased $8.6 million to $3.0 million in
fiscal 2001 from a net loss of $5.6 million in fiscal 2000. This increase in
net income was attributable to the increase in operating income, and lower
interest cost resulting from lower interest rate and average outstanding
borrowings, offset by slightly increased operating costs.

 Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September
 30, 1999

   Volume. During fiscal 2000, IPC sold 45.1 million retail gallons of propane,
an increase of 1.5 million gallons, or 4%, from the 43.6 million retail gallons
sold in fiscal 1999. This increase was the result of acquisitions, partially
offset by warmer than normal temperatures in IPC's retail areas of operation.
During fiscal year 2000 and fiscal year 1999, IPC made 9 and 21 acquisitions of
small retail propane dealers, respectively.

   Sales. Sales in fiscal 2000 were $59.0 million, an increase of $14.0
million, or 31%, over $45.0 million of sales in fiscal 1999. This increase is
primarily attributable to higher selling prices and acquisitions.

   Cost of Sales. Cost of sales in fiscal 2000 was $28.3 million, an increase
of $12.3 million, or 77%, over fiscal 1999 cost of sales of $16.0 million. The
increase was attributable to the approximate 71% increase in the average cost
of propane.

   Gross Profit. Gross profit was $30.6 million in fiscal 2000 compared to
$29.0 million in fiscal 1999, an increase of $1.6 million, or 6%. This increase
was primarily attributable to an increase in retail gallons sold.

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $21.9 million in fiscal 2000 as compared to $21.3
million in fiscal 1999, an increase of $0.6 million, or 3%. This increase is
primarily the result of incremental operating costs primarily resulting from
increased labor costs and vehicle expenses associated with increased gallon
volume.

   Depreciation and Amortization. Depreciation and amortization increased $1.4
million, or 24%, to $6.9 million in fiscal 2000 from $5.5 million in fiscal
1999. This increase was attributable to the depreciation and amortization of
the assets acquired in acquisitions.

   Net Loss. Net loss increased $2.6 million to $5.6 million in fiscal 2000
from $3.0 million in fiscal 1999. This increase in net loss was primarily
attributable to an increase in interest expense of $2.3 million, most of which
was incurred in connection with acquisitions and an increase in depreciation
and amortization of $1.4 million, partially offset by an increase in operating
income.

Hoosier Propane Group

   Our acquisition of the Hoosier Propane Group was completed effective January
1, 2001. The audited and unaudited financial statements of the Hoosier Propane
Group are included elsewhere in this prospectus.

 Three Months Ended December 31, 2000 Compared to Three Months Ended December
 31, 1999

   Volume. During the three months ended December 31, 2000, the Hoosier Propane
Group sold 8.6 million retail gallons of propane, an increase of 1.4 million
gallons, or 19%, from the 7.2 million retail gallons sold in the same period in
fiscal 1999. This increase was attributable to colder weather and internal
growth.

   The Hoosier Propane Group sold 23.7 million wholesale gallons of propane in
the three months ended December 31, 2000, a decrease of 5.5 million gallons, or
19%, from the 29.2 million wholesale gallons sold in the same period in fiscal
1999. This decrease was attributable to less competitive pricing in the 2000
period due to higher product costs.

                                       56

   Revenues. Revenues in the three months ended December 31, 2000 were $31.5
million, an increase of $10.7 million, or 52%, over $20.8 million of revenues
in the same period of fiscal 1999. This increase was attributable to increased
propane and freight revenues.

   Revenues from propane sales increased $10.1 million, or 53%, to $29.2
million in the three months ended December 31, 2000 from $19.1 million in the
same period in fiscal 1999. This increase was primarily attributable to higher
prices and increased retail volumes, and was partially offset by decreased
wholesale volumes.

   Freight revenues increased $0.6 million, or 49%, to $2.0 million in the
three months ended December 31, 2000 from $1.4 million in the same period in
fiscal 1999. The colder weather in the 2000 period resulted in more deliveries
of propane to independent propane distributors and other contract customers.

   Cost of Product Sold. Cost of product sold in the three months ended
December 31, 2000 was $25.2 million, an increase of $9.6 million, or 61%, over
the 1999 period of $15.6 million. This increase was attributable to a
significant increase in the average cost of propane and increased retail
volumes, partially offset by a decrease in wholesale volumes.

   Gross Profit. Gross profit was $6.4 million in the three months ended
December 31, 2000 compared to $5.2 million in the fiscal 1999 period, an
increase of $1.2 million, or 23%. This increase was attributable to an increase
in retail volumes and margins, partially offset by decreases in wholesale
volumes and margins. The increase in retail gross margin per gallon was
attributable to favorable propane purchases during a period of increasing
retail prices and colder weather in our areas of operation.

   Operating and Administrative Expenses. Operating and administrative expenses
remained constant at $2.5 million, in the three month periods ended December
31, 2000 and 1999.

   Depreciation and Amortization. Depreciation and amortization remained
constant at $0.4 million in the three month periods ended December 31, 2000 and
1999, primarily as a result of maintaining existing assets in 2000 as opposed
to the replacement of these assets.

   Net Income. Net income increased $1.3 million, or 58%, to $3.4 million in
the three months ended December 31, 2000 from $2.1 million in the fiscal 1999
period. This increase was attributable to an increase in operating income while
interest expense and other income remained relatively constant in the fiscal
2000 period as compared to the fiscal 1999 period.

 Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September
 30, 1999

   Volume. During fiscal 2000, the Hoosier Propane Group sold 22.9 million
retail gallons of propane, an increase of 0.1 million gallons from the 22.8
million retail gallons sold in fiscal 1999. This increase was attributable to
fiscal 2000 being 3% colder than fiscal 1999 in the Hoosier Propane Group's
areas of operation and internal growth, partially offset by decreases in
agricultural and commercial volumes resulting from an increased focus on higher
margin sales. Fiscal 2000 was 10% warmer than normal in our area of operations.

   The Hoosier Propane Group sold 68.8 million wholesale gallons of propane in
fiscal 2000, an increase of 5.0 million gallons, or 8%, over the 63.8 million
wholesale gallons sold in fiscal 1999. This increase was attributable to the
favorable sales opportunities and the slightly colder weather in the Hoosier
Propane Group's areas of operation in fiscal 2000 as compared to fiscal 1999.
Wholesale marketing efforts were primarily concentrated in the Southeast and
Midwest where fiscal 2000 temperatures were approximately 10% warmer than
normal.

   Revenues. Revenues in fiscal 2000 were $65.6 million, an increase of $21.9
million, or 50%, over $43.7 million of revenues in fiscal 1999. Increased
propane revenues accounted for approximately $19.9 million of

                                       57

this increase with freight and other revenues increasing approximately $2.0
million from fiscal 1999 to fiscal 2000.

   Revenues from propane sales increased $19.9 million, or 51%, from $38.8
million in fiscal 1999 to $58.7 million in fiscal 2000. This increase was
primarily attributable to higher sales prices and an increase in wholesale
volumes.

   Freight revenues increased $1.2 million, or 25%, to $5.7 million fiscal 2000
from $4.5 million in fiscal 1999 as a result of growth in market share.

   Other revenues increased $0.8 million, or 241%, to $1.2 million in fiscal
2000 from $0.4 million in fiscal 1999 due to increased vehicle service
revenues.

   Cost of Product Sold. Cost of product sold in fiscal 2000 was $49.0 million,
an increase of $20.1 million, or 70%, over the fiscal 1999 cost of product sold
of $28.9 million. This increase was attributable to a significant increase in
the average cost of propane in fiscal 2000 compared to fiscal 1999 and to
increased wholesale volumes in fiscal 2000.

   Gross Profit. Gross profit was $16.5 million in fiscal 2000 compared to
$14.8 million in fiscal 1999, an increase of $1.7 million, or 12%. This
increase was attributable to an increase in retail margins and wholesale
volumes. The increase in retail gross margin per gallon was attributable to an
increased focus on higher margin gallon sales.

   Operating and Administrative Expenses. Operating and administrative expenses
were $9.4 million in fiscal 2000 as compared to $8.3 million in fiscal 1999, an
increase of $1.1 million, or 13%. This increase primarily resulted from
increased labor costs and vehicle expenses associated with higher retail and
wholesale volumes together with growth in freight revenues. In addition, the
increased cost per gallon of vehicle fuel in fiscal 2000 over fiscal 1999
contributed to the increase in vehicle costs.

   Depreciation and Amortization. Depreciation and amortization decreased $0.1
million to $1.6 million in fiscal 2000 from $1.7 million in fiscal 1999.

   Net Income. Net income increased $0.8 million, or 20%, to $5.0 million in
fiscal 2000 from $4.2 million in fiscal 1999. This increase in net income was
attributable to the increase in operating income.

 Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September
 30, 1998

   Volume. During fiscal 1999, the Hoosier Propane Group sold 22.8 million
retail gallons of propane, an increase of 5.4 million gallons, or 31%, from the
17.4 million retail gallons sold in fiscal 1998. At the end of fiscal 1998 and
the beginning of fiscal 1999, the Hoosier Propane Group acquired three retail
propane distributors that accounted for 5.1 million gallons of the 5.4 million
gallon increase in retail propane volume. The remaining 0.3 million gallon
increase in retail volume resulted from internal growth and, to a lesser
extent, slightly colder weather in fiscal 1999 as compared to fiscal 1998.

   During fiscal 1999, the Hoosier Propane Group sold 63.8 million wholesale
gallons, a decrease of 25.9 million gallons, or 29%, from the 89.7 million
wholesale gallons sold in fiscal 1998. The decrease in wholesale volumes is due
in part to the loss of the business of a multi-state retail propane marketer.

   Revenues. Revenues in fiscal 1999 were $43.7 million, a decrease of $12.0
million, or 22%, from $55.7 million in fiscal 1998. Revenues from propane sales
decreased $11.8 million, or 23%, from $50.6 million in fiscal 1998 to $38.8
million in fiscal 1999 primarily due to a decrease in prices. Freight revenues
decreased $0.3 million, or 6%, from $4.8 million in fiscal 1998 to $4.5 million
in fiscal 1999 due to the loss of the business of a multi-state marketer, while
other revenues increased $0.1 million, or 24%, to $0.4 million in fiscal 1999
from $0.3 million in fiscal 1998.

                                       58

   Cost of Product Sold. Cost of product sold in fiscal 1999 was $28.9 million,
a decrease of $13.9 million, or 33%, from fiscal 1998 cost of product sold of
$42.8 million. The decrease in cost of product sold was primarily attributable
to a decrease in the cost of propane per gallon in fiscal 1999 as compared to
fiscal 1998 and, to a lesser extent, decreased wholesale volumes, partially
offset by an increase in retail volumes.

   Gross Profit. Gross profit was $14.8 million in fiscal 1999 compared to
$12.9 million in fiscal 1998, an increase of $1.9 million, or 14%. This
increase was attributable to an increase in retail volumes and margins,
partially offset by a decrease in wholesale volume. The increase in our retail
gross margin per gallon resulted from our focus on higher margin gallon sales.

   Operating and Administrative Expenses. Operating and administrative expenses
were $8.3 million in fiscal 1999 as compared to $7.6 million in fiscal 1998, an
increase of $0.7 million, or 9%. This increase was attributable to increased
personnel costs resulting from acquisitions.

   Depreciation and Amortization. Depreciation and amortization increased $0.2
million, or 11%, to $1.7 million in fiscal 1999 from $1.5 million in fiscal
1998. This increase was primarily attributable to the depreciation of the
assets acquired in acquisitions.

   Net Income. Net income increased $0.7 million, or 18%, to $4.2 million in
fiscal 1999 from $3.5 million in fiscal 1998. This increase in net income was
attributable to the increase in operating income offset by a $0.3 million
increase in acquisition related interest expense.

Liquidity and Capital Resources

 Cash Flows

   Cash flows provided by (used in) operating activities of $4.7 million in
fiscal 2001 consisted primarily of: net income of $4.3 million; net non-cash
charges of $8.1 million, principally related to depreciation and amortization
of $6.5 million associated with our recent acquisitions; and uses of cash of
$7.8 million associated with the changes in operating assets and liabilities,
including net liabilities from price risk management activities. The use of
cash associated with the changes in operating assets and liabilities is
primarily due to the timing effects of the acquisition of the Hoosier Propane
Group which closed in January 2001 and the use of working capital to finance
business growth. Cash used in operating activities was $0.2 million in fiscal
2000 and $0.8 million in fiscal 1999. The uses of cash from operating
activities for these periods are principally due to the net losses incurred of
$1.8 million in fiscal 2000 and $0.2 million in fiscal 1999. These net losses
resulted from the development of management and infrastructure sufficient to
accommodate planned future growth. Depreciation and amortization increased to
$2.3 million in fiscal 2000 from $0.7 million in fiscal 1999 due to the effects
of acquisitions completed in these two years. Net increases in operating assets
and liabilities, including net liabilities from price risk management
activities, required a use of cash amounting to $1.0 million in fiscal 2000 and
$1.4 million in fiscal 1999.

   Cash provided by operating activities was $10.6 million in the six months
ended March 31, 2002 compared to $2.6 million in the six months ended March 31,
2001. The increase in cash provided by operating activities is primarily
attributable to higher net income and depreciation and amortization charges in
the six months ended March 31, 2002 as compared to the six months ended March
31, 2001. Net income increased to $18.5 million for the six months ended March
31, 2002 from $12.2 million for the six months ended March 31, 2001 due to the
effects of the acquisitions completed in fiscal 2002 and the effects of higher
margins per gallon, partially offset by the warmer weather in the 2002 period.
Depreciation and amortization increased to $5.1 million in the six months ended
March 31, 2002 from $2.6 million in the same fiscal 2001 period due to the
effects of acquisitions. The change in operating assets and liabilities,
including net liabilities from price risk management activities, required a use
of cash amounting to $14.4 million in the six months ended March 31, 2002 and
$13.2 million in the same fiscal 2001 period to accommodate increased business
volume.

   Cash used in investing activities was $64.0 million in fiscal 2001, $12.4
million in fiscal 2000 and $13.1 million in fiscal 1999. These amounts were
primarily comprised of: $56.3 million for the acquisition of the

                                       59

Hoosier Propane Group and Bear Man Propane and $3.1 million of costs incurred
in the financing of that acquisition in fiscal 2001; $9.6 million for
acquisitions in fiscal 2000; and $11.4 million for acquisitions in fiscal 1999.
Additionally, we expended $4.8 million in fiscal 2001, $2.3 million in fiscal
2000 and $1.4 million in fiscal 1999, for additions of property and equipment
to accommodate our growing operations.

   Cash used in investing activities was $88.9 million in the six months ended
March 31, 2002 compared to $60.2 million in the six months ended March 31,
2001. The six months ended March 31, 2002 included $84.5 million of cash used
for the IPC and Pro Gas acquisitions and $2.5 million used for capital
expenditures. In addition, the six months ended March 31, 2002 included a use
of $2.0 million for payment of deferred financing costs associated with the
credit facilities used to finance the IPC and Pro Gas acquisitions. The six
months ended March 31, 2001 included $56.3 million used for acquisitions.

   Cash provided by financing activities was $60.2 million in fiscal 2001,
$13.9 million in fiscal 2000 and $14.1 million in fiscal 1999. Cash provided by
financing activities in fiscal 2001, fiscal 2000 and fiscal 1999 included net
borrowings of $14.2 million, $12.6 million and $14.2 million, respectively,
under debt agreements, including borrowings and repayments in conjunction with
the January 2001 and July 2001 refinancings of our credit facilities and
borrowings and repayments of our revolving working capital facility. In
addition, the net proceeds were received from the initial public offering of
$34.3 million in fiscal 2001 and proceeds from the issuance of redeemable
preferred stock amounted to $16.1 million in fiscal 2001 and $1.9 million in
fiscal 2000. Offsetting these cash sources were $2.6 million, $0.5 million and
$0.2 million of distributions paid to holders of Inergy Partners Class A
Preferred Interests in fiscal 2001, fiscal 2000 and fiscal 1999, respectively,
and $1.8 million of cash retained by Inergy Partners at the time of the
conveyance of assets in conjunction with the initial public offering in fiscal
2001.

   Cash provided by financing activities was $78.6 million in the six months
ended March 31, 2002 and $59.7 million in the six months ended March 31, 2001.
The 2002 period included net proceeds from long term debt of $84.4 million
associated with working capital needs and borrowings and repayments related to
amended credit facilities negotiated in connection with acquisitions in that
period. In addition, we received cash of approximately $0.7 million in capital
contributions and paid $6.5 million in distributions to unitholders in the 2002
period. The 2001 period included net proceeds from issuance of long-term debt
of $44.5 million and redeemable preferred members' interest of $16.0 million.

   At March 31, 2002, we had goodwill of $47.1 million, representing
approximately 17% of total assets. This goodwill is attributable to our
acquisitions. We expect recovery of the goodwill through future cash flows
associated with these acquisitions.

 Distributions

   On November 14, 2001, we paid a $.040 per limited partner unit distribution
to unitholders, which totaled $2.3 million. This represented a partial
quarterly distribution for the period from July 31, 2001, the date of our
initial public offering, through September 30, 2001. On February 15, 2002, we
paid a $0.625 per limited partner unit distribution to unitholders, which
totaled $4.1 million. On May 15, 2002, we paid a $0.66 per limited partner unit
distribution to unitholders, which totaled $4.4 million.

                                       60

 Total Contractual Cash and Other Obligations

   The following table summarizes our long-term debt and operating lease
obligations (in thousands) as of March 31, 2002:

                                           Less than   1-3               After
                                   Total    1 year    Years   4-5 Years 5 years
                                  -------- --------- -------- --------- -------
                                                         
Aggregate amount of principal to
 be paid on the outstanding
 long-term debt.................  $142,164  $3,722   $137,559   $ 437    $446
Future minimum lease payments
 under noncancelable operating
 leases.........................     5,196   1,611      2,425   1,044     116
Standby letters of credit.......     2,000   2,000         --      --      --

   As of September 30, 2001, total propane contracts had an outstanding net
fair value of $4.6 million, as compared to total propane contracts outstanding
with a net fair value at March 31, 2002 of $4.3 million. The net change of $0.3
million includes a net decrease in fair value of $1.0 million from contracts
settled during the six-month period, partially offset by a net $0.7 million
increase from other changes in fair value. Of the outstanding fair value as of
March 31, 2002, contracts with a maturity of less than one year totaled $3.9
million, and contracts maturing between one and two years totaled $0.4 million.

 Liquidity Needs

   Our primary short-term liquidity needs are to fund general working capital
requirements while our long-term liquidity needs are primarily associated with
capital expenditures for the growth and maintenance of our existing businesses
together with funding for strategic business acquisitions. Growth capital
expenditures are primarily for the purchase of customer storage tanks while
maintenance capital expenditures are primarily related to repair and
replacement of propane delivery vehicles and maintenance associated with
existing customer installations. Our primary sources of funds for our short-
term liquidity needs will be cash flows from operations and borrowings under a
short-term working capital facility while our long-term sources of funds will
be from long-term bank borrowings and equity or debt financings.

   We believe that anticipated cash from operations and borrowings under our
amended and restated credit facility described below will be sufficient to meet
our liquidity needs for the foreseeable future. If our plans or assumptions
change or are inaccurate, or we make any additional acquisitions, we may need
to raise additional capital. We may not be able to raise additional funds or
may not be able to raise such funds on favorable terms.

Description of Indebtedness

   Upon completion of this offering, we expect our total outstanding long-term
indebtedness (excluding borrowings under our working capital facility) to be
approximately $106.2 million, including approximately $85.0 million of senior
secured notes, approximately $17.6 million under our acquisition facility and
approximately $3.6 million of other indebtedness.

   Bank Credit Facility. In conjunction with the acquisition of IPC, on
December 19, 2001, our operating company, Inergy Propane, entered into a $195
million amended and restated senior secured credit facility with First Union
National Bank and other lenders. The revolving portion of the credit facility
has a term of three years and is guaranteed by us and each subsidiary of Inergy
Propane. The $70 million IPC acquisition term loan portion of the credit
facility had a maturity of April 1, 2003 and was guaranteed by us and each
subsidiary of Inergy Propane. The IPC acquisition term loan was repaid on June
7, 2002 with a portion of the proceeds from the senior secured notes offering.
No amounts may be reborrowed under this term loan. As of June 17, 2002, we had
approximately $52.0 million outstanding under the credit facility, comprised of
approximately $48.5 million outstanding under the revolving acquisition
facility and approximately $3.5 million under the working capital facility.

   The following is a summary of the material terms of the credit facility.

   The credit facility currently consists of a working capital facility in the
aggregate principal amount of up to $50 million and a revolving acquisition
facility in the aggregate principal amount of up to $75 million. The

                                       61

aggregate amount of borrowings under the working capital facility, including
outstanding letters of credit, are subject to a borrowing base requirement
relating to accounts receivable and inventory. During the period from July 1
through December 31, Inergy Propane may borrow up to an additional $12 million
not subject to the borrowing base, however, total borrowings under the working
capital facility cannot exceed $50 million. Up to $10 million of the working
capital facility may be used for the issuance of letters of credit. Each of the
working capital facility and the revolving acquisition facility may be prepaid
and the commitments may be reduced at any time without penalty. Amounts
borrowed and repaid under either the working capital facility or the revolving
acquisition facility may be reborrowed.

   During each fiscal year beginning October 1, 2001, the outstanding balance
of the working capital facility must be reduced to $4 million or less for a
minimum of 30 consecutive days during the period commencing March 1 and ending
September 30 of each calendar year.

   The obligations under the credit facility are secured by first priority
liens on all assets of Inergy Propane and its subsidiaries, the pledge of all
of Inergy Propane's equity interests in its subsidiaries and by a pledge of our
membership interest in Inergy Propane.

   Indebtedness under the credit facility bears interest at the option of
Inergy Propane at either a base rate or LIBOR (preadjusted for reserves), plus
in each case, an applicable margin. The applicable margin varies quarterly
based on Inergy Propane's leverage ratio. Inergy Propane will incur a fee based
on the average daily unused commitments under the credit facility.

   Inergy Propane is required to use 100% of the net cash proceeds (that are
not applied to purchase replacement assets) from asset dispositions (other than
the sale of inventory and motor vehicles in the ordinary course of business) to
reduce borrowings under the credit facility during any fiscal year in which
unapplied net cash proceeds are in excess of $1 million. Any such mandatory
prepayments are applied first to reduce borrowings under the acquisition
facility and then under the working capital facility.

   In addition, the credit facility contains various covenants limiting the
ability of Inergy Propane and its subsidiaries to (subject to various
exceptions), among other things:

  .  grant or incur liens;

  .  incur other indebtedness (other than permitted debt, including the
     senior secured notes which are secured on a pari passu basis);

  .  make investments, loans and acquisitions;

  .  enter into a merger, consolidation or sale of assets;

  .  enter into in any sale-leaseback transaction or enter into any new
     business;

  .  issue or modify the terms of any equity or other securities,

  .  enter into any agreement that conflicts with the credit facility or
     ancillary agreements;

  .  make any change in its principles and methods of accounting as currently
     in effect, except as such changes are permitted by GAAP;

  .  enter into certain affiliate transactions;

  .  pay dividends or make distributions;

  .  permit operating lease obligations to exceed $5 million in any fiscal
     year;

  .  enter into any debt which contains covenants more restrictive than those
     of the credit facility;

                                       62

  .  enter into put agreements granting put rights with respect to equity
     interests of Inergy Propane or its subsidiaries; and

  .  modify their respective organizational documents.

   In addition, Inergy, L.P. is prohibited from incurring indebtedness except
its guarantee of the credit facility.

   Furthermore, the credit facility contains the following financial covenants:

  .  the ratio of consolidated EBITDA (as defined in the credit facility) to
     consolidated interest expense (as defined in the credit facility) must
     be at least 2.5 to 1.0 for any fiscal quarter; and

  .  the ratio of total funded debt (as defined in the credit facility) to
     consolidated EBITDA may not exceed 4.5 to 1.0.

   Each of the following is an event of default under the credit facility:

  .  default in payment of principal when due;

  .  default in payment of interest, fees or other amounts within three days
     of their due date;

  .  violation of specified affirmative and negative covenants;

  .  default in performance or observance of any term, covenant, condition or
     agreement contained in the credit facility or ancillary agreements;

  .  specified cross-defaults;

  .  bankruptcy and other insolvency events of Inergy Propane, its
     subsidiaries or Inergy, L.P.;

  .  impairment of the enforceability or the validity of agreements relating
     to the credit facility;

  .  judgments exceeding $500,000 against Inergy Propane, its subsidiaries or
     Inergy, L.P. are undischarged or unstayed for 30 days;

  .  certain change of control events; and

  .  a condition or event occurs that could have a material adverse effect in
     the reasonable judgment of two-thirds of the credit facility lenders.

   Senior Secured Notes.  Inergy Propane entered into a note purchase agreement
on June 7, 2002 with a group of institutional lenders pursuant to which it
issued $85.0 million aggregate principal amount of senior secured notes with a
weighted average interest rate of 9.07% and a weighted average maturity of 5.9
years. The senior secured notes consist of the following: $35.0 million
principal amount of 8.85% senior secured notes with a 5-year maturity, $25.0
million principal amount of 9.10% senior secured notes with a 6-year maturity,
and $25.0 million principal amount of 9.34% senior secured notes with a 7-year
maturity.

                                       63

   The following is a summary of the material terms of the senior secured
notes.

   The notes represent senior secured obligations of our operating company and
will rank at least pari passu in right of payment with all other present and
future senior indebtedness of our operating company. The notes are secured, on
an equal and ratable basis with the obligations of the operating company under
the credit facility, by (i) a first priority lien on substantially all of the
existing and future assets of the operating company and its current and future
subsidiaries (as defined in the note purchase agreement), (ii) a lien on all of
our existing and future equity and other interests in the operating company and
(iii) a lien on all of the operating company's existing and future equity and
other interests in each of its current and future subsidiaries.

   The senior secured notes are guaranteed by our operating company's
subsidiaries, IPCH Acquisition Corp. and us. The IPCH Acquisition Corp.
guaranty is limited to $35.0 million.

   The senior secured notes are redeemable, at our operating company's option,
at a purchase price equal to 100% of the principal amount together with accrued
interest, plus a make-whole amount determined in accordance with the note
purchase agreement.

   In addition, so long as any of the notes are outstanding or any amounts are
owed by Inergy Propane to any holder of the notes, the note purchase agreement
relating to the notes limits the ability of Inergy Propane and, in certain
cases, its subsidiaries to (subject to various exceptions), among other things:

  . make restricted payments (as defined in the note purchase agreement);

  . grant or incur liens;

  . in the case of subsidiaries, incur debt;

  . make investments, loans and acquisitions;

  . enter into a merger, consolidation, sale of assets, acquisition or
    similar transaction;

  . make certain dispositions of assets;

  . sell or discount receivables;

  . enter into certain affiliate transactions;

  . enter into sale-leaseback transactions involving a fair market value
    exceeding $5.0 million;

  . make any change in its principles and methods of accounting as currently
    in effect, except as such changes are permitted by GAAP;

  . enter into or engage in any business which is not substantially similar
    to that which is currently existing;

  . modify their respective organizational documents;

  . enter into any agreement which would cause a default or an event of
    default or conflict with the agreements governing the notes;

  . in the case of subsidiaries, issue any equity interests;

  . in the case of subsidiaries, permit the sale of or disposal of any equity
    interests or debt;

  . enter into any agreement which contains covenants more restrictive than
    the note purchase agreement;

  . enter into any commodity swap agreement other than in the ordinary course
    of business with a term of less than 24 months; and

  . enter into put agreements granting put rights with respect to the equity
    interests of Inergy Propane or its subsidiaries.

                                       64

   Furthermore, the note purchase agreement contains the following financial
covenants (subject to various exceptions):

  . the ratio of total indebtedness to EBITDA (as defined in the note
    purchase agreement) for the four fiscal quarters most recently ended may
    generally not exceed 4.5 to 1.0; and

  . the ratio of EBITDA to consolidated total interest expense (as defined in
    the note purchase agreement) for the four fiscal quarters most recently
    ended may not be less than 2.5 to 1.0.

   Each of the following is an event of default under the note purchase
agreement:

  . default in payment of principal or make-whole amounts on any senior
    secured note when due;

  . default in payment of any interest on any senior secured note within
    three days of its due date;

  . violation of specified affirmative and negative covenants;

  . a default on any of the terms in the note purchase agreement or ancillary
    agreements that is not timely cured;

  . inaccuracy of representations and warranties made by Inergy Propane and
    affiliated entities;

  . an event that would cause Inergy Propane, its subsidiaries, IPCH
    Acquisition Corp. or Inergy, L.P. to be in default or cause prepayment of
    any of its indebtedness in excess of $1.0 million;

  . bankruptcy and other insolvency events of Inergy Propane, its
    subsidiaries, IPCH Acquisition Corp. or Inergy, L.P.;

  . judgments exceeding $1.0 million against Inergy Propane, its
    subsidiaries, IPCH Acquisition Corp. or Inergy, L.P. are not bonded,
    discharged or stayed within specified time periods;

  . any default and/or violation relating to any of our employee benefit
    plans;

  . the actual or asserted invalidity of a material provision in any of the
    guarantees relating to the notes;

  . the actual or asserted invalidity of a material provision in any of the
    security documents relating to the senior secured notes; and

  . any event of default under any ancillary agreement relating to the senior
    secured notes.

   If an event of default resulting from bankruptcy or other insolvency events
occurs, the senior secured notes will become immediately due and payable. If
any other event of default occurs and is continuing, holders of more than 33
1/3% in principal amount of the outstanding notes may at any time declare all
the notes then outstanding to be immediately due and payable. If an event of
default relating to nonpayment of principal, make-whole amounts or interest
occurs, any holder of outstanding notes affected by such event of default may
declare all the notes held by such holder to be immediately due and payable.

   Intercreditor and Collateral Agency Agreement. In connection with the
execution of the note purchase agreement, Inergy Propane, the lenders under its
credit facility and the initial purchasers of the senior secured notes entered
into an Intercreditor and Collateral Agency Agreement on June 7, 2002. This
agreement appointed Wachovia Bank, N.A. to act as collateral agent and
authorized Wachovia Bank to execute various security documents on behalf of the
lenders under the credit facility and the initial purchasers of the senior
secured notes. This agreement specifies various rights and obligations of
Wachovia Bank and the other parties thereto in respect of the collateral
securing Inergy Propane's obligations under the credit facility and the note
purchase agreement.

Environmental Matters

   Environmental liabilities have not materially impacted our financial
condition, results of operations or liquidity since our inception.

                                       65

Recent Accounting Pronouncements

   In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supercedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of, and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for a disposal of a segment of
a business. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001, with earlier application encouraged. Management has not determined
the method, timing, or impact of adopting SFAS No. 144.

   In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 supercedes APB
Opinion No. 16, Business Combinations, and FASB Statement No. 28, Accounting
for Preacquisition Contingencies of Purchased Enterprises. This statement
requires accounting for all business combination using the purchase method, and
changes the criteria for recognizing intangible assets apart from goodwill.
This statement is effective for all business combinations initiated after June
30, 2001. SFAS No. 142 supercedes APB Opinion No. 17, Intangible Assets, and
addresses how purchased intangibles should be accounted for upon acquisition.
The statement also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. All intangibles will be subject to periodic impairment testing and
will be adjusted to fair value. The adoption of SFAS No. 142 eliminates
goodwill amortization that would have totaled approximately $2.1 million in
fiscal 2002, based on the balances as of September 30, 2001 and totaled
approximately $1.7 million in fiscal 2001. Application of the nonamortization
and impairment provisions of the statement has not significantly impacted our
financial position or results of operations.

Critical Accounting Policies

 Accounting for Price Risk Management

   Through our wholesale operations, we offer price risk management services to
our customers and, in addition, trades for our own account. Financial
instruments utilized in connection with trading activities are accounted for
using the mark-to-market method in accordance with Emerging Issues Task Force
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." Under the mark-to-market method of accounting,
forwards, swaps, options and storage contracts are reflected at fair value,
inclusive of reserves, and are shown in the consolidated balance sheets as
assets and liabilities from price risk management activities. In addition,
inventories for wholesale operations, which consist mainly of liquid propane
commodities, are also stated at market. Unrealized gains and losses from newly
originated contracts, contract restructuring and the impact of price movements
on these financial instruments and wholesale propane inventories are recognized
in cost of products sold. Changes in the assets and liabilities from trading
and price risk management activities result primarily from changes in the
market prices, newly originated transactions and the timing of settlement
relative to the receipt of cash for certain contracts. The market prices used
to value these transactions reflect management's best estimate considering
various factors including closing exchange and over-the-counter quotations,
time value and volatility factors underlying the commitments. The values are
adjusted to reflect the potential impact of liquidating our position in an
orderly manner over a reasonable period of time under present market
conditions. The cash flow impact of financial instruments is reflected as cash
flows from operating activities in the consolidated statements of cash flows.

 Revenue Recognition

   Sales of propane are recognized at the time product is shipped or delivered
to the customer. Revenue from the sale of propane appliances and equipment is
recognized at the time of sale or installation. Revenue from repairs and
maintenance is recognized upon completion of the service.

                                       66

 Impairment of Long-Lived Assets

   We review our long-lived assets, other than goodwill, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such events or changes
in circumstances are present, a loss is recognized if the carrying value of the
asset is in excess of the sum of the undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. An impairment loss is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset. For assets identified to be disposed of in the future,
the carrying value of these assets is compared to the estimated fair value less
the cost to sell to determine if impairment is required. Until the assets are
disposed of, an estimate of the fair value is recalculated when related events
or circumstances change.

   We review goodwill, in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets," for impairment on at least an annual basis by applying a
fair-value-based test. If the fair value of the goodwill is less than the
carrying value, a loss is recognized for the excess of the carrying value over
the fair value of the goodwill.

   In connection with the transitional goodwill impairment evaluation,
Statement No. 142 requires us to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this we identify our reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. To the extent a reporting unit's carrying value exceeds its fair
value, an indication exists that the reporting unit's goodwill may be impaired
and we must perform the second step of the transitional impairment test. In the
second step, we must compare the implied fair value of the goodwill, determined
by allocating the fair value to all of its assets (recognized and unrecognized)
and liabilities in a manner similar to a purchase price allocation in
accordance with SFAS No. 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption.

Quantitative and Qualitative Disclosure About Market Risk

   We have long-term debt and a revolving line of credit subject to the risk of
loss associated with movements in interest rates.

   At March 31, 2002, we had floating rate obligations totaling approximately
$138.2 million for amounts borrowed under our revolving line of credit and
long-term debt. The floating rate obligations expose us to the risk of
increased interest expense in the event of increases in short-term interest
rates. If the floating interest rate were to increase by 100 basis points from
March 31, 2002 levels, our combined interest expense would increase by a total
of approximately $0.1 million per month.

Propane Price Risk

   The propane industry is a "margin-based" business in which gross profits
depend on the excess of sales prices over supply costs. As a result, our
profitability will be sensitive to changes in wholesale prices of propane
caused by changes in supply or other market conditions. When there are sudden
and sharp increases in the wholesale cost of propane, we may not be able to
pass on these increases to our customers through retail or wholesale prices.
Propane is a commodity and the price we pay for it can fluctuate significantly
in response to supply or other market conditions. We have no control over
supply or market conditions. In addition, the timing of cost pass-throughs can
significantly affect margins. Sudden and extended wholesale price increases
could reduce our gross profits and could, if continued over an extended period
of time, reduce demand by encouraging our retail customers to conserve or
convert to alternative energy sources.

                                       67

   We engage in hedging transactions to reduce the effect of price volatility
on our product costs and to help ensure the availability of propane during
periods of short supply. We attempt to balance our contractual portfolio by
purchasing volumes only when we have a matching purchase commitment from our
wholesale customers. However, we may experience net unbalanced positions from
time to time which we believe to be immaterial in amount. In addition to our
ongoing policy to maintain a balanced position, for accounting purposes we are
required, on an ongoing basis, to track and report the market value of our
purchase obligations and our sales commitments.

 Trading Activities

   Through our wholesale operations, we offer price risk management services to
energy related businesses through a variety of financial and other instruments,
including forward contracts involving physical delivery of propane. In
addition, we manage our own trading portfolio using forward, physical and
futures contracts. We attempt to balance our contractual portfolio in terms of
notional amounts and timing of performance and delivery obligations. However,
net unbalanced positions can exist or are established based on assessment of
anticipated short-term needs or market conditions.

   The price risk management services are offered to propane retailers and
other related businesses through a variety of financial and other instruments
including forward contracts involving physical delivery of propane, swap
agreements, which require payments to (or receipt of payments from)
counterparties based on the differential between a fixed and variable price for
propane, options and other contractual arrangements.

   We have recorded our trading activities at fair value in accordance with
EITF No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." EITF No. 98-10 requires energy trading contracts to be
recorded at fair value on the balance sheet, with the changes in fair value
included in earnings.

   We have no negative Enron exposure.

 Notional Amounts and Terms

   The notional amounts and terms of these financial instruments at September
30, 2000 and 2001 include fixed price payor for 1.5 million and 2.5 million
barrels, respectively, and fixed price receiver for 1.5 million and 2.9 million
barrels, respectively. The notional amounts and terms of these financial
instruments at March 31, 2002 include fixed price payor for 3.6 million and
fixed price receiver for 4.2 million barrels.

   Notional amounts reflect the volume of the transactions, but do not
represent the amounts exchanged by the parties to the financial instruments.
Accordingly, notional amounts do not accurately measure our exposure to market
or credit risks.

 Fair Value

   The fair value of the financial instruments related to price risk management
activities as of September 30, 2000 and 2001 was assets of $3.6 million and
$9.2 million, respectively, and liabilities of $2.3 million and $4.6 million,
respectively, related to propane. The fair value of the financial instruments
related to price risk management activities as of March 31, 2002 was assets of
$8.9 million and liabilities of $4.6 million related to propane. All
intercompany transactions have been appropriately eliminated. The market prices
used to value these transactions reflect management's best estimate considering
various factors including closing exchange and over-the-counter quotations,
time value and volatility factors underlying the commitments. The values are
adjusted to reflect the potential impact of liquidating our position in an
orderly manner over a reasonable period of time under present market
conditions.

   The net change in unrealized gains and losses related to trading and price
risk management activities for the years ended September 30, 1999, 2000, and
2001 of $(0.2 million), $1.5 million, and $2.2 million, respectively, and $(1.1
million) and $1.9 million for the six months ended March 31, 2001 and 2002,
respectively, are included in cost of product sold in the Partnership's
consolidated statements of operations.

                                       68

 Market and Credit Risk

   Inherent in the resulting contractual portfolio are certain business risks,
including market risk and credit risk. Market risk is the risk that the value
of the portfolio will change, either favorably or unfavorably, in response to
changing market conditions. Credit risk is the risk of loss from nonperformance
by suppliers, customers or financial counterparties to a contract. We take an
active role in managing and controlling market and credit risk and has
established control procedures, which are reviewed on an ongoing basis. We
monitor market risk through a variety of techniques, including daily reporting
of the portfolio's value to senior management. We attempt to minimize credit
risk exposure through credit policies, periodic monitoring procedures and
obtaining customer deposits on sales contracts. The counterparties associated
with assets from price risk management activities as of March 31, 2002 were
energy marketers.

                                       69

                                    BUSINESS

General

   We own and operate a rapidly growing retail and wholesale propane marketing
and distribution business. Since our predecessor's inception in November 1996,
we have acquired 13 propane companies for an aggregate purchase price of
approximately $230 million, including working capital, assumed liabilities and
acquisition costs. For a more detailed description of our predecessor, please
read "Guide to Reading this Prospectus." For the fiscal year ended September
30, 2001, on a pro forma combined basis we sold approximately 117 million
gallons of propane to retail customers and approximately 262 million gallons of
propane to wholesale customers.

   Our retail business includes the retail marketing, sale and distribution of
propane, including the sale and lease of propane supplies and equipment, to
residential, commercial, industrial and agricultural customers. We market our
propane products under six regional brand names: Bradley Propane, Country Gas,
Hoosier Propane, McCracken, Pro Gas and IPC. We serve approximately 190,000
retail customers in Arkansas, Florida, Georgia, Illinois, Indiana, Michigan,
North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia and
Wisconsin from 99 customer service centers which have an aggregate of
approximately 6.2 million gallons of above-ground propane storage capacity. In
addition to our retail business, we operate a wholesale supply, marketing and
distribution business, providing propane procurement, transportation and supply
and price risk management services to our customer service centers, as well as
to independent dealers and multistate marketers and, to a lesser extent,
selling propane as a standby fuel to industrial end users. We currently provide
wholesale supply and distribution services to approximately 350 customers in 24
states, primarily in the Midwest and Southeast.

   We have grown primarily through acquisitions of propane operations and, to a
lesser extent, through internal growth. Since our initial acquisition of
McCracken Oil & Propane Company in 1996, we have completed twelve additional
acquisitions in North Carolina, Tennessee, Illinois, Indiana, Michigan and
Texas. The following chart sets forth information about each company we have
acquired:

 Acquisition
    Date                       Company(1)                       Location
 -----------                   ----------                       --------
                                                     
November 1996  McCracken Oil & Propane Company, LLC        Wake Forest, NC
December 1998  Wilson Oil Company of Johnston County, Inc. Wilson's Mills, NC
December 1998  Ernie Lee Oil & LP Gas, LLC                 Raleigh, NC
May 1999       Langston Gas & Oil Co., Inc.                Four Oaks, NC
July 1999      Castleberry's, Inc.                         Smithfield, NC
August 1999    Rolesville Gas & Oil Company, Inc.          Raleigh, NC
October 1999   Bradley Propane, Inc.                       Chattanooga, TN
November 1999  Butane-Propane Gas Company of Tenn., Inc.   Marion, TN
June 2000      Country Gas Company, Inc.                   Crystal Lake, IL
November 2000  Bear-Man Propane                            Hixson, TN
January 2001   Hoosier Propane Group                       Kendallville, IN
November 2001  Pro Gas Companies                           Muskegon, MI
December 2001  Independent Propane Company Holdings        Irving, TX

- --------
(1) Name of acquired company as of acquisition date.

Recent Acquisitions

 Independent Propane Company Acquisition and Related Transactions

   In December 2001, we acquired the assets of IPC through an affiliate of our
managing general partner for approximately $96.8 million, including
approximately $7.5 million paid for net working capital.

                                       70

   IPC's principal business is the retail sale of propane, propane appliances
and merchandise and parts and labor throughout its branch network in Texas,
Oklahoma, Arkansas, Tennessee, South Carolina, Georgia, and Florida. For the
twelve months ended September 30, 2001, IPC sold approximately 49.8 million
retail gallons of propane to approximately 116,000 customers through its 44
branches and 24 satellite locations. For the twelve months ended September 30,
2001, IPC sold 74% of its volumes to individual homeowners, 20% to commercial
accounts and 6% to agricultural customers.

   In order to consummate the IPC acquisition, we and several of our affiliates
entered into various transactions. IPCH Acquisition Corp., an affiliate of our
managing general partner, borrowed approximately $27 million under a bridge
facility financed by one of our lenders. $9.6 million of these loan proceeds
was used to acquire 365,019 common units from us. IPCH Acquisition Corp.
utilized these common units to provide a portion of the consideration paid to
some of the former stockholders of IPC's parent corporation, including the
selling unitholders in this offering. The balance of the loan proceeds of
approximately $17.4 million was applied to the purchase price. Immediately
thereafter, IPCH Acquisition Corp. sold, assigned and transferred its interest
in IPC and certain rights under the IPC acquisition agreement and related
escrow agreement to our operating company. In consideration for this sale,
assignment and transfer, we issued to IPCH Acquisition Corp. 394,601 common
units and paid $82.2 million in cash (including $9.6 million of cash received
from the sale of 365,019 common units to IPCH Acquisition Corp.) and our
operating company assumed $2.5 million of notes payable. We also issued 18,252
common units to members of IPC's management, who are current employees of our
operating company, for approximately $0.5 million in cash.

 Pro Gas Acquisition

   In November 2001, we acquired the operations of Pro Gas for approximately
$12.5 million, including working capital. The acquisition included six retail
operations and three satellite bulk storage facilities in Michigan. For the
twelve months ended September 30, 2001, Pro Gas delivered approximately 12.4
million gallons of propane to approximately 12,000 customers.

Industry Background and Competition

   Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative stand-alone energy sources. Our retail propane business
consists principally of transporting propane to our customer service centers
and other distribution areas and then to tanks located on our customers'
premises. Retail propane falls into three broad categories: residential,
industrial and commercial and agricultural. Residential customers use propane
primarily for space and water heating. Industrial customers use propane
primarily as fuel for forklifts and stationary engines, to fire furnaces, as a
cutting gas, in mining operations and in other process applications. Commercial
customers, such as restaurants, motels, laundries and commercial buildings, use
propane in a variety of applications, including cooking, heating and drying. In
the agricultural market, propane is primarily used for tobacco curing, crop
drying, poultry brooding and weed control.

   Propane is extracted from natural gas or oil wellhead gas at processing
plants or separated from crude oil during the refining process. Propane is
normally transported and stored in a liquid state under moderate pressure or
refrigeration for ease of handling in shipping and distribution. When the
pressure is released or the temperature is increased, it is usable as a
flammable gas. Propane is colorless and odorless; an odorant is added to allow
its detection. Propane is clean-burning, producing negligible amounts of
pollutants when consumed.

   The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Approximately 75% of our
retail propane volume is sold during the peak heating season from October
through March. Consequently, sales and operating profits are generated mostly
in the first and fourth calendar quarters of each year.

   According to the American Petroleum Institute, the domestic retail market
for propane is approximately 12.1 billion gallons annually. This represents
approximately 5% of household energy consumption in the

                                       71

United States. Propane competes primarily with natural gas, electricity and
fuel oil as an energy source, principally on the basis of price, availability
and portability. Propane is more expensive than natural gas on an equivalent
BTU basis in locations served by natural gas, but serves as an alternative to
natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Historically, the expansion of natural gas
into traditional propane markets has been inhibited by the capital costs
required to expand pipeline and retail distribution systems. Although the
extension of natural gas pipelines tends to displace propane distribution in
areas affected, we believe that new opportunities for propane sales arise as
more geographically remote neighborhoods are developed. Propane is generally
less expensive to use than electricity for space heating, water heating,
clothes drying and cooking. Although propane is similar to fuel oil in certain
applications and market demand, propane and fuel oil compete to a lesser extent
than propane and natural gas, primarily because of the cost of converting to
fuel oil. The costs associated with switching from appliances that use fuel oil
to appliances that use propane are a significant barrier to switching. By
contrast, natural gas can generally be substituted for propane in appliances
designed to use propane as a principal fuel source.

   In addition to competing with alternative energy sources, we compete with
other companies engaged in the retail propane distribution business.
Competition in the propane industry is highly fragmented and generally occurs
on a local basis with other large full-service multi-state propane marketers,
smaller local independent marketers and farm cooperatives. Based on industry
publications, we believe that the ten largest retailers account for less than
36% of the total retail sales of propane in the United States, and that no
single marketer has a greater than 10% share of the total retail market in the
United States. Most of our customer service centers compete with several
marketers or distributors. Each customer service center operates in its own
competitive environment because retail marketers tend to locate in close
proximity to customers. Our typical customer service center generally has an
effective marketing radius of approximately 25 miles, although in certain rural
areas the marketing radius may be extended by a satellite location.

   The ability to compete effectively further depends on the reliability of
service, responsiveness to customers and the ability to maintain competitive
prices. We believe that our safety programs, policies and procedures are more
comprehensive than many of our smaller, independent competitors and give us a
competitive advantage over such retailers. We also believe that our service
capabilities and customer responsiveness differentiate us from many of these
smaller competitors. Our employees are on call 24-hours and seven-days-a-week
for emergency repairs and deliveries.

   The wholesale propane business is highly competitive. Our competitors in the
wholesale business include producers and independent regional wholesalers. We
believe that our wholesale supply and distribution business provides us with a
stronger regional presence and a reasonably secure, efficient supply base, and
positions us well for expansion through acquisitions or start-up operations in
new markets.

   Retail propane distributors typically price retail usage based on a per
gallon margin over wholesale costs. As a result, distributors generally seek to
maintain their operating margins by passing costs through to customers, thus
insulating themselves from volatility in wholesale propane prices. During
periods of sudden price increases in propane at the wholesale level costs,
distributors may be unable or unwilling to pass entire cost increases through
to customers. In these cases, significant decreases in per gallon margins may
result.

   The propane distribution industry is characterized by a large number of
relatively small, independently owned and operated local distributors. Each
year a significant number of these local distributors have sought to sell their
business for reasons that include retirement and estate planning. In addition,
the propane industry faces increasing environmental regulations and escalating
capital requirements needed to acquire advanced, customer-oriented
technologies. Primarily as a result of these factors, the industry is
undergoing consolidation, and we, as well as other national and regional
distributors, have been active consolidators in the propane market. In recent
years, an active, competitive market has existed for the acquisition of propane
assets and businesses. We expect this acquisition market to continue for the
foreseeable future.

                                       72

Competitive Strengths

   We believe that we are well-positioned to compete in the propane industry.
Our competitive strengths include:

 Proven Acquisition Expertise

   Since our predecessor's inception, we have acquired and successfully
integrated 13 propane companies with an aggregate purchase price of
approximately $230 million, including seven propane distributors since
September 1999. Our executive officers and key employees, who average more than
15 years experience in the propane industry, have developed business
relationships with retail propane owners and businesses throughout the United
States. These significant industry contacts have enabled us to negotiate all of
our acquisitions on an exclusive basis. This acquisition expertise should allow
us to continue to grow through strategic and accretive acquisitions. Our
acquisition program will continue to seek:

  .  businesses in geographical areas experiencing higher-than-average
     population growth,

  .  established names with local reputations for customer service and
     reliability,

  .  high concentration of propane sales to residential customers, and

  .  the retention of key employees in acquired businesses.

 Internal Growth

   We consistently promote internal growth in our retail operations through a
combination of marketing programs and employee incentives. We enjoy strong
relationships with builders, mortgage companies and real estate agents which
enable us to access customers as new residences are built. We also provide
various financial incentives for customers who sign up for our automatic
delivery program, including level payment, fixed price and price cap programs.
We provide all customers with supply, repair and maintenance contracts and 24-
hour customer service. Finally, we have instituted an employee bonus program
and other incentives that foster an entrepreneurial environment by rewarding
employees who expand revenues by attracting new customers while controlling
costs. We intend to continue to aggressively seek new customers and promote
internal growth through local marketing and service programs in our residential
propane business.

 Operations in High Growth Markets

   A majority of our operations are concentrated in higher-than-average
population growth areas, where natural gas distribution is not cost effective.
These markets have experienced strong economic growth which has spurred the
development of sizable, low density and relatively affluent residential
communities which are significant consumers of propane. We intend to pursue
acquisitions in similar high growth markets.

 Regional Branding

   We believe that our success in generating internal growth at our customer
service centers results from our operation under established, locally
recognized trade names. We attempt to capitalize on the reputation of the
companies we acquire by retaining their local brand names and employees,
thereby preserving the goodwill of the acquired business and fostering employee
loyalty and customer retention. Employees at our local branches will continue
to manage our marketing programs, new business development, customer service
and customer billing and collections. Our employee incentive programs encourage
efficiency and allow us to control costs at the corporate and field levels.

 High Percentage of Retail Sales to Residential Customers

   Our retail propane operations concentrate on sales to residential customers.
Residential customers tend to generate higher margins and are generally more
stable purchasers than other customers. For the fiscal year ended September 30,
2001, sales to residential customers represented approximately 72% of our
retail propane

                                       73

gallons sold and approximately 75% of our retail gross profits, on a pro forma
combined basis. Although overall demand for propane is affected by weather and
other factors, we believe that residential propane consumption is not
materially affected by general economic conditions because most residential
customers consider home space heating to be an essential purchase. In addition,
we own approximately 65% of the propane tanks located at our customers' homes.
In many states, fire safety regulations restrict the refilling of a leased tank
solely to the propane supplier that owns the tank. These regulations, which
require customers to switch propane tanks when they switch suppliers, help
enhance the stability of our customer base because of the inconvenience and
costs involved with switching tanks and suppliers.

 Strong Wholesale Supply, Marketing and Distribution Business

   One of our distinguishing strengths is our procurement and distribution
expertise and capabilities. For the fiscal year ended September 30, 2001, on a
pro forma combined basis we sold approximately 262 million gallons of propane
on a wholesale basis to independent dealers and multistate marketers. These
operations are significantly larger on a relative basis than the wholesale
operations of most publicly traded propane businesses. We also provide
transportation services to these distributors through our fleet of transport
vehicles and price risk management services to our customers through a variety
of financial and other instruments. Our wholesale business provides us with
growing revenues as well as valuable market intelligence and awareness of
potential acquisition opportunities. Because we sell on a wholesale basis to
many residential and commercial retailers, we have an ongoing relationship with
a large number of businesses that may be attractive acquisition opportunities
for us. In addition, because of the scale of our wholesale purchases, we
believe that we will have an adequate supply of propane to support our growing
retail operations at prices which are generally available only to large
wholesale purchasers. This purchasing scale and resulting expertise also helps
us avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors. Moreover, the presence of our
trucks serving our wholesale customers across the Midwest and Southeast allows
us to take advantage of various pricing and distribution inefficiencies that
exist in the market from time to time.

 Flexible Financial Structure

   We have a $75.0 million revolving credit facility for acquisitions and a
$50.0 million revolving working capital facility. Upon completion of this
offering, we expect to have available capacity of approximately $57.4 million
under our acquisition facility and approximately $46.5 million under our
working capital facility. We believe our available capacity under these
facilities combined with our ability to fund acquisitions through the issuance
of additional partnership interests will provide us with a flexible financial
structure that will facilitate our acquisition strategy.

   Our primary objective is to increase distributable cash flow for our
unitholders, while maintaining the highest level of commitment and service to
our customers. We intend to pursue this objective by capitalizing on our
competitive strengths.

Retail Operations

   We currently distribute propane to approximately 190,000 retail customers in
14 states from 99 customer service centers. We market propane primarily in
rural areas, but also have a significant number of customers in suburban areas
where energy alternatives to propane such as natural gas are generally not
available.

                                       74

   We market our propane primarily in the Southeast and Midwest regions of the
United States and in Texas through our customer service centers using six
regional brand names. The following table shows our customer service centers by
state:

                                                                    Number of
                                                                    Customer
     State                                                       Service Centers
     -----                                                       ---------------
                                                              
     Arkansas...................................................         1
     Florida....................................................         2
     Georgia....................................................         4
     Illinois...................................................         2
     Indiana....................................................        10
     Michigan...................................................        10
     North Carolina.............................................         9
     Ohio.......................................................         2
     Oklahoma...................................................         6
     South Carolina.............................................         1
     Tennessee..................................................         4
     Texas......................................................        48
                                                                       ---
       Total....................................................        99
                                                                       ===

   From our customer service centers, we also sell, install and service
equipment related to our propane distribution business, including heating and
cooking appliances. Typical customer service centers consist of an office and
service facilities, with one or more 12,000 to 30,000 gallon bulk storage
tanks. Some of our customer service centers also have an appliance showroom. We
have several satellite facilities that typically contain only large capacity
storage tanks. We have approximately 6.2 million gallons of above-ground
propane storage capacity at our customer service centers and satellite
locations.

   Retail deliveries of propane are usually made to customers by means of our
fleet of bobtail and rack trucks. At May 1, 2002, we operated 385 bobtail and
rack trucks. Propane is pumped from the bobtail truck, which generally holds
2,500 to 3,000 gallons, into a stationary storage tank at the customer's
premises. The capacity of these tanks ranges from approximately 100 gallons to
approximately 1,200 gallons, with a typical tank having a capacity of 100 to
300 gallons in milder climates and 500 to 1,000 gallons in colder climates. We
also deliver propane to retail customers in portable cylinders, which typically
have a capacity of five to 35 gallons. These cylinders are picked up and
replenished at our distribution locations, then returned to the retail
customer. To a limited extent, we also deliver propane to certain customers in
larger trucks known as transports, which have an average capacity of
approximately 10,000 gallons. At May 1, 2002, we operated 113 transports. These
customers include industrial customers, large-scale heating accounts and large
agricultural accounts.

   During the fiscal year ended September 30, 2001, on a pro forma basis,
approximately 31% and 69% of our propane sales by volume of gallons sold were
to retail and wholesale customers, respectively. Our retail sales were
comprised of approximately:

  .  72% to residential customers;

  .  20% to industrial and commercial customers; and

  .  8% to agricultural customers.

   Sales to residential customers during the fiscal year ended September 30,
2001, accounted for approximately 75% of our gross profit on retail propane
sales, reflecting the higher-margin nature of this segment of the market. No
single retail customer accounted for more than 1% of our pro forma revenue
during the fiscal year ended September 30, 2001. No single wholesale customer
accounted for more than 5% of our pro forma revenue for the same period.

                                       75

   Nearly half of our residential customers receive their propane supply under
an automatic delivery program. Under the automatic delivery program, we deliver
propane to our heating customers approximately six times during the year. We
determine the amount of propane delivered based on weather conditions and
historical consumption patterns. Our automatic delivery program eliminates the
customer's need to make an affirmative purchase decision, promotes customer
retention by ensuring an uninterrupted supply and enables us to efficiently
route deliveries on a regular basis. We promote this program by offering level
payment billing, discounts, fixed price options and price caps. In addition, we
provide emergency service 24 hours a day, seven days a week, 52 weeks a year.
Approximately 65% of our retail propane customers lease their tanks from us. In
most states, due to fire safety regulations, a leased tank may only be refilled
by the propane distributor that owns that tank. The inconvenience and costs
associated with switching tanks and suppliers greatly reduces a customer's
tendency to change distributors. Our tank lease programs are very valuable to
us from the standpoint of retaining customers and maintaining profitability.

   The propane business is very seasonal with weather conditions significantly
affecting demand for propane. We believe that the geographic diversity of our
areas of operations helps to minimize our exposure to regional weather.
Although overall demand for propane is affected by climate, changes in price
and other factors, we believe our residential and commercial business to be
relatively stable due to the following characteristics: (i) residential and
commercial demand for propane has been relatively unaffected by general
economic conditions due to the largely non-discretionary nature of most propane
purchases by our customers, (ii) loss of customers to competing energy sources
has been low, (iii) the tendency of our customers to remain with us due to the
product being delivered pursuant to a regular delivery schedule and to our
ownership of approximately 65% of the storage tanks utilized by our customers
and (iv) our ability to offset customer losses through internal growth of our
customer base in existing markets. Since home heating usage is the most
sensitive to temperature, residential customers account for the greatest usage
variation due to weather. Variations in the weather in one or more regions in
which we operate, however, can significantly affect the total volumes of
propane we sell and the margins we realize and, consequently, our results of
operations. We believe that sales to the commercial and industrial markets,
while affected by economic patterns, are not as sensitive to variations in
weather conditions as sales to residential and agricultural markets.

Wholesale Supply, Marketing and Distribution Operations

   In addition to our core retail operations, we are also engaged in the
wholesale marketing of propane to independent dealers, multi-state marketers
and, to a lesser extent, local gas utilities that use propane as supplemental
fuel to meet peak demand requirements. We currently provide wholesale supply,
marketing and distribution services to 350 customers in 24 states, primarily in
the Midwest and Southeast. On a pro forma basis, our wholesale supply,
marketing and distribution operations accounted for approximately 69% of total
volumes and 7% of our pro forma gross profit during the fiscal year ended
September 30, 2001.

   One of our distinguishing strengths is our procurement and distribution
expertise and capabilities. For the fiscal year ended September 30, 2001, on a
pro forma combined basis we sold approximately 262 million gallons of propane
on a wholesale basis to independent dealers and multistate marketers. Because
of the size of our wholesale operations, we have developed significant
procurement and distribution expertise. This is partly the result of the unique
background of our management team, which has significant experience in the
procurement aspects of the propane business. We also offer transportation
services to these distributors through our fleet of transport trucks and price
risk management services to our customers through a variety of financial and
other instruments. Our wholesale supply, marketing and distribution business
provides us with a relatively stable and growing income stream as well as
extensive market intelligence and acquisition opportunities. In addition, these
operations provide us with more secure supplies and better pricing for our
customer service centers. Moreover, the presence of our trucks across the
Midwest and Southeast allows us to take advantage of various pricing and
distribution inefficiencies that exist in the market from time to time.

                                       76

Transportation Assets, Truck Fabrication and Maintenance

   Our transportation assets are owned and operated by L&L Transportation, LLC,
a wholly-owned subsidiary of our operating company. The transportation of
propane requires specialized equipment. Propane trucks carry specialized steel
tanks that maintain the propane in a liquefied state. As of May 1, 2002, we
owned a fleet of 32 tractors, 82 transports, 351 bobtail and rack trucks and
249 other service and pick-up trucks. The average age of our trucks is between
six and seven years. In addition to supporting our retail and wholesale propane
operations, our trucks are used to deliver butane and ammonia for third parties
and to distribute natural gas for various processors and refiners.

   We own truck fabrication and maintenance facilities located in Waterloo,
Indiana and additional maintenance facilities in Zephyrhills, Florida. We
believe that our ability to build and maintain the trucks we use in our propane
operations significantly reduces the costs we would otherwise incur in
purchasing and maintaining our fleet of trucks. We also sell a limited number
of trucks to third parties.

Supply

   We obtain propane from over 80 vendors at approximately 80 locations. During
the fiscal year ended September 30, 2001 on a pro forma basis, Louis Dreyfus
Energy Services, L.P. and Dynegy Inc. each accounted for approximately 10% of
our volume of propane purchases. Most of these purchases were made under supply
contracts that have a term of one year, are subject to annual renewal and
provide various pricing formulas. No other single supplier accounted for more
than 10% of our pro forma volume propane purchases for the fiscal year ended
September 30, 2001. On May 1, 2002, we entered into a one-year contract with
Sunoco, Inc. (R&M) to purchase all of its propane production at its Toledo,
Ohio refinery, which is currently 62 million gallons. We believe that our
diversification of suppliers will enable us to purchase all of our supply needs
at market prices if supplies are interrupted from any of the sources without a
material disruption of our operations.

   Approximately 96% of our propane suppliers were domestic suppliers during
the fiscal year ended September 30, 2001 on a pro forma basis. Our remaining
suppliers were in Canada. During the fiscal year ended September 30, 2001, on a
pro forma basis, approximately 46% of our sales volume was purchased pursuant
to contracts that have a term of one year; the balance of our sales volume was
purchased on the spot market. The percentage of our contract purchases varies
from year to year. Supply contracts generally provide for pricing in accordance
with posted prices at the time of delivery or the current prices established at
major storage points, and some contracts include a pricing formula that
typically is based on such market prices. Some of these agreements provide
maximum and minimum seasonal purchase guidelines.

   Propane is generally transported from refineries, pipeline terminals,
storage facilities and marine terminals to our 175 storage facilities. We
accomplish this by using our transports and contracting with common carriers,
owner-operators and railroad tank cars. Our customer service centers and
satellite locations typically have one or more 12,000 to 30,000 gallon storage
tanks, generally adequate to meet customer usage requirements for seven days
during normal winter demand. Additionally, we lease underground storage
facilities from third parties under annual lease agreements.

   We engage in risk management activities in order to reduce the effect of
price volatility on our product costs and to help insure the availability of
propane during periods of short supply. We are currently a party to propane
futures transactions on the New York Mercantile Exchange and to forward and
option contracts with various third parties to purchase and sell propane at
fixed prices in the future. We monitor these activities through enforcement of
our risk management policy.

Pricing Policy

   Our pricing policy is an essential element in our successful marketing of
propane. We base our pricing decisions on, among other things, prevailing
supply costs, local market conditions and local management input.

                                       77

We rely on our regional management to set prices based on these factors. Our
local managers are advised regularly of any changes in the posted prices of our
propane suppliers. We believe our propane pricing methods allow us to respond
to changes in supply costs in a manner that protects our customer base and
gross margins. In some cases, however, our ability to respond quickly to cost
increases could occasionally cause our retail prices to rise more rapidly than
those of our competitors, possibly resulting in a loss of customers.

Billing and Collection Procedures

   We retain our customer billing and account collection responsibilities at
the local level. We believe that this decentralized approach is beneficial for
a number of reasons:

  .  customers are billed on a timely basis;

  .  customers are more apt to pay a local business;

  .  cash payments are received faster; and

  .  local personnel have current account information available to them at
     all times in order to answer customer inquiries.

Properties

   We own 56 of our 99 customer service centers and lease the balance. Our
headquarters in Kansas City, Missouri are leased. We operate bulk storage
facilities at 175 locations and own 118 of the storage locations. We lease
underground storage facilities with an aggregate capacity of approximately 23
million gallons of propane at nine locations under annual lease agreements. We
also lease capacity in seven pipelines pursuant to annual lease agreements.

   Tank ownership and control at customer locations are important components to
our operations and customer retention. As of May 1, 2002, we owned the
following:

  .  286 bulk storage tanks with typical capacities of 12,000 to 30,000
     gallons,

  .  approximately 119,000 stationary customer storage tanks with typical
     capacities of 100 to 1,200 gallons, and

  .  approximately 34,000 portable propane cylinders with typical capacities
     of up to 35 gallons.

   We believe that we have satisfactory title or valid rights to use all of our
material properties. Although some of these properties are subject to
liabilities and leases, liens for taxes not yet due and payable, encumbrances
securing payment obligations under non-competition agreements entered in
connection with acquisitions and immaterial encumbrances, easements and
restrictions, we do not believe that any of these burdens will materially
interfere with our continued use of these properties in our business, taken as
a whole. Our obligations under our borrowings are secured by liens and
mortgages on all of our real and personal property.

   In addition, we believe that we have, or are in the process of obtaining,
all required material approvals, authorizations, orders, licenses, permits,
franchises and consents of, and have obtained or made all required material
registrations, qualifications and filings with, the various state and local
governmental and regulatory authorities which relate to ownership of our
properties or the operations of our business.

Trademark and Tradenames

   We use a variety of trademarks and tradenames which we own, including
"Inergy" and "Inergy Services." We believe that our strategy of retaining the
names of the companies we acquire has maintained the local identification of
such companies and has been important to the continued success of these
businesses. Our most significant trade names are "Bradley Propane," "Country
Gas," "Hoosier Propane," "McCracken,"

                                       78

"Pro Gas" and "IPC." We regard our trademarks, tradenames and other proprietary
rights as valuable assets and believe that they have significant value in the
marketing of our products.

Employees

   As of June 12, 2002, we had 679 full-time employees of which 22 were general
and administrative and 657 were operational employees. We employed 27 part-time
employees, all of whom were operational employees. None of our employees is a
member of a labor union. We believe that our relations with our employees are
satisfactory.

Government Regulation

   We are subject to various federal, state and local environmental, health and
safety laws and regulations related to our propane business as well as those
related to our ammonia and butane transportation operations. Generally, these
laws impose limitations on the discharge of pollutants and establish standards
for the handling of solid and hazardous wastes. These laws generally include
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Clean Air Act, the
Occupational Safety and Health Act, the Emergency Planning and Community Right
to Know Act, the Clean Water Act and comparable state or local statutes.
CERCLA, also known as the "Superfund" law, imposes joint and several liability
without regard to fault or the legality of the original conduct on certain
classes of persons that are considered to have contributed to the release or
threatened release of a hazardous substance into the environment. While propane
is not a hazardous substance within the meaning of CERCLA, other chemicals used
in our operations may be classified as hazardous. These laws and regulations
could result in civil or criminal penalties in cases of non-compliance or
impose liability for remediation costs. We have not received any notices of any
material violations or otherwise incurred any material liability under any of
the above laws and regulations.

   For acquisitions that involve the purchase of real estate, we conduct a due
diligence investigation to attempt to determine whether any substance has been
sold from, or stored on, or released or spilled from any of that real estate
prior to its purchase. This due diligence includes questioning the seller,
obtaining representations and warranties concerning the seller's compliance
with environmental laws and performing site assessments. During this due
diligence our employees, and, in certain cases, independent environmental
consulting firms, review historical records and databases and conduct physical
investigations of the property to look for evidence of hazardous substance
contamination, compliance violations and the existence of underground storage
tanks.

   National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry standard in all of
the states in which we operate. In some states these laws are administered by
state agencies, and in others they are administered on a municipal level.
Regarding the transportation of propane, ammonia and butane by truck, we are
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. We conduct
ongoing training programs to help ensure that our operations are in compliance
with applicable regulations. We maintain various permits that are necessary to
operate some of our facilities, some of which may be material to our
operations. Management believes that the procedures currently in effect at all
of our facilities for the handling, storage and distribution of propane and the
transportation of ammonia and butane are consistent with industry standards and
are in compliance in all material respects with applicable laws and
regulations.

   On August 18, 1997, the U.S. Department of Transportation published its
Final Rule for Continued Operation of the Present Propane Trucks. This final
rule is intended to address perceived risks during the transfer of propane and
required certain immediate changes in industry operating procedures, including
retrofitting all propane delivery trucks. We, as well as the National Propane
Gas Association and the propane

                                       79

industry in general, believe that the Final Rule for Continued Operation of the
Present Propane Trucks cannot practicably be complied with in its current form.
On October 15, 1997, five of the principal multi-state propane marketers, all
of whom were unrelated to us, filed an action against the U.S. Department of
Transportation in the United States District Court for the Western District of
Missouri seeking to enjoin enforcement of the Final Rule for Continued
Operation of the Present Propane Trucks. On February 13, 1998, the Court issued
a preliminary injunction prohibiting the enforcement of this final rule pending
further action by the Court. This suit is still pending. In addition, Congress
passed, and on October 21, 1998, the President of the United States signed, the
FY 1999 Transportation Appropriations Act, which included a provision
restricting the authority of the U.S. Department of Transportation from
enforcing specific provisions of the Final Rule for Continued Operation of the
Present Propane Trucks. At this time, Inergy cannot determine the likely
outcome of the litigation or the proposed legislation or what the ultimate
long-term cost of compliance with the Final Rule for Continued Operation of the
Present Propane Trucks will be to Inergy and the propane industry in general.

   Future developments, such as stricter environmental, health or safety laws
and regulations could affect our operations. It is not anticipated that our
compliance with or liabilities under environmental, health and safety laws and
regulations, including CERCLA, will have a material adverse effect on us. To
the extent that we do not know of any environmental liabilities, or
environmental, health or safety laws, or regulations are made more stringent,
there can be no assurance that our results of operations will not be materially
and adversely affected.

Litigation

   Our operations are subject to all operating hazards and risks normally
incidental to handling, storing, transporting and otherwise providing for use
by consumers of combustible liquids such as propane. As a result, at any given
time we are a defendant in various legal proceedings and litigation arising in
the ordinary course of business. We maintain insurance policies with insurers
in amounts and with coverages and deductibles as the managing general partner
believes are reasonable and prudent. However, we cannot assure that this
insurance will be adequate to protect us from all material expenses related to
potential future claims for personal and property damage or that these levels
of insurance will be available in the future at economical prices. In addition,
the occurrence of an explosion may have an adverse effect on the public's
desire to use our products.

                                       80

                                   MANAGEMENT

Our Managing General Partner Manages Inergy, L.P.

   Our managing general partner manages our operations and activities. Our
managing general partner is not elected by our unitholders and will not be
subject to re-election on a regular basis in the future. Our managing general
partner may be removed by our unitholders under the circumstances described
under "The Partnership Agreement." Unitholders do not directly or indirectly
participate in our management or operation. Please see "The Partnership
Agreement--Limited Liability" for a discussion of actions that might be deemed
to constitute participation in the control of our business. Our managing
general partner owes a fiduciary duty to the unitholders. Our managing general
partner is liable, as a general partner, for all of our debts (to the extent
not paid from our assets), except for specific non recourse indebtedness or
other obligations. Whenever possible, our managing general partner intends to
incur indebtedness or other obligations that are non-recourse.

   Our managing general partner may appoint two independent directors to serve
on a conflicts committee to review specific matters which the board of
directors believes may involve conflicts of interest. A conflicts committee
will determine if the resolution of any conflict of interest submitted to it is
fair and reasonable to us. The members of the conflicts committee must meet the
independence standards to serve on an audit committee of a board of directors
established by the Nasdaq Stock Market and certain other requirements. Any
matters approved by the conflicts committee will be conclusively deemed to be
fair and reasonable to us, approved by all of our partners, and not a breach by
our managing general partner of any duties it may owe us or our unitholders.
For more information relating to conflicts of interest that may arise, please
read "Conflicts of Interest and Fiduciary Responsibilities." Two members of the
board of directors also serve on a compensation committee, which oversees
compensation decisions for the officers of Inergy GP, LLC as well as the
compensation plans described below. The members of the compensation committee
are Richard C. Green, Jr. and David J. Schulte. In addition, three members of
the board of directors serve on an audit committee which reviews our external
financial reporting, recommends engagement of our independent auditors and
reviews procedures for internal auditing and the adequacy of our internal
accounting controls. The members of the audit committee must meet the
independence standards established by the Nasdaq Stock Market. The members of
the audit committee are Warren H. Gfeller, Richard C. Green, Jr. and David J.
Schulte.

   As is commonly the case with publicly-traded limited partnerships, we are
managed and operated by the officers and are subject to the oversight of the
directors of our managing general partner. Effective January 1, 2002 all
employees of our general partners, including our executive officers, became
employees of our operating company.

   The board of directors of the managing general partner is presently composed
of five directors.

Directors and Executive Officers of Inergy GP, LLC

   The following table sets forth certain information with respect to the
executive officers and members of the board of directors of our managing
general partner. Executive officers and directors will serve until their
successors are duly appointed or elected.

Executive Officers and
Directors                 Age    Position with the Managing General Partner
- ----------------------    ---    ------------------------------------------
                        
John J. Sherman.........   47 President, Chief Executive Officer and Director
Phillip L. Elbert.......   44 Executive Vice President--Operations and Director
R. Brooks Sherman,
 Jr. ...................   36 Vice President and Chief Financial Officer
Carl A. Hughes..........   48 Vice President--Business Development
Michael D. Fox..........   45 Vice President--Wholesale Marketing
William C. Gautreaux....   39 Vice President--Supply
Richard C. Green, Jr. ..   47 Director
Warren H. Gfeller.......   49 Director
David J. Schulte........   41 Director

                                       81

 Executive Officers and Directors

   John J. Sherman. Mr. Sherman has been the President, Chief Executive Officer
and a director of our managing general partner since March 2001, and of our
predecessor from 1997 until July 2001. Prior to joining our predecessor, he was
a vice president with Dynegy Inc. from 1996 through 1997. He was responsible
for all downstream propane marketing operations, which at the time were the
country's largest. From 1991 through 1996, Mr. Sherman was the president of LPG
Services Group, Inc., a company he co-founded and grew to become one of the
nation's largest wholesale marketers of propane before Dynegy acquired LPG
Services in 1996. From 1984 through 1991, Mr. Sherman was a vice president and
member of the management committee of Ferrellgas, which is one of the country's
largest retail propane marketers.

   Phillip L. Elbert. Mr. Elbert has served as the Executive Vice President--
Operations of our managing general partner since March 2001. He joined our
predecessor as Executive Vice President--Operations in connection with our
acquisition of the Hoosier Propane Group in January 2001. Mr. Elbert joined the
Hoosier Propane Group in 1992 and was responsible for overall operations,
including Hoosier's retail, wholesale, and transportation divisions. From 1987
through 1992, he was employed by Ferrellgas, serving in a number of management
positions relating to retail, transportation and supply. Prior to joining
Ferrellgas, he was employed by Buckeye Gas Products, a large propane marketer
from 1981 to 1987.

   R. Brooks Sherman, Jr. Mr. Brooks Sherman (no relation to Mr. John Sherman)
has served as the Vice President and Chief Financial Officer of our managing
general partner since March 2001. He joined our predecessor in December 2000 as
Vice President and Chief Financial Officer. From 1999 until joining our
predecessor, he served as chief financial officer of MCM Capital Group. From
1996 through 1999, Mr. Sherman was employed by National Propane Partners, a
publicly traded master limited partnership, first as its controller and chief
accounting officer and subsequently as its chief financial officer. From 1995
to 1996, Mr. Sherman served as chief financial officer for Berthel Fisher & Co.
Leasing Inc. and prior to 1995, Mr. Sherman was in public accounting with Ernst
& Young and KPMG Peat Marwick.

   Carl A. Hughes. Mr. Hughes has served as the Vice President of Business
Development of our managing general partner since March 2001. He joined our
predecessor as Vice President of Business Development in 1998. From 1996
through 1998, he served as a regional manager for Dynegy Inc., responsible for
propane activities in 17 midwest and northeastern states. From 1993 through
1996, Mr. Hughes served as a regional marketing manager for LPG Services Group.
From 1985 through 1992, Mr. Hughes was employed by Ferrellgas where he served
in a variety of management positions.

   Michael D. Fox. Mr. Fox has served as the Vice President of Wholesale
Marketing Operations of our managing general partner since March 2001. He
joined our predecessor in 1998 as Vice President of Wholesale Marketing
Operations. From 1996 through 1998, he served as a regional manager with Dynegy
Inc., responsible for wholesale propane marketing activities in nine
southeastern states. From 1992 through 1996, he served as regional marketing
manager for LPG Services Group, Inc. From 1985 through 1991, Mr. Fox was
employed by Ferrellgas where he served in a variety of sales and marketing
positions.

   William C. Gautreaux. Mr. Gautreaux has served as the Vice President of
Supply of our managing general partner since March 2001. He joined our
predecessor in 1998 as Vice President of Supply. From 1996 through 1998, he
served as a managing director for Dynegy Inc., responsible for bulk natural gas
liquids marketing and risk management. Mr. Gautreaux was a co-founder of LPG
Services Group, Inc. and served as its vice president of supply from 1991
through 1996. From 1985 through 1991, Mr. Gautreaux was employed by Ferrellgas
where he served as a regional manager in the company's wholesale supply
logistics division.

   Richard C. Green, Jr. Mr. Green has been a member of our managing general
partner's board of directors since March 2001. He was a member of our
predecessor's board of directors since January 2001 until July 2001. He
currently serves as chairman and chief executive officer of Aquila, Inc., a
Fortune 100 global energy services company. Mr. Green is currently a special
limited partner of Kansas City Equity Partners and

                                       82

has previously served as its president and chairman of its advisory board. He
also serves as a director of Aquila, Inc., BHA Group, Inc. and Yellow Corp.

   Warren H. Gfeller. Mr. Gfeller has been a member of our managing general
partner's board of directors since March 2001. He was a member of our
predecessor's board of directors since January 2001 until July 2001. He has
engaged in private investments since 1991. From 1985 to 1991, Mr. Gfeller
served as president and chief executive officer of Ferrellgas, Inc., a retail
and wholesale marketer of propane and other natural gas liquids. Mr. Gfeller
began his career with Ferrellgas in 1983 as an executive vice president and
financial officer. He also serves as a director of Zapata Corporation.

   David J. Schulte. Mr. Schulte has been a member of our managing general
partner's board of directors since March 2001. He was a member of our
predecessor's board of directors since January 2001 until July 2001. He has
been a managing director of private equity firm Kansas City Equity Partners
since 1994, focusing on industries undergoing consolidation. Prior to joining
Kansas City Equity Partners, Mr. Schulte was an investment banker with
Fahnestock & Co. from 1988 to 1994. He is a member of the AICPA and the
Missouri Bar Association. He also serves as a director of Elecsys Corp.

Reimbursement of Expenses of the Managing General Partner

   The managing general partner does not receive any management fee or other
compensation for its management of Inergy, L.P. The managing general partner
and its affiliates are reimbursed for expenses incurred on our behalf. These
expenses include the costs of employee, officer and director compensation and
benefits properly allocable to Inergy, L.P. and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, Inergy, L.P.
The partnership agreement provides that the managing general partner will
determine the expenses that are allocable to Inergy, L.P. in any reasonable
manner determined by the managing general partner in its sole discretion.

Compensation of Directors

   Officers of the managing general partner who also serve as directors will
not receive additional compensation. In connection with our initial public
offering, each non-employee director received an option under our long term
incentive plan for 22,200 common units at an exercise price equal to the
initial public offering price. In addition, each director receives cash
compensation of $18,000 per year for attending our regularly scheduled
quarterly board meetings. Each non-employee director receives $1,000 for each
special meeting of the board of directors attended. Non-employee directors
receive $500 per compensation or audit committee meeting attended and $1,000
per conflicts committee meeting attended. Each non-employee director is
reimbursed for out-of-pocket expenses in connection with attending meetings of
the board of directors or committees. Each director is fully indemnified for
actions associated with being a director to the extent permitted under Delaware
law.

                                       83

Executive Compensation

   The following table sets forth for the periods indicated, the compensation
paid or accrued by Inergy, L.P., its predecessor and our managing general
partner to the chief executive officer of our managing general partner and five
other executive officers (collectively, the "named executive officers") for
services rendered to Inergy, L.P. and its subsidiaries.

                                                                     Long Term
                                                                    Compensation
                                     Annual Compensation               Awards
                          ----------------------------------------- ------------
                                                                     Securities
Name and Principal        Fiscal                     Other Annual    Underlying     All Other
Position                   Year  Salary(1)  Bonus   Compensation(2)   Options    Compensation(3)
- ------------------        ------ --------- -------- --------------- ------------ ---------------
                                                               
John. J. Sherman........   2001  $175,000  $200,000     $5,161            --         $   --
 President and Chief       2000  $150,000  $    --      $6,614            --         $   --
 Executive Officer         1999  $150,000  $    --      $  590            --         $   --

Phillip L. Elbert.......   2001  $115,160  $112,500     $7,464         55,500        $   --
 Executive Vice
  President                2000  $    --   $    --      $  --             --         $   --
 Operations                1999  $    --   $    --      $  --             --         $   --

R. Brooks Sherman, Jr...   2001  $ 98,958  $158,333     $  730         27,750        $63,275
 Vice President and        2000  $    --   $    --      $  --             --         $   --
 Chief Financial Officer   1999  $    --   $    --      $  --             --         $   --

Carl A. Hughes..........   2001  $ 97,917  $228,320     $9,212         38,850        $   --
 Vice President--          2000  $ 75,000  $111,159     $9,864            --         $   --
 Business Development      1999  $ 75,000  $    --      $  590            --         $   --

William C. Gautreaux....   2001  $108,542  $244,000     $9,093         27,750        $   --
 Vice President--          2000  $ 80,000  $ 76,411     $7,425            --         $   --
 Supply                    1999  $ 42,000  $    --      $  --             --         $   --

Michael D. Fox..........   2001  $ 97,917  $130,000     $7,719         27,750        $   --
 Vice President--          2000  $ 75,000  $ 37,847     $8,437            --         $   --
 Wholesale Marketing       1999  $ 53,125  $ 24,011     $  --             --         $   --
 Operations

- --------
(1) Salaries for Mr. Phil Elbert and Mr. Brooks Sherman in fiscal 2001
    represent the pro rata portion of their annual salaries from the dates of
    the beginning of their employment with Inergy on January 12, 2001 and
    December 3, 2000, respectively.
(2) Excludes perquisites and other benefits, unless the aggregate amount of
    such compensation is equal to the lesser of either $50,000 or 10% of the
    total of annual salary and bonus reported for the named executive officer.
(3) "All Other Compensation" for Mr. Brooks Sherman in fiscal 2001 represents
    reimbursement of relocation expenses.

                                       84

 Option Grants in Last Fiscal Year

   The following table sets forth information concerning grants of unit options
to the named executive officers for the year ended September 30, 2001:

                                         Individual Grants
                          ------------------------------------------------
                                                                                Potential
                                                                               Realizable
                                                                            Value at Assumed
                                     Percent of                              Annual Rates of
                                       Total                                      Unit
                          Number of   Options                              Price Appreciation
                          Securities Granted to                                    for
                          Underlying Employees  Exercise or                  Option Term (2)
                           Options   in Fiscal   Base Price   Expiration   -------------------
                          Granted(3)    Year    ($/Share)(1)     Date         5%       10%
                          ---------- ---------- ------------ ------------- -------- ----------
                                                                  
John J. Sherman.........       --       --            --               --       --         --
Phillip L. Elbert.......    55,500       18%       $22.00    July 31, 2011 $767,880 $1,945,960
R. Brooks Sherman, Jr...    27,750        9%       $22.00    July 31, 2011 $383,940 $  972,980
Carl. A. Hughes.........    38,850       13%       $22.00    July 31, 2011 $537,516 $1,362,172
William C. Gautreaux....    27,750        9%       $22.00    July 31, 2011 $383,940 $  972,980
Michael D. Fox..........    27,750        9%       $22.00    July 31, 2011 $383,940 $  972,980

- --------
(1) All grants were made at 100% of the fair market value as of the grant date.
(2) The dollar amounts under these columns are the result of calculations at
    the 5% and 10% assumed annual growth rates mandated by the SEC and,
    therefore, are not intended to forecast possible future appreciation, if
    any, in the unit price. The calculations were based on the exercise prices
    and the 10-year term of the options. No gain to the optionees is possible
    without an increase in unit price which will benefit all unitholders
    proportionately.
(3) These options generally vest in proportion to the conversion of senior
    subordinated units into common units and are subject to forfeiture in
    certain cases if the executive officer retires or is terminated for cause
    prior to the expiration of five years from the date of the grant.

 Aggregated Option/SAR Exercises in last Fiscal Year and September 30, 2001
 Option Values

   The following table sets forth information concerning the number and value
of exercisable and unexercisable unit options held by the named executive
officers as of September 30, 2001.

                                                   Number of Securities
                                                        Underlying           Value of Unexercised
                                                  Unexercised Options at    In-the-Money Options at
                                                    September 30, 2001       September 30, 2001(1)
                                                 ------------------------- -------------------------
                         Units Acquired  Value
          Name            on Exercise   Realized Exercisable Unexercisable Exercisable Unexercisable
          ----           -------------- -------- ----------- ------------- ----------- -------------
                                                                     
John J. Sherman.........      --          --         --            --          --             --
Phillip L. Elbert.......      --          --         --         55,500         --        $219,225
R. Brooks Sherman,
 Jr. ...................      --          --         --         27,750         --        $109,613
Carl A. Hughes..........      --          --         --         38,850         --        $153,458
William C. Gautreaux....      --          --         --         27,750         --        $109,613
Michael D. Fox..........      --          --         --         27,750         --        $109,613

- --------
(1) Based on the $25.95 per unit fair market value of our common units on
    September 28, 2001, the last trading day of fiscal 2001, less the option
    exercise price.

                                       85

Employment Agreements

   The following executive officers have entered into employment agreements
with the managing general partner, which were transferred to our operating
company effective January 1, 2002:

  . John J. Sherman, President and Chief Executive Officer;

  . Phillip L. Elbert, Executive Vice President--Retail Operations;

  . R. Brooks Sherman, Jr., Vice President--Chief Financial Officer;

  . Carl A. Hughes, Vice President--Business Development;

  . Michael D. Fox, Vice President--Wholesale Marketing; and

  . William C. Gautreaux, Vice President--Supply Logistics and Risk
    Management.

   The following is a summary of the material provisions of these employment
agreements, copies of which have been filed as exhibits to the registration
statement relating to this prospectus.

   All of these employment agreements are substantially similar, with certain
exceptions as set forth below. Except for Mr. Brooks Sherman, whose employment
agreement is for a term of three years, the employment agreements are for terms
of five years. The annual salaries for these individuals are as follows:

                                                                    
     . John J. Sherman................................................ $250,000
     . Phillip L. Elbert.............................................. $200,000
     . R. Brooks Sherman, Jr.......................................... $150,000
     . Carl A. Hughes................................................. $125,000
     . Michael D. Fox................................................. $125,000
     . William C. Gautreaux........................................... $135,000

   These employees are reimbursed for all expenses in accordance with the
managing general partner's policies. They are also eligible for fringe benefits
normally provided to other members of executive management and any other
benefits agreed to by the managing general partner. Each of these employees is
eligible to participate in the Inergy Long Term Incentive Plan.

   Each of these individuals (other than Mr. John Sherman) is entitled to
performance bonuses ranging from approximately $18,750 to $200,000 upon our
attaining certain levels of distributable cash flow on an annual basis for each
year during the term of his employment.

   The employment agreements provide for additional bonuses conditioned upon
the conversion of subordinated units into common units. Messrs. Fox, Gautreaux
and Hughes will be entitled to bonuses in the amounts of $300,000, $300,000 and
$400,000, respectively, at the end of the subordination period for the junior
subordinated units. Messrs. Brooks Sherman and Elbert will be entitled to
bonuses in the amounts of $200,000 and $500,000, respectively, payable upon,
and in the same proportion as the conversion of senior and junior subordinated
units into common units. Finally, Mr. John Sherman may receive performance
bonuses at the discretion of the board of directors and will be entitled to a
bonus in the amount of $625,000 at the end of the subordination period for the
junior subordinated units.

   Unless waived by the managing general partner, in order for any of these
individuals to receive any benefits under (i) the Inergy Long Term Incentive
Plan, (ii) the performance bonus based on target distributable cash flow, or
(iii) the bonus tied to the expiration of the subordination period for the
junior subordinated units, the individual must have been continuously employed
by the managing general partner or one of our affiliates from the date of his
employment agreement up to the date for determining eligibility to receive such
amounts.

                                       86

   Each employment agreement contains confidentiality and noncompetition
provisions. Also, each employment agreement contains a disclosure and
assignment of inventions clause that requires the employee to disclose the
existence of any invention and assign such employee's right in such invention
to the managing general partner.

   With respect to Mr. John Sherman, Mr. Elbert, Mr. Brooks Sherman, Mr.
Hughes, Mr. Fox and Mr. Gautreaux, in the event that the operating company
terminates such person's employment without cause, the operating company will
be required to continue making payments to such person for the remainder of the
term of such person's employment agreement.

   In addition to his employment agreement, Mr. Elbert has entered into an
option contract with Inergy Holdings whereby Inergy Holdings has granted Mr.
Elbert the right and option to invest in Inergy Holdings an aggregate of
$2,292,000, subject to adjustment, for a percentage interest in Inergy Holdings
equal to 7.7%, subject to adjustment.

Long-Term Incentive Plan

   Inergy Holding's established the Inergy Long-Term Incentive Plan for
directors and consultants of our managing general partner and employees and
consultants of its affiliates who perform services for us. The summary of the
long-term incentive plan contained herein does not purport to be complete but
outlines its material provisions. The long-term incentive plan currently
permits the grant of awards covering an aggregate of 589,000 common units which
are granted in the form of unit options and/or restricted units; however not
more than 192,000 restricted units may be granted under the plan. To date, we
have granted an aggregate of 399,420 unit options pursuant to the Inergy Long-
Term Incentive Plan. We have not granted any restricted units pursuant to the
Long-Term Incentive Plan. The plan is administered by the compensation
committee of the managing general partner's board of directors.

   Restricted Units. A restricted unit is a "phantom" unit that entitles the
grantee to receive a common unit upon the vesting of the restricted unit, or in
the discretion of the compensation committee, the cash equivalent to the value
of a common unit. The compensation committee may make grants under the plan to
employees and directors containing such terms as the compensation committee
shall determine under the plan. In general, restricted units granted to
employees will vest three years from the date of grant; provided, however, that
restricted units will not vest before the conversion of any senior subordinated
units and will only vest upon, and in the same proportion as, the conversion of
senior subordinated units into common units. In addition, the restricted units
will vest upon a change of control of the managing general partner or us.

   If a grantee's employment or membership on the board of directors terminates
for any reason, the grantee's restricted units will be automatically forfeited
unless, and to the extent, the compensation committee provides otherwise.
Common units to be delivered upon the vesting of restricted units may be common
units acquired by the managing general partner in the open market, common units
already owned by the managing general partner, common units acquired by the
managing general partner directly from us or any other person or any
combination of the foregoing. The managing general partner will be entitled to
reimbursement by us for the cost incurred in acquiring common units. If we
issue new common units upon vesting of the restricted units, the total number
of common units outstanding will increase. Following the subordination period,
the compensation committee, in its discretion, may grant tandem distribution
equivalent rights with respect to restricted units. Distribution equivalent
rights entitle the holder to receive "distributions" with respect to the
restricted unit in the same amount as if the holder owned a common unit.

   We intend the issuance of the common units pursuant to the restricted unit
plan to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation of the
common units. Therefore, plan participants will not pay any consideration for
the common units they receive, and we will receive no remuneration for the
units.

                                       87

   Unit Options. The long-term incentive plan currently permits, and our
managing general partner has made, grants of options covering common units.
Pursuant to the plan, the compensation committee determines which employees and
directors shall be granted options and the number of units that will be granted
to such individual. Unit options will have an exercise price equal to the fair
market value of the units on the date of grant. In general, unit options
granted will become exercisable over a period determined by the compensation
committee; provided, however, that with the exception of approximately 28,000
unit options granted under the plan to non-executive officers in exchange for
option grants in our predecessor, unit options will not vest before the
conversion of any senior subordinated units and will only vest upon, and in the
same proportion as, the conversion of senior subordinated units into common
units. In addition, the unit options will become exercisable upon a change of
control of the managing general partner or us. Generally, unit options will
expire after 10 years.

   Upon exercise of a unit option, the managing general partner will acquire
common units in the open market, or directly from us or any other person, or
use common units already owned by the managing general partner, or any
combination of the foregoing. The managing general partner will be entitled to
reimbursement by us for the difference between the cost incurred by the
managing general partner in acquiring these common units and the proceeds
received by the managing general partner from an optionee at the time of
exercise. Thus, the cost of the unit options will be borne by us. If we issue
new common units upon exercise of the unit options, the total number of common
units outstanding will increase and the managing general partner will pay us
the proceeds it received from the optionee upon exercise of the unit options.
The unit option plan has been designed to furnish additional compensation to
employees and directors and to align their economic interests with those of
common unitholders.

   Termination and Amendment. The managing general partner's board of directors
in its discretion may terminate the long-term incentive plan at any time with
respect to any common units for which a grant has not yet been made. The
managing general partner's board of directors also has the right to alter or
amend the long-term incentive plan or any part of the plan from time to time,
including increasing the number of common units with respect to which awards
may be granted subject to unitholder approval as required by the exchange upon
which the common units are listed at that time. However, no change in any
outstanding grant may be made that would materially impair the rights of the
participant without the consent of the participant.

Unit Purchase Plan

   Inergy Holdings established a unit purchase plan for employees of the
managing general partner and its affiliates. The unit purchase plan permits
participants to purchase common units in market transactions, from us, our
general partners or any other person. We currently expect such purchases to
occur primarily in market transactions, although our plan allows us to issue
additional units. We have reserved 50,000 units for purchase under the unit
purchase plan. As determined by the compensation committee, the managing
general partner may match each participant's cash base pay or salary deferrals
by an amount up to 10% of such deferrals and have such amount applied toward
the purchase of additional units. The managing general partner has also agreed
to pay the brokerage commissions, transfer taxes and other transaction fees
associated with a participant's purchase of common units. The maximum amount
that a participant may elect to have withheld from his or her salary or cash
base pay with respect to unit purchases in any calendar year may not exceed 10%
of his or her base salary or wages for the year. Units purchased on behalf of a
participant under the unit purchase plan generally are to be held by the
participant for at least one year. To the extent a participant desires to sell
or dispose of such units prior to the end of this one year holding period, the
participant will be ineligible to participate in the unit purchase plan again
until the one year anniversary of the date of such sale. The unit purchase plan
is intended to serve as a means for encouraging participants to invest in our
common units.

                                       88

                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                AND MANAGEMENT

   The following table shows the beneficial ownership of units of Inergy, L.P.
as of June 18, 2002 held by:

  . each person who beneficially owns more than 5% of any of such units then
    outstanding,

  . each of the named executive officers of our managing general partner,

  . all of the directors of our managing general partner, and

  . all of the directors and executive officers of our managing general
    partner as a group.

                                                                  Percentage of              Percentage of
                                                        Senior       Senior        Junior       Junior
                                       Percentage of Subordinated Subordinated  Subordinated Subordinated  Percentage of
                          Common Units Common Units     Units         Units        Units         Units      Total Units
Name of Beneficial        Beneficially Beneficially  Beneficially Beneficially  Beneficially Beneficially  Beneficially
Owner(1)                     Owned         Owned        Owned         Owned        Owned         Owned         Owned
- ------------------        ------------ ------------- ------------ ------------- ------------ ------------- -------------
                                                                                      
Inergy Holdings, LLC
 (2)....................    404,601        15.5%        961,158       29.0%       507,063        88.6%         28.8%

Country Partners, Inc.
 (3)....................        --          --          409,091       12.3%           --          --            6.3%
 4010 Highway 14
 Crystal Lake, IL
  60014.................

KCEP Ventures II, L.P.
 (4)....................        --          --          395,454       11.9%           --          --            6.1%
 253 West 47th Street
 Kansas City, MO 64112

Hoosier Propane Group
 (5)....................        --          --          336,456       10.2%           --          --            5.2%
 P.O. Box 9
 Kendallville, IN 46755

J.P. Morgan Partners
 (SBIC) LLC ............    314,671        12.0%            --         --             --          --            4.8%
 1221 Avenue of the
 Americas, 39th Floor
 New York, NY 10020

Rocky Mountain Mezzanine
 Fund (6)...............        --          --          241,818        7.3%           --          --            3.7%
 1125 17th Street Suite
  2260
 Denver, CO 80202

John J. Sherman (7).....    404,601        15.5%        961,158       29.0%       507,063        88.6%         28.8%

Phillip L. Elbert (5)...      9,000           *             --         --             --          --              *

R. Brooks Sherman, Jr...      1,000           *             --         --             --          --              *

Carl A. Hughes .........        --          --              --         --             --          --            --

Michael D. Fox .........        --          --              --         --             --          --            --

William C. Gautreaux ...     13,500           *             --         --             --          --              *

Richard C. Green, Jr.
 (8)....................        --          --           31,818        1.0%           --          --              *

Warren H. Gfeller (9)...        --          --            6,364          *            --          --              *

David J. Schulte (4)....        875           *         395,454       11.9%           --          --            6.1%

All directors and
 executive officers as a
 group (9 persons)......    428,976        16.4%      1,394,794       42.1%       507,063        88.6%         35.8%

- --------
  * less than 1%

                                      89

 (1) Unless otherwise indicated, the address of each person listed above is: 2
     Brush Creek Blvd., Kansas City, Missouri 64112. All persons listed have
     sole voting power and investment power with respect to their units unless
     otherwise indicated.
 (2) The senior and junior subordinated units indicated as beneficially owned
     by Inergy Holdings are held by New Inergy Propane, LLC, a wholly-owned
     subsidiary of Inergy Partners, LLC and an indirect subsidiary of Inergy
     Holdings. The common units indicated as beneficially owned by Inergy
     Holdings are held by Inergy Partners, LLC (10,000 units) and IPCH
     Acquisition Corp. (394,601 units), a wholly-owned subsidiary of Inergy
     Holdings.
 (3) Country Partners, Inc. (formerly Country Gas Company, Inc.) is controlled
     by Arlene Peterson and the the estate of Leonard Peterson.
 (4) KCEP Ventures II, LP ("KCEP II") owns 395,454 senior subordinated units.
     KCEP II is a Missouri limited partnership. Mr. Schulte in his capacity as
     a managing director of KCEP II may be deemed to beneficially own these
     units. Mr. Green is a special limited partner in KCEP II. Both Mr. Schulte
     and Mr. Green disclaim beneficial ownership of these units.
 (5) The Hoosier Propane Group consisted of Domex, Inc., Investors, Inc. and
     L&L Leasing, Inc., each of which was merged into DIL, Inc. (collectively,
     the "Hoosier Entities"). Each of Jerry Boman, Glen Cook and Wayne Cook own
     31.8% of the Hoosier Entities. Mr. Elbert, one of our executive officers,
     holds the remaining ownership interest in the Hoosier Entities. He
     disclaims beneficial ownership of the units held by the Hoosier Entities.
 (6) Edward C. Brown in his capacity as managing partner of Rocky Mountain
     Capital Partners, LLP, the general partner of Rocky Mountain Mezzanine
     Fund, may be deemed to beneficially own these units.
 (7) Mr. Sherman holds an ownership interest in and has voting control of
     Inergy Holdings, as indicated in the following table.
 (8) Mr. Green in his capacity as a general partner of RNG Investments, LP, a
     Delaware limited partnership ("RNG Investments"), may be deemed to
     beneficially own 31,818 senior subordinated units held by RNG Investments.
 (9) Mr. Gfeller in his capacity as managing member of Clayton-Hamilton, LLC
     may be deemed to beneficially own 6,364 units held by Clayton-Hamilton.

                                       90

   The following table shows the beneficial ownership as of June 18, 2002 of
Inergy Holdings, LLC of the directors and executive officers of the managing
general partner. As reflected above, Inergy Holdings owns our managing general
partner, non-managing general partner, the incentive distribution rights and,
through a subsidiary, approximately 24% of our outstanding units.

                                                          Inergy Holdings, LLC
     Name of Beneficial Owner (1)                         Percent of Class (2)
     ----------------------------                         --------------------
                                                       
     John J. Sherman.....................................         66.7%
     Phillip L. Elbert(3)................................          --
     R. Brooks Sherman, Jr...............................          --
     Carl A. Hughes......................................          8.3
     Michael D. Fox......................................          8.3
     William C. Gautreaux................................          8.3
     Richard C. Green, Jr. ..............................          --
     Warren H. Gfeller...................................          --
     David J. Schulte....................................          --
     All directors and executive officers as a group (9
      persons) (3).......................................         91.6%

- --------
(1) The address of each person listed above is 2 Brush Creek Blvd., Kansas
    City, Missouri 64112.
(2) The ownership of Inergy Holdings has not been certificated. As of the date
    of this prospectus, voting rights attach only to Mr. John Sherman's
    ownership interest. In the event Mr. John Sherman's ownership fails to
    exceed 50%, the remaining owners of Inergy Holdings will acquire voting
    rights in proportion to the ownership interest.
(3) Mr. Elbert holds an option to acquire 7.7% of Inergy Holdings, which option
    is subject to the terms of the Inergy Holdings, LLC Employee Option Plan.
    The option vests fully at the end of five years and upon a sale of control
    as defined in the plan. The option vests 20% each year in the event Mr.
    Elbert's employment terminates as a result of his death, disability or
    termination without cause (as defined in Mr. Elbert's employment
    agreement). Mr. Elbert's option expires on January 12, 2011. In the event
    Mr. Elbert exercises his option, the respective ownership interests of the
    persons listed above will be reduced on a pro rata basis.

                                       91

                              SELLING UNITHOLDERS

   The following table shows the beneficial ownership of common units held by
the selling unitholders as of June 18, 2002 and to be held following the
offering. Each of the selling unitholders acquired its common units in
connection with the IPC acquisition. Please read "Business--Recent
Acquisitions."

                                       Common Units               Common Units
                                    Beneficially Owned            Beneficially
                                      Prior to this     Units    Owned Following
                                         Offering      Offered    this Offering
                                    ------------------    in    -----------------
                                            Percentage   this          Percentage
Name of Selling Unitholder          Number    Owned    Offering Number   Owned
- --------------------------          ------- ---------- -------- ------ ----------
                                                        
JP Morgan Partners (SBIC), LLC....  314,671   12.0%    314,671      --    0.0%
 1221 Avenue of the Americas
 39th Floor
 New York, NY 10020

Heller Financial, Inc. ...........   12,587     *       12,587      --    0.0%
 500 West Monroe Street
 17th Floor
 Chicago, IL 60661

Triad Ventures Limited II, L.P. ..   12,587     *        6,031   6,556     *
 4600 Post Oak Place
 No. 100
 Houston, TX 77027

Summit Capital Inc. ..............   10,069     *        4,825   5,244     *
 600 Travis
 Suite 6110
 Houston, TX 77002

Stephen Boane.....................      378     *          378      --    0.0%
 9333 Memorial Drive
 Suite 116
 Houston, TX 77024

Daniel C. Arnold .................      352     *          352      --    0.0%
 1001 Fannin Street
 Suite 720
 Houston, TX 77002

The CapStreet Group, LLC(1).......      315     *          151     164     *
 600 Travis
 Suite 6110
 Houston, TX 77002

                                    -------   -----    -------  ------    ----
  Total...........................  350,959   13.4%    338,995  11,964     *
                                    =======   =====    =======  ======    ====

- --------
*  less than 1%
(1) Formerly Summit Capital Group, LLC.

                                       92

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Party Transactions

   1999 KCEP Investment. On December 31, 1999, KCEP Ventures II, L.P. ("KCEP
II") acquired a preferred interest in a predecessor entity of Inergy, L.P., for
$2.0 million in cash ("KCEP II 1999 Investment"). David Schulte, one of our
directors, holds voting power in KCEP II. Richard Green, one of our directors,
is a limited partner of KCEP II. Under the terms of its investment in us, KCEP
II's preferred interest automatically converted into 204,545 senior
subordinated units concurrently with the closing of our initial public
offering. As a result of favorable conversion terms, there was a beneficial
conversion feature associated with the KCEP II 1999 Investment. Further,
pursuant to the terms of the KCEP II 1999 Investment, KCEP II has the right to
elect one member of the board of directors of our managing general partner
until certain events related to subordination occur. David Schulte is currently
serving as KCEP II's board designee. The terms of this investment also provide
for certain limited registration rights which are described below.

   Country Gas Acquisition. On June 1, 2000, a predecessor entity of Inergy,
L.P. acquired all of the propane assets of Country Gas Company, Inc. for a
purchase price of approximately $18.6 million. The consideration paid in
respect of the purchase price consisted of approximately $9.6 million in cash
and assumed liabilities and a $9.0 million preferred interest in a predecessor
entity. Under the terms of its preferred interest, Country Gas exchanged its
preferred interest for 409,091 senior subordinated units concurrently with the
closing of our initial public offering.

   As a result of the Country Gas acquisition, we lease three properties from
Country Enterprises, an Illinois general partnership ("Country Enterprises").
Country Enterprises is controlled by Arlene Peterson and the estate of Leonard
Peterson, the controlling shareholders of Country Partners (formerly Country
Gas). The leases provide for aggregate monthly payments of $16,000 through June
30, 2001 and $14,000 thereafter, and are subject to adjustment based on the
consumer price index. During the fiscal year ended September 30, 2001, we paid
Country Enterprises an aggregate of $186,000 in respect of these leases. In
addition, we pay for all utilities, taxes, insurance and normal maintenance on
these properties. Each lease has an initial term of five years expiring on May
31, 2005. We have the right to extend each lease for one successive term of
five years.

   2001 Investor Group. On January 12, 2001, a predecessor entity of Inergy,
L.P. sold preferred interests to various investors (the "2001 Investor Group"),
including KCEP II, RNG Investments, L.P. and Clayton-Hamilton, LLC for $15
million in cash. KCEP II invested, as part of the 2001 Investor Group, $3.0
million in our predecessor. Mr. Schulte, one of our directors, is a managing
director of KCEP II. Mr. Green, one of our directors, is a limited partner of
KCEP II and is the managing general partner of RNG Investments. Clayton-
Hamilton is an affiliate of Mr. Gfeller, one of our directors. KCEP II, RNG
Investments and Clayton-Hamilton acquired their preferred interests, for $3.0
million, $500,000 and $100,000, respectively. Concurrently with the closing of
our initial public offering, the preferred interests held by these investors
automatically converted into 190,909, 31,818 and 6,364 senior subordinated
units, respectively. As a result of favorable conversion terms, there was a
beneficial conversion feature associated with the investment of the 2001
Investor Group. As a group, all members of the 2001 Investor Group have the
right to elect one director to the board of directors of our managing general
partner until certain events related to subordination occur. Mr. Green is
currently the board designee of these investors. These investors are also
entitled to registration rights, which are described below.

   On January 12, 2001, our predecessor entered into an Investors Rights
Agreement with the 2001 Investor Group. That agreement provides the members of
the 2001 Investor Group with the following registration rights:

  .  The 2001 Investor Group may demand registration once following each date
     senior subordinated units are converted to common units. This demand, if
     made, must be made with respect to 50% or more of the common units then
     held by the 2001 Investor Group.

                                       93

  .  If we meet the eligibility requirements of Form S-3, then members of the
     2001 Investor Group representing 33 1/3% or more of the common units
     held by the 2001 Investor Group can demand that we file a registration
     statement on Form S-3 to register their common units.

  .  We are not required to effect more than one registration in any twelve-
     month period.

  .  If we file a registration statement (other than one relating to employee
     benefit plans or exchange offers), the members of the 2001 Investor
     Group have piggy-back registration rights subject to limitations
     specified in the Investors Rights Agreement.

  .  The right of the 2001 Investor Group to demand registration of their
     common units expires on the third anniversary of the final subordination
     release date and their right to piggy-back registration rights expires
     on the fifth anniversary of the final subordination release date.

  .  We will bear all costs of any registration exclusive of any underwriting
     discounts or commissions.

   Hoosier Propane Group Acquisition. On January 12, 2001, a predecessor entity
of Inergy, L.P., acquired all of the propane assets of Investors 300, Inc.,
Domex, Inc. and L&L Leasing, Inc. (collectively, the "Hoosier Propane Group"),
for a purchase price of approximately $74.0 million. Mr. Elbert, one of our
executive officers, is a stockholder of the companies comprising the Hoosier
Propane Group. The consideration paid in respect of the purchase price
consisted of approximately $61.6 million in cash and assumed liabilities, a
subordinated promissory note of $5.0 million and a preferred interest in our
predecessor entity of $7.4 million. The subordinated promissory note was repaid
at the closing of this offering. The preferred interest held by the Hoosier
Propane Group was exchanged for 336,456 senior subordinated units concurrently
with our initial public offering.

   IPC Acquisition. In order to consummate the IPC acquisition, we and several
of our affiliates entered into various transactions. IPCH Acquisition Corp., an
affiliate of our managing general partner, borrowed approximately $27 million
under a bridge facility financed by one of our lenders. Approximately $9.6
million of these loan proceeds was used to acquire 365,019 common units from
us. IPCH Acquisition Corp. utilized these common units to provide a portion of
the consideration paid to some of the former stockholders of IPC's parent
corporation, including the selling unitholders in this offering. The balance of
the loan proceeds of approximately $17.4 million was applied to the purchase
price. Immediately thereafter, IPCH Acquisition Corp. sold, assigned and
transferred its interest in IPC and certain rights under the IPC acquisition
agreement and related escrow agreement to our operating company. In
consideration for this sale, assignment and transfer, we issued to IPCH
Acquisition Corp. 394,601 common units, which were valued at $10.4 million, and
paid $82.2 million in cash (including $9.6 million of cash received from the
sale of 365,019 common units to IPCH Acquisition Corp.) and our operating
company assumed $2.5 million of notes payable. We also issued 18,252 common
units to members of IPC's management, who are current employees of our
operating company, for approximately $0.5 million in cash. Each common unit
issued in connection with the IPC transaction was valued at $26.30, the 30-day
average trading price of the common units on Nasdaq immediately prior to
December 19, 2001.

   In connection with the IPC transaction, we entered into a registration
rights agreement with J.P. Morgan Partners (SBIC), LLC, Summit Capital, Inc.,
Heller Financial, Inc. and Triad Ventures Limited, L.P. (the "IPC Investors"),
which provides the IPC Investors with the following registration rights:

  .  We shall use our best efforts to file a shelf registration statement and
     to register the common units issued to former IPC shareholders,
     including the IPC Investors, subject to various conditions and
     limitations specified in the registration rights agreement.

  .  If we file a registration statement, the IPC Investors have piggy-back
     registration rights subject to various conditions and limitations
     specified in the registration rights agreement.

                                       94

  .  The right of the IPC Investors to demand registration of their common
     units expires upon the registration of all common units held by the IPC
     Investors.

  .  We will bear all costs of any registration exclusive of any underwriting
     discounts or commissions.

   On December 19, 2001, Inergy, L.P. entered into a registration rights
agreement with IPCH Acquisition Corp., which provides IPCH Acquisition Corp.
with the following registration rights:

  .  If Inergy, L.P. proposes to register any of its common units or other
     units under applicable securities laws, IPCH Acquisition Corp. will have
     piggy-back registration rights subject to various conditions and
     limitations specified in the registration rights agreement.

  .  The right of IPCH Acquisition Corp. to demand piggy-back registration
     rights of its common units expires upon the registration of all common
     units held by IPCH Acquisition Corp.

  .  We will bear all costs of any registration exclusive of any underwriting
     discounts or commissions.

                                       95

              CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES

Conflicts of Interest

   Conflicts of interest exist and may arise in the future as a result of the
relationships between the general partners and their affiliates (including
Inergy Holdings), on the one hand, and Inergy, L.P. and its limited partners,
on the other hand. The directors and officers of our managing general partner
and the non-managing general partner have fiduciary duties to manage each
general partner in a manner beneficial to its owners. At the same time, the
general partners have a fiduciary duty to manage Inergy, L.P. in a manner
beneficial to Inergy, L.P. and the unitholders.

   The partnership agreement contains provisions that allow our managing
general partner to take into account the interests of parties in addition to
ours in resolving conflicts of interest. In effect, these provisions limit the
general partners' fiduciary duties to the unitholders. The partnership
agreement also restricts the remedies available to unitholders for actions
taken that might, without those limitations, constitute breaches of fiduciary
duty. Whenever a conflict arises between a general partner or its affiliates,
on the one hand, and Inergy, L.P. or any other partner, on the other, the
managing general partner will resolve that conflict. Our managing general
partner may appoint a conflicts committee of at least two independent directors
to review specific matters which the board of directors believes may involve
conflicts of interest. Our managing general partner will not be in breach of
its obligations under the partnership agreement or its duties to us or the
unitholders if the resolution of the conflict is considered to be fair and
reasonable to us. Any resolution is considered to be fair and reasonable to us
if that resolution is:

  .  approved by the conflicts committee, although no party is obligated to
     seek approval of the conflicts committee and the managing general
     partner may adopt a resolution or course of action that has not received
     approval,

  .  on terms no less favorable to us than those generally being provided to
     or available from unrelated third parties, or

  .  fair to us, taking into account the totality of the relationships
     between the parties involved, including other transactions that may be
     particularly favorable or advantageous to us.

   In resolving a conflict, our managing general partner may, unless the
resolution is specifically provided for in the partnership agreement, consider:

  .  the relative interests of the parties involved in the conflict or
     affected by the action,

  .  any customary or accepted industry practices or historical dealings with
     a particular person or entity, and

  .  generally accepted accounting practices or principles and other factors
     it considers relevant, if applicable.

   Conflicts of interest could arise in the situations described below, among
others:

 Actions taken by our managing general partner may affect the amount of cash
 available for distribution to unitholders or accelerate the right to convert
 subordinated units.

   The amount of cash that is available for distribution to unitholders is
affected by decisions of our managing general partner regarding matters,
including:

  .  amount and timing of asset purchases and sales,

  .  cash expenditures,

  .  borrowings,

                                       96

  .  issuance of additional units, and

  .  the creation, reduction or increase of reserves in any quarter.

   In addition, borrowings by Inergy, L.P. and its affiliates do not
constitute a breach of any duty owed by the managing general partner to the
unitholders, including borrowings that have the purpose or effect of:

  .  enabling an affiliate of our managing general partner to receive
     distributions on any subordinated units held by it or the incentive
     distribution rights; or

  .  hastening the expiration of the subordination period.

   The partnership agreement provides that Inergy and our subsidiaries may
borrow funds from our managing general partner and its affiliates. Our
managing general partner and its affiliates may not borrow funds from us, our
operating company or its subsidiaries.

 We reimburse the managing general partner and its affiliates for expenses.

   We reimburse the managing general partner and its affiliates for costs
incurred in managing and operating Inergy, L.P., including costs incurred in
rendering corporate staff and support services to Inergy, L.P. The partnership
agreement provides that the managing general partner will determine the
expenses that are allocable to Inergy, L.P. in any reasonable manner
determined by the managing general partner in its sole discretion.

 The managing general partner intends to limit the liability of the general
 partners regarding Inergy, L.P.'s obligations.

   The managing general partner intends to limit the liability of the general
partners under contractual arrangements so that the other party has recourse
only to Inergy, L.P.'s assets and not against the general partners or their
assets. The partnership agreement provides that any action taken by the
managing general partner to limit its liability or the liability of the non-
managing general partner is not a breach of the managing general partner's
fiduciary duties, even if we could have obtained more favorable terms without
the limitation on liability.

 Common unitholders have no right to enforce obligations of the managing
 general partner and its affiliates under agreements with us.

   Any agreements between Inergy, L.P. on the one hand, and the managing
general partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from Inergy, L.P., the right to enforce the
obligations of the managing general partner and its affiliates in our favor.

 Contracts between us, on the one hand, and the managing general partner and
 its affiliates, on the other, will not be the result of arm's-length
 negotiations.

   The partnership agreement allows the managing general partner to pay itself
or its affiliates for any services rendered, provided these services are
rendered on terms that are fair and reasonable to us. The managing general
partner may also enter into additional contractual arrangements with any of
its affiliates on our behalf. Neither the partnership agreement nor any of the
other agreements, contracts and arrangements between us and the managing
general partner and its affiliates are or will be the result of arm's-length
negotiations. All of these transactions are to be on terms that are fair and
reasonable to Inergy, L.P., however.

   The managing general partner and its affiliates have no obligation to
permit us to use any facilities or assets of the managing general partner and
its affiliates, except as may be provided in contracts entered into
specifically dealing with that use. There is no obligation of the managing
general partner and its affiliates to enter into any contracts of this kind.

                                      97

 Common units are subject to the managing general partner's limited call right.

   The managing general partner may exercise its limited right to call and
purchase common units as provided in the partnership agreement or assign this
right to one of its affiliates or to us. The managing general partner may use
its own discretion, free of fiduciary duty restrictions, in determining whether
to exercise this right. As a result, a common unitholder may have his common
units purchased from him at an undesirable time or price. Please read "The
Partnership Agreement--Limited Call Right."

 We may not choose to retain separate counsel for ourselves or for the holders
 of common units.

   The attorneys, independent accountants and others who perform services for
us have been retained by the managing general partner. Attorneys, independent
accountants and others who perform services for us are selected by the managing
general partner or the conflicts committee and also may perform services for
the managing general partner and its affiliates. We may retain separate counsel
for ourselves or the holders of common units in the event of a conflict of
interest between the managing general partner and its affiliates, on the one
hand, and us or the holders of common units, on the other, depending on the
nature of the conflict. We do not intend to do so in most cases.

 The general partners' affiliates may compete with us.

   The partnership agreement provides that the managing general partner is
restricted from engaging in any business activities other than those incidental
to its ownership of interests in us. Affiliates of the general partners are not
prohibited from engaging in other businesses or activities, including those
that might be in direct competition with us.

 Fiduciary duties owed to unitholders by the general partners are prescribed by
 law and the partnership agreement

   The general partners are accountable to us and our unitholders as
fiduciaries. The Delaware Act provides that Delaware limited partnerships may,
in their partnership agreements, restrict or expand the fiduciary duties owed
by the managing general partner to limited partners and the partnership.

   Our partnership agreement contains various provisions restricting the
fiduciary duties that might otherwise be owed by the managing general partner.
The following is a summary of the material restrictions of the fiduciary duties
owed by our managing general partner to the limited partners:

State-law fiduciary duty
standards..................    Fiduciary duties are generally considered to
                               include an obligation to act with due care and
                               loyalty. The duty of care, in the absence of a
                               provision in a partnership agreement providing
                               otherwise, would generally require a general
                               partner to act for the partnership in the same
                               manner as a prudent person would act on his own
                               behalf. The duty of loyalty, in the absence of
                               a provision in a partnership agreement
                               providing otherwise, would generally prohibit a
                               general partner of a Delaware limited
                               partnership from taking any action or engaging
                               in any transaction where a conflict of interest
                               is present.

                               The Delaware Act generally provides that a
                               limited partner may institute legal action on
                               behalf of the partnership to recover damages
                               from a third party where a general partner has
                               refused to institute the action or where an
                               effort to cause a general partner to do so is
                               not likely to succeed. In addition, the
                               statutory or case law of some jurisdictions may
                               permit a limited partner to institute legal
                               action on behalf of himself and all other
                               similarly situated limited

                                       98

                               partners to recover damages from a general
                               partner for violations of its fiduciary duties
                               to the limited partners.

Partnership agreement
modified standards.........    Our partnership agreement contains provisions
                               that waive or consent to conduct by our general
                               partners and their affiliates that might
                               otherwise raise issues as to compliance with
                               fiduciary duties or applicable law. For
                               example, our partnership agreement permits our
                               managing general partner to make a number of
                               decisions in its "sole discretion." This
                               entitles the managing general partner to
                               consider only the interests and factors that it
                               desires and it has no duty or obligation to
                               give any consideration to any interest of, or
                               factors affecting, us, our affiliates or any
                               limited partner. Other provisions of the
                               partnership agreement provide that the managing
                               general partner's actions must be made in its
                               reasonable discretion.

                               Our partnership agreement generally provides
                               that affiliated transactions and resolutions of
                               conflicts of interest not involving a required
                               vote of unitholders must be "fair and
                               reasonable" to us under the factors previously
                               set forth. In determining whether a transaction
                               or resolution is "fair and reasonable" our
                               managing general partner may consider interests
                               of all parties involved, including its own.
                               Unless our managing general partner has acted
                               in bad faith, the action taken by our managing
                               general partner shall not constitute a breach
                               of its fiduciary duty. These standards reduce
                               the obligations to which our managing general
                               partner would otherwise be held.

                               In addition to the other more specific
                               provisions limiting the obligations of the
                               general partners, our partnership agreement
                               further provides that the general partners and
                               their officers and directors will not be liable
                               for monetary damages to us, the limited
                               partners or assignees for errors of judgment or
                               for any acts or omissions if the general
                               partners and those other persons acted in good
                               faith.

   In order to become one of our limited partners, a common unitholder is
required to agree to be bound by the provisions in the partnership agreement,
including the provisions discussed above. This is in accordance with the policy
of the Delaware Act favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a limited partner or
assignee to sign a partnership agreement does not render the partnership
agreement unenforceable against that person.

   We must indemnify our general partners and their respective officers,
directors, employees, affiliates, partners, members, agents and trustees, to
the fullest extent permitted by law, against liabilities, costs and expenses
incurred by the general partners or these other persons. We must provide this
indemnification if our general partners or these persons acted in good faith
and in a manner they reasonably believed to be in, or (in the case of a person
other than the general partners) not opposed to, our best interests. We also
must provide this indemnification for criminal proceedings if our general
partners or these other persons had no reasonable cause to believe their
conduct was unlawful. Thus, our general partners and their respective
affiliates could be indemnified for their negligent acts if they meet these
requirements concerning good faith and our best interests. Please read "The
Partnership Agreement--Indemnification."

                                       99

                        DESCRIPTION OF THE COMMON UNITS

The Units

   The common units and the subordinated units represent limited partner
interests in us. The holders of units are entitled to participate in
partnership distributions and exercise the rights or privileges available to
limited partners under our partnership agreement. For a description of the
relative rights and preferences of holders of common units and subordinated
units in and to partnership distributions, please read "Cash Distribution
Policy" and "Description of Subordinated Units." For a description of the
rights and privileges of limited partners under our partnership agreement,
including voting rights, please read "The Partnership Agreement."

Transfer Agent and Registrar Duties

 Duties

   American Stock Transfer & Trust Company serves as registrar and transfer
agent for the common units. We pay all fees charged by the transfer agent for
transfers of common units, except the following that must be paid by
unitholders:

  .  surety bond premiums to replace lost or stolen certificates, taxes and
     other governmental charges,

  .  special charges for services requested by a holder of a common unit, and

  .  other similar fees or charges.

   There is no charge to unitholders for disbursements of our cash
distributions. We will indemnify the transfer agent, its agents and each of
their stockholders, directors, officers and employees against all claims and
losses that may arise out of acts performed or omitted for its activities in
that capacity, except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.

 Resignation or Removal

   The transfer agent may resign, by notice to us, or be removed by us. The
resignation or removal of the transfer agent will become effective upon our
appointment of a successor transfer agent and registrar and its acceptance of
the appointment. If no successor has been appointed and accepted the
appointment within 30 days after notice of the resignation or removal, the
managing general partner may act as the transfer agent and registrar until a
successor is appointed.

 Transfer of Common Units

   The transfer of the common units to persons that purchase directly from the
underwriters will be accomplished through the completion, execution and
delivery of a transfer application by the investor. Any later transfers of a
common unit will not be recorded by the transfer agent or recognized by us
unless the transferee executes and delivers a transfer application. By
executing and delivering a transfer application, the transferee of common
units:

  .  becomes the record holder of the common units and is an assignee until
     admitted into our partnership as a substituted limited partner,

  .  automatically requests admission as a substituted limited partner in our
     partnership,

  .  agrees to be bound by the terms and conditions of, and executes, our
     partnership agreement,

  .  represents that the transferee has the capacity, power and authority to
     enter into the partnership agreement,

                                      100

  .  grants powers of attorney to officers of our managing general partner
     and any liquidator of us as specified in the partnership agreement, and

  .  makes the consents and waivers contained in the partnership agreement.

   An assignee will become a substituted limited partner of our partnership
for the transferred common units upon the consent of our managing general
partner and the recording of the name of the assignee on our books and
records. The managing general partner may withhold its consent in its sole
discretion.

   A transferee's broker, agent or nominee may complete, execute and deliver a
transfer application. We are entitled to treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial holder's rights are
limited solely to those that it has against the nominee holder as a result of
any agreement between the beneficial owner and the nominee holder.

   Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission
as a substituted limited partner in our partnership for the transferred common
units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains only:

  .  the right to assign the common unit to a purchaser or other transferee,
     and

  .  the right to transfer the right to seek admission as a substituted
     limited partner in our partnership for the transferred common units.

   Thus, a purchaser or transferee of common units who does not execute and
deliver a transfer application:

  .  will not receive cash distributions or federal income tax allocations,
     unless the common units are held in a nominee or "street name" account
     and the nominee or broker has executed and delivered a transfer
     application, and

  .  may not receive some federal income tax information or reports furnished
     to record holders of common units.

   The transferor of common units has a duty to provide the transferee with
all information that may be necessary to transfer the common units. The
transferor does not have a duty to insure the execution of the transfer
application by the transferee and has no liability or responsibility if the
transferee neglects or chooses not to execute and forward the transfer
application to the transfer agent. Please read "The Partnership Agreement--
Status as Limited Partner or Assignee."

   Until a common unit has been transferred on our books, we and the transfer
agent, may treat the record holder of the unit as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations.

                                      101

                     DESCRIPTION OF THE SUBORDINATED UNITS

   The senior subordinated units and junior subordinated units are separate
classes of limited partner interests in our partnership, and the rights of
holders to participate in distributions to partners differ from, and are
subordinated to, the rights of the holders of common units. For any given
quarter, any available cash will first be distributed to the non-managing
general partner and to the holders of common units, until the holders of common
units have received the minimum quarterly distribution plus any arrearages, and
then will be distributed to the holders of subordinated units. The
subordination period will end once we meet the financial tests in the
partnership agreement, but it generally cannot end before June 30, 2006 with
respect to the senior subordinated units and June 30, 2008 with respect to the
junior subordinated units. Please read "Cash Distribution Policy."

Limited Voting Rights

   Holders of subordinated units sometimes vote as a single class together with
the common units and sometimes vote as a class separate from the holders of
common units. Holders of senior subordinated units and junior subordinated
units sometimes vote together as a class and sometimes vote as separate
classes. Holders of subordinated units, like holders of common units, have very
limited voting rights. During the subordination period, common units and
subordinated units each vote separately as a class on the following matters:

  . a sale or exchange of all or substantially all of our assets,

  . the election of a successor managing general partner in connection with
    the removal of the managing general partner,

  . dissolution or reconstitution of Inergy, L.P.,

  . a merger,

  . issuance of limited partner interests in some circumstances, and

  . some amendments to the partnership agreement, including any amendment
    that would cause us to be treated as an association taxable as a
    corporation.

   The subordinated units are not entitled to vote on approval of the
withdrawal of the managing general partner or the transfer by the managing
general partner of its general partner interest. Removal of the managing
general partner requires:

   .a 66 2/3% vote of all outstanding units voting as a single class, and

  . the election of a successor general partner by the holders of a majority
    of the outstanding common units and subordinated units, voting as
    separate classes.

   Under the partnership agreement, the managing general partner generally will
be permitted to effect amendments to the partnership agreement that do not
materially adversely affect unitholders without the approval of any
unitholders. Please read "The Partnership Agreement--Opinion of Counsel and
Unitholder Approval."

Distributions Upon Liquidation

   If we liquidate during the subordination period, in some circumstances
holders of outstanding common units will be entitled to receive more per unit
in liquidating distributions than holders of outstanding subordinated units.
The per unit difference will be dependent upon the amount of gain or loss that
we recognize in liquidating our assets. Following conversion of the
subordinated units into common units, all units will be treated the same upon
liquidation.

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                           THE PARTNERSHIP AGREEMENT

   The following is a summary of the material provisions of our partnership
agreement. Our partnership agreement and the limited liability company
agreement governing our operating company are included as exhibits to the
registration statement of which this prospectus constitutes a part. We will
provide prospective investors with a copy of these agreements upon request at
no charge.

   We summarize the following provisions of the partnership agreement elsewhere
in this prospectus:

  . With regard to the transfer of common units, please read "Description of
    the Common Units--Transfer of Common Units."

  . With regard to distributions of available cash, please read "Cash
    Distribution Policy."

  . With regard to allocations of taxable income and taxable loss, please
    read "Tax Considerations."

Organization

   We were organized on March 7, 2001 and will have a perpetual existence.

Purpose

   Our purpose under the partnership agreement is limited to serving as a
member of the operating company and engaging in any business activities that
may be engaged in by the operating company or that are approved by the managing
general partner. All of our operations are conducted through our operating
company, Inergy Propane, LLC, and its subsidiaries. We own 100% of the
outstanding membership interest of the operating company. The limited liability
company agreement of the operating company provides that the operating company
may, directly or indirectly, engage in:

     (1) its operations as conducted immediately before our initial public
  offering,

     (2) any other activity approved by the managing general partner but only
  to the extent that the managing general partner reasonably determines that,
  as of the date of the acquisition or commencement of the activity, the
  activity generates "qualifying income" as this term is defined in Section
  7704 of the Internal Revenue Code, or

     (3) any activity that enhances the operations of an activity that is
  described in (1) or (2) above.

   Although the managing general partner has the ability to cause Inergy, L.P.,
the operating company or its subsidiaries to engage in activities other than
the wholesale and retail marketing and transportation of propane, the managing
general partner has no current plans to do so. The managing general partner is
authorized in general to perform all acts deemed necessary to carry out our
purposes and to conduct our business.

Power of Attorney

   Each limited partner, and each person who acquires a unit from a unitholder
and executes and delivers a transfer application, grants to the managing
general partner and, if appointed, a liquidator, a power of attorney to, among
other things, execute and file documents required for our qualification,
continuance or dissolution. The power of attorney also grants the managing
general partner the authority to amend, and to make consents and waivers under,
the partnership agreement.

Capital Contributions

   Unitholders are not obligated to make additional capital contributions,
except as described below under "--Limited Liability."

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Limited Liability

   Assuming that a limited partner does not participate in the control of our
business within the meaning of the Delaware Act and that he otherwise acts in
conformity with the provisions of the partnership agreement, his liability
under the Delaware Act will be limited, subject to possible exceptions, to the
amount of capital he is obligated to contribute to us for his common units plus
his share of any undistributed profits and assets. If it were determined,
however, that the right, or exercise of the right, by the limited partners as a
group:

  . to remove or replace the managing general partner,

  . to approve some amendments to the partnership agreement, or

  . to take other action under the partnership agreement,

constituted "participation in the control" of our business for the purposes of
the Delaware Act, then the limited partners could be held personally liable for
our obligations under the laws of Delaware, to the same extent as the managing
general partner. This liability would extend to persons who transact business
with us who reasonably believe that the limited partner is a general partner.
Neither the partnership agreement nor the Delaware Act specifically provides
for legal recourse against the general partners if a limited partner were to
lose limited liability through any fault of the general partners. While this
does not mean that a limited partner could not seek legal recourse, we know of
no precedent for this type of a claim in Delaware case law.

   Under the Delaware Act, a limited partnership may not make a distribution to
a partner if, after the distribution, all liabilities of the limited
partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair value of the assets
of the limited partnership. For the purpose of determining the fair value of
the assets of a limited partnership, the Delaware Act provides that the fair
value of property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited partnership only to the
extent that the fair value of that property exceeds the nonrecourse liability.
The Delaware Act provides that a limited partner who receives a distribution
and knew at the time of the distribution that the distribution was in violation
of the Delaware Act shall be liable to the limited partnership for the amount
of the distribution for three years. Under the Delaware Act, an assignee who
becomes a substituted limited partner of a limited partnership is liable for
the obligations of his assignor to make contributions to the partnership,
except the assignee is not obligated for liabilities unknown to him at the time
he became a limited partner and that could not be ascertained from the
partnership agreement.

   Our subsidiaries conduct business in 14 states. Maintenance of our limited
liability as a member of the operating company, may require compliance with
legal requirements in the jurisdictions in which the operating company conducts
business, including qualifying our subsidiaries to do business there.
Limitations on the liability of members for the obligations of a limited
liability company have not been clearly established in many jurisdictions. If
it were determined that we were, by virtue of our membership interest in the
operating company or otherwise, conducting business in any state without
compliance with the applicable limited partnership or limited liability company
statute, or that the right or exercise of the right by the limited partners as
a group to remove or replace the managing general partner, to approve some
amendments to the partnership agreement, or to take other action under the
partnership agreement constituted "participation in the control" of our
business for purposes of the statutes of any relevant jurisdiction, then the
limited partners could be held personally liable for our obligations under the
law of that jurisdiction to the same extent as the managing general partner
under the circumstances. We will operate in a manner that the managing general
partner considers reasonable and necessary or appropriate to preserve the
limited liability of the limited partners.

Issuance of Additional Securities

   The partnership agreement authorizes us to issue an unlimited number of
additional limited partner interests and other equity securities for the
consideration and on the terms and conditions established by the

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managing general partner in its sole discretion without the approval of any
limited partners. While any senior subordinated units remain outstanding,
however, except as we discuss in the following paragraph, we may not issue
equity securities ranking senior to the common units or an aggregate of more
than 800,000 additional common units or units on a parity with the common
units, in each case, without the approval of the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes.

   During or after the subordination period, we may issue an unlimited number
of common units as follows:

  . upon exercise of the underwriters' over-allotment option,

  . upon conversion of the subordinated units,

  . under employee benefit plans,

  . upon conversion of the general partner interests and incentive
    distribution rights as a result of a withdrawal of a general partner,

  . in the event of a combination or subdivision of common units, or

  . in connection with an acquisition or a capital improvement that would
    have resulted, on a pro forma basis, in an increase in adjusted operating
    surplus on a per unit basis for the preceding four-quarter period.

   It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our distributions of available cash. In addition,
the issuance of additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our net assets.

   In accordance with Delaware law and the provisions of our partnership
agreement, we may also issue additional partnership interests that, in the
sole discretion of the managing general partner, have special voting rights to
which the common units are not entitled.

   Upon issuance of additional partnership interests, the non-managing general
partner will be required to make additional capital contributions to the
extent necessary to maintain its 2% general partner interest in us and the
operating company. Moreover, the non-managing general partner will have the
right, which it may from time to time assign in whole or in part to any of its
affiliates, to purchase common units, subordinated units or other equity
securities whenever, and on the same terms that, we issue those securities to
persons other than the non-managing general partner and its affiliates, to the
extent necessary to maintain its percentage interest, including its interest
represented by common units and subordinated units, that existed immediately
prior to each issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership interests.

Amendment of the Partnership Agreement

 General

   Amendments to the partnership agreement may be proposed only by or with the
consent of the managing general partner, which consent may be given or
withheld in its sole discretion. In order to adopt a proposed amendment, other
than the amendments discussed below, the managing general partner must seek
written approval of the holders of the number of units required to approve the
amendment or call a meeting of the limited partners to consider and vote upon
the proposed amendment. Except as we describe below, an amendment must be
approved:

  . during the subordination period, by a majority of the common units,
    excluding those common units held by our general partners and their
    affiliates, voting as a class, and a majority of the senior subordinated
    units and the junior subordinated units, voting together as a class, and

                                      105

  . after the subordination period, by a majority of the common units.

   We refer to the voting provisions described above as a "unit majority."

 Prohibited Amendments

   No amendment may be made that would:

     (1) enlarge the obligations of any limited partner without its consent,
  unless approved by at least a majority of the type or class of limited
  partner interests so affected,

     (2) enlarge the obligations of, restrict in any way any action by or
  rights of, or reduce in any way the amounts distributable, reimbursable or
  otherwise payable by us to the general partners or any of their affiliates
  without the consent of the managing general partner, which may be given or
  withheld in its sole discretion,

     (3) change the term of our partnership,

     (4) provide that our partnership is not dissolved upon an election to
  dissolve our partnership by the managing general partner that is approved
  by the holders of a majority of the outstanding common units and
  subordinated units, voting as separate classes, or

     (5) give any person the right to dissolve our partnership other than the
  managing general partner's right to dissolve our partnership with the
  approval of the holders of a majority of the outstanding common units and
  subordinated units, voting as separate classes.

   The provision of the partnership agreement preventing the amendments having
the effects described in clauses (1) through (5) above can be amended upon the
approval of the holders of at least 90% of the outstanding units voting as a
single class.

 No Unitholder Approval

   The managing general partner may generally make amendments to the
partnership agreement without the approval of any limited partner or assignee
to reflect:

     (1) a change in our name, the location of our principal place of
  business, our registered agent or our registered office,

     (2) the admission, substitution, withdrawal or removal of partners in
  accordance with the partnership agreement,

     (3) a change that, in the sole discretion of the managing general
  partner, is necessary or advisable for us to qualify or to continue our
  qualification as a limited partnership or a partnership in which the
  limited partners have limited liability under the laws of any state or to
  ensure that neither we, the operating company nor its subsidiaries will be
  treated as an association taxable as a corporation or otherwise taxed as an
  entity for federal income tax purposes,

     (4) an amendment that is necessary, in the opinion of our counsel, to
  prevent us or our managing general partner or its directors, officers,
  agents or trustees, from in any manner being subjected to the provisions of
  the Investment Company Act of 1940, the Investment Advisors Act of 1940, or
  "plan asset" regulations adopted under the Employee Retirement Income
  Security Act of 1974, whether or not substantially similar to plan asset
  regulations currently applied or proposed,

     (5) subject to the limitations on the issuance of additional common
  units or other limited or general partner interests described above, an
  amendment that in the discretion of the managing general partner is
  necessary or advisable for the authorization of additional limited or
  general partner interests,

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     (6) any amendment expressly permitted in the partnership agreement to be
  made by the managing general partner acting alone,

     (7) an amendment effected, necessitated or contemplated by a merger
  agreement that has been approved under the terms of the partnership
  agreement,

     (8) any amendment that, in the discretion of the managing general
  partner, is necessary or advisable for the formation by us of, or our
  investment in, any corporation, partnership or other entity, as otherwise
  permitted by the partnership agreement,

     (9) a change in our fiscal year or taxable year and related changes, and

     (10) any other amendments substantially similar to any of the matters
  described in (1) through (9) above.

   In addition, the managing general partner may make amendments to the
partnership agreement without the approval of any limited partner or assignee
if those amendments, in the discretion of the managing general partner:

     (1) do not adversely affect the limited partners (or any particular
  class of limited partners) in any material respect,

     (2) are necessary or advisable to satisfy any requirements, conditions
  or guidelines contained in any opinion, directive, order, ruling or
  regulation of any federal or state agency or judicial authority or
  contained in any federal or state statute,

     (3) are necessary or advisable to facilitate the trading of limited
  partner interests or to comply with any rule, regulation, guideline or
  requirement of any securities exchange on which the limited partner
  interests are or will be listed for trading, compliance with any of which
  the managing general partner deems to be in our best interest and the best
  interest of limited partners,

     (4) are necessary or advisable for any action taken by the managing
  general partner relating to splits or combinations of units under the
  provisions of the partnership agreement, or

     (5) are required to effect the intent expressed in this prospectus or
  the intent of the provisions of the partnership agreement or are otherwise
  contemplated by the partnership agreement.

 Opinion of Counsel and Unitholder Approval

   Our managing general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited liability to the
limited partners or result in our being taxed as an entity for federal income
tax purposes if one of the amendments described above under "--No Unitholder
Approval" should occur. No other amendments to the partnership agreement will
become effective without the approval of holders of at least 90% of the units
unless we obtain an opinion of counsel to the effect that the amendment will
not affect the limited liability under applicable law of any of our limited
partners or cause us, the operating company or its subsidiaries to be taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously taxed as such).

   Any amendment that would have a material adverse effect on the rights or
preferences of any type or class of outstanding units in relation to other
classes of units will require the approval of at least a majority of the type
or class of units so affected. Any amendment that reduces the voting percentage
required to take any action must be approved by the affirmative vote of limited
partners constituting not less than the voting requirement sought to be
reduced.

Action Relating to the Operating Company

   Without the approval of the holders of units representing a unit majority,
our managing general partner is prohibited from consenting on our behalf, as
the sole member of the operating company, to any amendment to

                                      107

the limited liability company agreement of the operating company or taking any
action on our behalf permitted to be taken by a member of the operating
company, in each case that would adversely affect our limited partners (or any
particular class of limited partners) in any material respect.

Merger, Sale or Other Disposition of Assets

   The partnership agreement generally prohibits the managing general partner,
without the prior approval of the holders of units representing a unit
majority, from causing us to, among other things, sell, exchange or otherwise
dispose of all or substantially all of our assets in a single transaction or a
series of related transactions, including by way of merger, consolidation or
other combination, or approving on our behalf the sale, exchange or other
disposition of all or substantially all of the assets of our subsidiaries. The
managing general partner may, however, mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of our assets without that
approval. The managing general partner may also sell all or substantially all
of our assets under a foreclosure or other realization upon those encumbrances
without that approval.

   If conditions specified in the partnership agreement are satisfied, the
managing general partner may merge us or any of our subsidiaries into, or
convey some or all of our assets to, a newly formed entity if the sole purpose
of that merger or conveyance is to effect a mere change in our legal form into
another limited liability entity. The unitholders are not entitled to
dissenters' rights of appraisal under the partnership agreement or applicable
Delaware law in the event of a merger or consolidation, a sale of substantially
all of our assets or any other transaction or event.

Termination and Dissolution

   We will continue as a limited partnership until terminated under the
partnership agreement. We will dissolve upon:

     (1) the election of the managing general partner to dissolve us, if
  approved by the holders of units representing a unit majority,

     (2) the sale, exchange or other disposition of all or substantially all
  of our assets and properties and those of our subsidiaries,

     (3) the entry of a decree of judicial dissolution of Inergy, L.P., or

     (4) the withdrawal or removal of our managing general partner or any
  other event that results in its ceasing to be the managing general partner
  other than by reason of a transfer of its general partner interest in
  accordance with the partnership agreement or withdrawal or removal of the
  managing general partner following approval and admission of a successor.

   Upon a dissolution under clause (4), the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes,
may also elect, within specific time limitations, to reconstitute us and
continue our business on the same terms and conditions described in the
partnership agreement by forming a new limited partnership on terms identical
to those in the partnership agreement and having as managing general partner an
entity approved by the holders of a majority of the outstanding common units
and subordinated units, voting as separate classes, subject to our receipt of
an opinion of counsel to the effect that:

     (1) the action would not result in the loss of limited liability of any
  limited partner, and

     (2) neither us, the reconstituted limited partnership nor the operating
  company would be treated as an association taxable as a corporation or
  otherwise be taxable as an entity for federal income tax purposes upon the
  exercise of that right to continue.

Liquidation and Distribution of Proceeds

   Upon our dissolution, unless we are reconstituted and continued as a new
limited partnership, the liquidator authorized to wind up our affairs will,
acting with all of the powers of the managing general partner

                                      108

that the liquidator deems necessary or desirable in its judgment, liquidate our
assets and apply the proceeds of the liquidation as provided in "Cash
Distribution Policy--Distributions of Cash upon Liquidation." The liquidator
may defer liquidation of our assets for a reasonable period of time or
distribute assets to partners in kind if it determines that a sale would be
impractical or would cause undue loss to the partners.

Withdrawal or Removal of the General Partners

   Except as described below, our managing general partner has agreed not to
withdraw voluntarily as a general partner prior to June 30, 2011 without
obtaining the approval of the holders of at least a majority of the outstanding
common units, excluding common units held by the general partners and their
affiliates, and furnishing an opinion of counsel regarding limited liability
and tax matters. On or after June 30, 2011 our managing general partner may
withdraw as managing general partner without first obtaining approval of any
unitholder by giving 90 days' written notice, and that withdrawal will not
constitute a violation of the partnership agreement. Notwithstanding the
information above, our managing general partner may withdraw without unitholder
approval upon 90 days' notice to the limited partners if at least 50% of the
outstanding common units are held or controlled by one person and its
affiliates other than the general partners and their affiliates. Our non-
managing general partner must withdraw as a general partner at any time after a
transfer of its general partner interest upon obtaining the consent of the
managing general partner. If our non-managing general partner is removed or
withdraws and no successor is appointed, the managing general partner will
continue the business of Inergy, L.P.

   Upon the withdrawal of the managing general partner under any circumstances,
other than as a result of a transfer by the managing general partner of all or
a part of its general partner interest in us, the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes,
may select a successor to that withdrawing managing general partner. If a
successor is not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, we will be dissolved,
wound up and liquidated, unless within 180 days after that withdrawal, the
holders of a majority of the outstanding common units and subordinated units,
voting as separate classes, agree in writing to continue our business and to
appoint a successor general partner. Please read "--Termination and
Dissolution."

   The managing general partner may not be removed unless that removal is
approved by the vote of the holders of not less than 66 2/3% of the outstanding
units, including units held by the general partners and their affiliates, and
we receive an opinion of counsel regarding limited liability and tax matters.
Any removal of the managing general partner is also subject to the approval of
a successor managing general partner by the vote of the holders of a majority
of the outstanding common units and subordinated units, voting as separate
classes. The ownership of more than 33 1/3% of the outstanding units by the
general partners and their affiliates give the managing general partner the
practical ability to prevent its removal. At the closing of this offering, our
general partners and their affiliates, including our executive officers and
directors, will control approximately 31% of the outstanding units.

   The partnership agreement also provides that if Inergy GP, LLC is removed as
our managing general partner under circumstances where cause does not exist and
units held by the managing general partner and its affiliates are not voted in
favor of that removal:

     (1) the subordination period will end and all outstanding subordinated
  units will immediately convert into common units on a one-for-one basis,

     (2) any existing arrearages in payment of the minimum quarterly
  distribution on the common units will be extinguished, and

     (3) the non-managing general partner will have the right to convert its
  general partner interest and Inergy Holdings will have the right to convert
  its incentive distribution rights into common units or to receive cash in
  exchange for those interests.

   In the event of removal of the managing general partner under circumstances
where cause exists or withdrawal of the managing general partner where that
withdrawal violates the partnership agreement, a

                                      109

successor general partner will have the option to purchase the general partner
interest of the departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances where a general
partner withdraws or is removed by the limited partners, the departing general
partner will have the option to require the successor general partner to
purchase the general partner interests of the departing general partner and,
in the case of the withdrawal or removal of the managing general partner,
Inergy Holdings will have the option to require the successor managing general
partner to purchase the incentive distribution rights and the general partner
interest held by the nonmanaging general partners for fair market value. In
each case, this fair market value will be determined by agreement between the
departing general partner, and the successor general partner and, in the case
of a purchase of incentive distribution rights and the non-managing partner's
general partner interest, Inergy Holdings. If no agreement is reached, an
independent investment banking firm or other independent expert selected by
the departing general partner, Inergy Holdings and the successor general
partner will determine the fair market value. Or, if the departing general
partner, Inergy Holdings and the successor general partner cannot agree upon
an expert, then an expert chosen by agreement of the experts selected by each
of them will determine the fair market value.

   If the option described above is not exercised by either the departing
managing general partner or the successor managing general partner, the
departing managing general partner's general partner interest and Inergy
Holdings' incentive distribution rights and the non-managing partner's general
partner interest will automatically convert into common units equal to the
fair market value of those interests as determined by an investment banking
firm or other independent expert selected in the manner described in the
preceding paragraph.

   In addition, we will be required to reimburse the departing general partner
for all amounts due the departing general partner, including, without
limitation, all employee-related liabilities, including severance liabilities,
incurred for the termination of any employees employed by the departing
general partner or its affiliates for our benefit.

Transfer of General Partner Interests

   Except for a transfer by either general partner of all, but not less than
all, of its general partner interest to:

     (1) an affiliate of the general partner (other than an individual), or

     (2) another entity as part of the merger or consolidation of the general
  partner with or into another entity or the transfer by the general partner
  of all or substantially all of its assets to another entity,

the managing general partner may not transfer all or any part of its general
partner interest to another person prior to June 30, 2011 without the approval
of the holders of at least a majority of the outstanding common units,
excluding common units held by the general partners and their affiliates. As a
condition of this transfer, the transferee must, among other things, assume
the rights and duties of the managing general partner, agree to be bound by
the provisions of the partnership agreement and furnish an opinion of counsel
regarding limited liability and tax matters.

   The general partners and their affiliates may at any time transfer units to
one or more persons, without unitholder approval, except that they may not
transfer subordinated units to us.

Transfer of Incentive Distribution Rights

   Inergy Holdings or a later holder of the incentive distribution rights may
transfer its incentive distribution rights to an affiliate of the holder
(other than an individual) without the approval of the unitholders, provided,
in each case, the transferee agrees to be bound by the provisions of the
partnership agreement. Prior to June 30, 2011, other transfers of the
incentive distribution rights will require the affirmative vote of holders of
a majority of the outstanding common units, excluding common units held by the
general partners and their affiliates. On or after June 30, 2011 the incentive
distribution rights will be freely transferable.

                                      110

Transfer of Ownership Interests in General Partners

   At any time, the members of either general partner may sell or transfer all
or part of their membership interests in the managing general partner or the
non-managing general partner without the approval of the unitholders.

Change of Management Provisions

   The partnership agreement contains specific provisions that are intended to
discourage a person or group from attempting to remove Inergy GP, LLC as our
managing general partner or otherwise change management.

   If any person or group other than the general partners and their affiliates
acquires beneficial ownership of 20% or more of any class of units, that person
or group loses voting rights on all of its units. This loss of voting rights
does not apply to any person or group that acquires the units concurrently with
this offering from our general partners or their affiliates and any transferees
of that person or group approved by our managing general partner.

   The partnership agreement also provides that if the managing general partner
is removed under circumstances where cause does not exist and units held by the
general partners and their affiliates are not voted in favor of that removal:

     (1) the subordination period will end and all outstanding subordinated
  units will immediately convert into common units on a one-for-one basis,

     (2) any existing arrearages in payment of the minimum quarterly
  distribution on the common units will be extinguished, and

     (3) the non-managing general partner will have the right to convert its
  general partner interest and Inergy Holdings will have the right to convert
  its incentive distribution rights into common units or to receive cash in
  exchange for those interests.

Limited Call Right

   If at any time not more than 20% of the then-issued and outstanding limited
partner interests of any class are held by persons other than the general
partners and their affiliates, the managing general partner will have the
right, which it may assign in whole or in part to any of its affiliates or to
us, to acquire all, but not less than all, of the remaining limited partner
interests of the class held by unaffiliated persons as of a record date to be
selected by the managing general partner, on at least ten but not more than 60
days' notice. The purchase price in the event of this purchase is the greater
of:

     (1) the highest cash price paid by either of the general partners or any
  of their affiliates for any limited partner interests of the class
  purchased within the 90 days preceding the date on which the managing
  general partner first mails notice of its election to purchase those
  limited partner interests, and

     (2) the current market price as of the date three days before the date
  the notice is mailed.

   As a result of the managing general partner's right to purchase outstanding
limited partner interests, a holder of limited partner interests may have his
limited partner interests purchased at an undesirable time or price. The tax
consequences to a unitholder of the exercise of this call right are the same as
a sale by that unitholder of his common units in the market. Please read "Tax
Considerations--Disposition of Common Units."

Meetings; Voting

   Except as described below regarding a person or group owning 20% or more of
any class of units then outstanding, unitholders or assignees who are record
holders of units on the record date will be entitled to

                                      111

notice of, and to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited. Common units that are owned by an
assignee who is a record holder, but who has not yet been admitted as a limited
partner, will be voted by the managing general partner at the written direction
of the record holder. Absent direction of this kind, the common units will not
be voted, except that, in the case of common units held by the managing general
partner on behalf of non-citizen assignees, the managing general partner will
distribute the votes on those common units in the same ratios as the votes of
limited partners on other units are cast.

   The managing general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action that is
required or permitted to be taken by the unitholders may be taken either at a
meeting of the unitholders or without a meeting if consents in writing
describing the action so taken are signed by holders of the number of units as
would be necessary to authorize or take that action at a meeting. Meetings of
the unitholders may be called by the managing general partner or by unitholders
owning at least 20% of the outstanding partnership securities of the class for
which a meeting is proposed. Unitholders may vote either in person or by proxy
at meetings. The holders of a majority of the outstanding partnership
securities of the class or classes for which a meeting has been called,
represented in person or by proxy, will constitute a quorum unless any action
by the unitholders requires approval by holders of a greater percentage, in
which case the quorum will be the greater percentage.

   Each record holder of a unit has a vote according to his percentage interest
in us, although additional limited partner interests having special voting
rights could be issued. Please read "--Issuance of Additional Securities."
However, if at any time any person or group, other than the managing general
partner and its affiliates, or a direct or subsequently approved transferee of
the managing general partner or its affiliates, acquires, in the aggregate,
beneficial ownership of 20% or more of any class of units then outstanding,
that person or group will lose voting rights on all of its units and the units
may not be voted on any matter and will not be considered to be outstanding
when sending notices of a meeting of unitholders, calculating required votes,
determining the presence of a quorum or for other similar purposes. Common
units held in nominee or street name account will be voted by the broker or
other nominee in accordance with the instruction of the beneficial owner unless
the arrangement between the beneficial owner and his nominee provides
otherwise. Except as the partnership agreement otherwise provides, subordinated
units will vote together with common units as a single class.

   Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of common units under the partnership
agreement will be delivered to the record holder by us or by the transfer
agent.

Status as Limited Partner or Assignee

   Except as described above under "--Limited Liability," the common units will
be fully paid, and unitholders will not be required to make additional
contributions.

   An assignee of a common unit, after executing and delivering a transfer
application, but pending its admission as a substituted limited partner, is
entitled to an interest equivalent to that of a limited partner for the right
to share in allocations and distributions from us, including liquidating
distributions. The managing general partner will vote and exercise other powers
attributable to common units owned by an assignee that has not become a
substitute limited partner at the written direction of the assignee. See "--
Meetings; Voting." Transferees that do not execute and deliver a transfer
application will be treated neither as assignees nor as record holders of
common units, and will not receive cash distributions, federal income tax
allocations or reports furnished to holders of common units. Please read
"Description of the Common Units--Transfer of Common Units."

Non-Citizen Assignees; Redemption

   If we are or become subject to federal, state or local laws or regulations
that, in the reasonable determination of the managing general partner, create a
substantial risk of cancellation or forfeiture of any

                                      112

property that we have an interest in because of the nationality, citizenship or
other related status of any limited partner or assignee, we may redeem the
units held by the limited partner or assignee at their current market price. In
order to avoid any cancellation or forfeiture, the managing general partner may
require each limited partner or assignee to furnish information about his
nationality, citizenship or related status. If a limited partner or assignee
fails to furnish information about this nationality, citizenship or other
related status within 30 days after a request for the information or the
managing general partner determines after receipt of the information that the
limited partner or assignee is not an eligible citizen, the limited partner or
assignee may be treated as a non-citizen assignee. In addition to other
limitations on the rights of an assignee that is not a substituted limited
partner, a non-citizen assignee does not have the right to direct the voting of
his units and may not receive distributions in kind upon our liquidation.

Indemnification

   Under the partnership agreement, in most circumstances, we will indemnify
the following persons, to the fullest extent permitted by law, from and against
all losses, claims, damages or similar events:

  . the general partners,

  . any departing general partner,

  . any person who is or was an affiliate of a general partner or any
    departing general partner,

  . any person who is or was a member, partner, officer, director, employee,
    agent or trustee of the managing general partner or any departing general
    partner or any affiliate of a managing general partner or any departing
    general partner, or

  . any person who is or was serving at the request of a managing general
    partner or any departing general partner or any affiliate of a managing
    general partner or any departing general partner as an officer, director,
    employee, member, partner, agent or trustee of another person.

   Any indemnification under these provisions will only be out of our assets.
The general partners and their affiliates will not be personally liable for, or
have any obligation to contribute or loan funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against liabilities
asserted against and expenses incurred by persons for our activities,
regardless of whether we would have the power to indemnify the person against
liabilities under the partnership agreement.

Books and Reports

   The managing general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained for both tax
and financial reporting purposes on an accrual basis. For fiscal reporting
purposes, our fiscal year ends September 30 of each calendar year. For tax
reporting purposes, our tax year ends December 31 each year.

   We will furnish or make available to record holders of common units, within
120 days after the close of each fiscal year, an annual report containing
audited financial statements and a report on those financial statements by our
independent public accountants. Except for our fourth quarter, we will also
furnish or make available summary financial information within 90 days after
the close of each quarter.

   We will furnish each record holder of a unit with information reasonably
required for tax reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished in summary form so
that some complex calculations normally required of partners can be avoided.
Our ability to furnish this summary information to unitholders will depend on
the cooperation of unitholders in supplying us with specific information. Every
unitholder will receive information to assist him in determining his federal
and state tax liability and filing his federal and state income tax returns,
regardless of whether he supplies us with information.

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Right to Inspect our Books and Records

   The partnership agreement provides that a limited partner can, for a purpose
reasonably related to his interest as a limited partner, upon reasonable demand
and at his own expense, have furnished to him:

  . a current list of the name and last known address of each partner,

  . a copy of our tax returns,

  . information as to the amount of cash, and a description and statement of
    the agreed value of any other property or services, contributed or to be
    contributed by each partner and the date on which each became a partner,

  . copies of the partnership agreement, the certificate of limited
    partnership of the partnership, related amendments and powers of attorney
    under which they have been executed,

  . information regarding the status of our business and financial condition,
    and

  . any other information regarding our affairs as is just and reasonable.

   The managing general partner may, and intends to, keep confidential from the
limited partners trade secrets or other information the disclosure of which the
managing general partner believes in good faith is not in our best interests or
which we are required by law or by agreements with third parties to keep
confidential.

Registration Rights

   Under the partnership agreement, we have agreed to register for resale under
the Securities Act of 1933 and applicable state securities laws any common
units, senior or junior subordinated units or other partnership securities
proposed to be sold by the general partners or any of their affiliates or their
assignees if an exemption from the registration requirements is not otherwise
available. These registration rights continue for two years following any
withdrawal or removal of Inergy GP, LLC as our managing general partner. We are
obligated to pay all expenses incidental to the registration, excluding
underwriting discounts and commissions. Please read "Units Eligible for Future
Sale." We have also granted registration rights to certain investors. For a
summary description of these registration rights, please read "Certain
Relationships and Related Transactions."

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                         UNITS ELIGIBLE FOR FUTURE SALE

   After the sale of the common units offered by this prospectus, affiliates of
the managing general partner, former owners of propane businesses we have
acquired and some of our original investors will hold 404,601 common units,
3,313,367 senior subordinated units and 572,542 junior subordinated units. All
of the subordinated units will convert into common units at the end of the
subordination period and some may convert earlier. The sale of any of these
units could have an adverse impact on the price of the common units or on any
trading market that may develop. These common units, and upon conversion, these
subordinated units will be entitled to registration rights as described under
"Certain Relationships and Related Transactions" or will be freely transferable
without restriction or further registration under the Securities Act of 1933,
subject to the affiliate restrictions described below.

   The common units sold in the offering will generally be freely transferable
without restriction or further registration under the Securities Act of 1933,
except that any resale of common units purchased by an "affiliate" of Inergy,
L.P. will be subject to the volume limitations contained in Rule 144 of the
Securities Act.

   While any senior subordinated units remain outstanding, we may not issue
equity securities of the partnership ranking prior or senior to the common
units or an aggregate of more than 800,000 additional common units or an
equivalent amount of securities ranking on a parity with the common units,
without the approval of the holders of a majority of the outstanding common
units and subordinated units, voting as separate classes, subject to certain
exceptions described under "The Partnership Agreement--Issuance of Additional
Securities."

   The partnership agreement provides that, once no senior subordinated units
remain outstanding, we may issue an unlimited number of limited partner
interests of any type without a vote of the unitholders. The partnership
agreement does not restrict our ability to issue equity securities ranking
junior to the common units at any time. Any issuance of additional common units
or other equity securities would result in a corresponding decrease in the
proportionate ownership interest in us represented by, and could adversely
affect the cash distributions to and market price of, common units then
outstanding. Please read "The Partnership Agreement--Issuance of Additional
Securities."

   Under the partnership agreement, the general partners and their affiliates
have the right to cause us to register under the Securities Act of 1933 and
state laws the offer and sale of any units that they hold.

   Subject to the terms and conditions of the partnership agreement, these
registration rights allow the general partners and their affiliates or their
assignees holding any units to require registration of any of these units and
to include any of these units in a registration by us of other units, including
units offered by us or by any unitholder. Each general partner will continue to
have these registration rights for two years following its withdrawal or
removal as a general partner. In connection with any registration of this kind,
we will indemnify each unitholder participating in the registration and its
officers, directors and controlling persons from and against any liabilities
under the Securities Act of 1933 or any state securities laws arising from the
registration statement or prospectus. We will bear all costs and expenses
incidental to any registration, excluding any underwriting discounts and
commissions. Except as described below, the general partners and their
affiliates may sell their units in private transactions at any time, subject to
compliance with applicable laws.

   In addition, we have granted registration rights to certain investors. For a
description of these registration rights, please read "Certain Relationships
and Related Transactions."

   Inergy, L.P., New Inergy Propane, LLC, the general partners and certain of
their affiliates have agreed not to sell any common units they beneficially own
for a period of 90 days from the date of this prospectus. Please read
"Underwriting" for a description of these lock-up provisions.

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                               TAX CONSIDERATIONS

   This section addresses all of the material tax considerations that may be
relevant to prospective unitholders who are individual citizens or residents of
the United States and, unless otherwise noted in the following discussion, is
the opinion of Vinson & Elkins L.L.P., special counsel to the general partners
and us, insofar as it relates to legal conclusions with respect to United
States federal income tax law. This section is based upon current provisions of
the Internal Revenue Code, existing and proposed regulations and current
administrative rulings and court decisions, all of which are subject to change.
Later changes in these authorities may cause the 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 Inergy, L.P. and the operating company.

   No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, nonresident aliens or other unitholders subject to specialized tax
treatment, such as tax-exempt institutions, non-U.S. persons, individual
retirement accounts (IRAs), real estate investment trusts (REITs) or mutual
funds. Accordingly, each prospective unitholder is urged to consult with, and
is urged to depend on, his own tax advisor in analyzing the federal, state,
local and foreign tax consequences particular to him of the ownership or
disposition of common units.

   All statements as to matters of law and legal conclusions, but not as to
factual matters, contained in this section, unless otherwise noted, are the
opinion of Vinson & Elkins L.L.P., unless otherwise noted, and are based on the
accuracy of the representations made by us.

   No ruling has been or will be requested from the IRS regarding any matter
affecting us or prospective unitholders. Instead, we will rely on opinions and
advice of Vinson & Elkins L.L.P. Unlike a ruling, an opinion of counsel
represents only that counsel's best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made here may not be
sustained by a court if contested by the IRS. Any contest of this sort with the
IRS may materially and adversely impact the market value of the common units.
In addition, the costs of any contest with the IRS will be borne indirectly by
the unitholders and our general partners. Furthermore, the tax treatment of
Inergy, L.P., or of an investment in Inergy, L.P., 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, Vinson & Elkins L.L.P. has not rendered an
opinion with respect to the following specific federal income tax issues:

     (l) the treatment of a unitholder whose common units are loaned to a
  short seller to cover a short sale of common units (please read "--Tax
  Consequences of Unit Ownership--Treatment of Short Sales"),

     (2) whether our monthly convention for allocating taxable income and
  losses is permitted by existing Treasury regulations (please read "--
  Disposition of Common Units--Allocations Between Transferors and
  Transferees"), and

     (3) whether our method for depreciating Section 743 adjustments is
  sustainable (please read "--Tax Consequences of Unit Ownership--Section 754
  Election").

Partnership Status

   A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his share of items of income, gain, loss and deduction of the
partnership in computing his federal income tax liability, regardless of
whether cash distributions are made to him by the partnership. Distributions by
a partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of his adjusted basis in his partnership interest.

                                      116

   Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with
respect to publicly-traded partnerships whose gross income for every taxable
year consists of at least 90% "qualifying income." Qualifying income includes
income and gains derived from the wholesale and retail marketing and
transportation of propane. Other types of qualifying income include interest
other than from a financial business, dividends, gains from the sale of real
property and gains from the sale or other disposition of assets held for the
production of income that otherwise constitutes qualifying income. We estimate
that less than 7% of our current income is not qualifying income; however, this
estimate could change from time to time. Based upon and subject to this
estimate, the factual representations made by us and the managing general
partner and a review of the applicable legal authorities, counsel is of the
opinion that at least 90% of our current gross income constitutes qualifying
income.

   No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status as a partnership for federal income tax
purposes, the status of the operating company for federal income tax purposes
or whether our operations generate "qualifying income" under Section 7704 of
the Code. Instead, we will rely on the opinion of Vinson & Elkins L.L.P. that,
based upon the Internal Revenue Code, its regulations, published revenue
rulings and court decisions and the representations described below, Inergy,
L.P. has been and will be treated as a partnership for federal income tax
purposes and the operating company has been and will be disregarded as an
entity separate from us for federal income tax purposes.

   In rendering its opinion, Vinson & Elkins L.L.P. has relied on factual
representations made by us and the managing general partner. The
representations made by us and our managing general partner upon which counsel
has relied are:

     (a) Neither Inergy, L.P. nor the operating company has elected or will
  elect to be treated as a corporation, and

     (b) For each taxable year, more than 90% of our gross income has been
  and will be income from sources that Vinson & Elkins, L.L.P. has opined, or
  will opine, is "qualifying income" within the meaning of Section 7704(d) of
  the Internal Revenue Code.

   If we fail to meet the Qualifying Income Exception, other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery, 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 then distributed that
stock to the unitholders in liquidation of their interests in us. This
contribution and liquidation should be tax-free to unitholders and Inergy, L.P.
so long as we, at that time, do not have liabilities in excess of the tax basis
of our assets. Thereafter, we would be treated as a corporation for federal
income tax purposes.

   If we were treated as a corporation in any taxable year, either as a result
of a failure to meet the Qualifying Income Exception or otherwise, our items of
income, gain, loss and deduction would be reflected only on our tax return
rather than being passed through to the unitholders, and our net income would
be taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income, to the extent of
our current or accumulated earnings and profits, or, in the absence of earnings
and profits, a nontaxable return of capital, to the extent of a unitholder's
tax basis in his common units, or taxable capital gain, after the unitholder's
tax basis in his common units is reduced to zero. Accordingly, treatment as a
corporation would materially reduce a unitholder's cash flow and after-tax
return and thus would reduce the value of the units.

   The remainder of this section is based on Vinson & Elkins L.L.P.'s opinion
that we will be treated as a partnership for federal income tax purposes.

                                      117

Limited Partner Status

   Unitholders who have become limited partners of Inergy, L.P. will be treated
as partners of Inergy, L.P. for federal income tax purposes. Also:

     (a) assignees who have executed and delivered transfer applications, and
  are awaiting admission as limited partners, and

     (b) unitholders whose common units are held in street name or by a
  nominee and who have the right to direct the nominee in the exercise of all
  substantive rights attendant to the ownership of their common units,

will be treated as partners of Inergy, L.P. for federal income tax purposes.

   As there is no direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute
and deliver transfer applications, the opinion of Vinson & Elkins L.L.P. does
not extend to these persons. Furthermore, a purchaser or other transferee of
common units who does not execute and deliver a transfer application may not
receive some federal income tax information or reports furnished to record
holders of common units unless the common units are held in a nominee or street
name account and the nominee or broker has executed and delivered a transfer
application for those common units.

   A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to those units for federal income tax purposes. Please
read "--Tax Consequences of Unit Ownership--Treatment of Short Sales."

   Income, gain, deductions or losses would not appear to be reportable by a
unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. These holders
are urged to consult their own tax advisors with respect to their status as
partners in Inergy, L.P. for federal income tax purposes.

Tax Consequences of Unit Ownership

   Flow-through of Taxable Income. We will not pay any federal income tax.
Instead, each unitholder will be required to report on his income tax return
his share of our income, gains, losses and deductions without regard to whether
we make cash distributions to him. Consequently, we may allocate income to a
unitholder even if he has not received a cash distribution from us. Each
unitholder will be required to include in income his allocable share of our
income, gains, losses and deductions for our taxable year ending with or within
his taxable year.

   Treatment of Distributions. Except as described below with respect to
certain non-pro rata distributions, our distributions to a unitholder will not
be taxable to the unitholder for federal income tax purposes to the extent of
his tax basis in his common units immediately before the distribution. Our cash
distributions in excess of a unitholder's tax basis will be considered to be
gain from the sale or exchange of the common units, taxable in accordance with
the rules described under "--Disposition of Common Units" below. To the extent
our distributions cause a unitholder's "at risk" amount to be less than zero at
the end of any taxable year, he must recapture any losses deducted in previous
years. Please read "--Limitations on Deductibility of Losses."

   Any reduction in a unitholder's share of our liabilities for which no
partner, including our general partners, bears the economic risk of loss, known
as "nonrecourse liabilities," will be treated as a distribution of cash to that
unitholder. We do not currently have any nonrecourse liabilities. A decrease in
a unitholder's percentage interest in us because of our issuance of additional
common units will decrease his share of our nonrecourse liabilities, and thus
will result in a corresponding deemed distribution of cash. A non-pro rata
distribution of cash may result in ordinary income to a unitholder, regardless
of his tax basis in his common units, if the distribution reduces his share of
our "unrealized receivables," including depreciation recapture, and/or
substantially appreciated "inventory items," both as defined in the Internal
Revenue Code, and collectively, "Section 751 Assets."

                                      118

   To that extent, he will be treated as having received his proportionate
share of our Section 751 Assets and having exchanged those assets with us in
return for the non-pro rata portion of the distribution made to him. This
latter deemed exchange will generally result in the unitholder's realization of
ordinary income. That income will equal the excess of (1) the non-pro rata
portion of that distribution over (2) the unitholder's tax basis for the share
of Section 751 Assets deemed relinquished in the exchange.

   Ratio of Taxable Income to Distributions. We estimate that a purchaser of
common units in this offering who owns those common units from the date of
closing of this offering through December 31, 2004, will be allocated an amount
of federal taxable income for that period that will be no more than 20% of the
cash distributed with respect to that period. These estimates are based upon
the assumption that gross income from operations will approximate the amount
required to make the minimum quarterly distribution on all units and other
assumptions with respect to capital expenditures, cash flow and anticipated
cash distributions. These estimates and assumptions are subject to, among other
things, numerous business, economic, regulatory, competitive and political
uncertainties beyond our control. Further, the estimates are based on current
tax law and tax reporting positions that we will adopt and with which the IRS
could disagree. Accordingly, these estimates may prove to be incorrect. The
actual percentage that will constitute taxable income could be higher or lower,
and any differences could be material and could materially affect the value of
the common units.

   Basis of Common Units. A unitholder's initial tax basis for his common units
will be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse liabilities. That
basis will be decreased, but not below zero, by our distributions to him, by
his share of our losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not deductible in
computing taxable income and are not required to be capitalized. A unitholder
will have no share of our debt which is recourse to either general partner, but
will have a share of our nonrecourse liabilities, generally based on his share
of profits. Please read "--Disposition of Common Units--Recognition of Gain or
Loss."

   Limitations on Deductibility of Losses. The deduction by a unitholder of his
share of our losses will be limited to the tax basis in his units and, in the
case of an individual unitholder or a corporate unitholder, if more than 50% of
the value of the corporate unitholder's stock is owned directly or indirectly
by five or fewer individuals or some tax-exempt organizations, to the amount
for which the unitholder is considered to be "at risk" with respect to our
activities, if that is less than his tax basis. A unitholder must recapture
losses deducted in previous years to the extent that distributions cause his at
risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that his tax basis or at risk
amount, whichever is the limiting factor, is subsequently increased. Upon the
taxable disposition of a unit, any gain recognized by a unitholder can be
offset by losses that were previously suspended by the at risk limitation but
may not be offset by losses suspended by the basis limitation. Any excess loss
above that gain previously suspended by the at risk or basis limitations is no
longer utilizable.

   In general, a unitholder will be at risk to the extent of the tax basis of
his units, excluding any portion of that basis attributable to his share of our
nonrecourse liabilities, reduced by any amount of money he borrows to acquire
or hold his units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units for repayment. A
unitholder's at risk amount will increase or decrease as the tax basis of the
unitholder's units increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of our
nonrecourse liabilities.

   The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
deduct losses from passive activities, which are generally partnership or
corporate activities in which the taxpayer does not materially participate,
only to the extent of the taxpayer's income from those passive activities. The
passive loss limitations are applied separately with

                                      119

respect to each publicly-traded partnership. Consequently, any passive losses
we generate 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 any dividend income we derive or from our
investments or investments in other publicly-traded partnerships, or salary or
active business income. Passive losses that are not deductible because they
exceed a unitholder's share of our income may be deducted in full when he
disposes of his 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, including the at risk rules and the basis
limitation.

   A unitholder's share of our net income may be offset by any suspended
passive losses, 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.

   Limitations on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
that taxpayer's "net investment income." Investment interest expense includes:

  .  interest on indebtedness properly allocable to property held for
     investment;

  .  our interest expense attributed to portfolio income; and

  .  the portion of interest expense incurred to purchase or carry an
     interest in a passive activity to the extent attributable to portfolio
     income.

   The computation of a unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit.

   Net investment income includes gross income from property held for
investment and amounts treated as portfolio income under the passive loss
rules, less deductible expenses, other than interest, directly connected with
the production of investment income, but generally does not include gains
attributable to the disposition of property held for investment.

   The IRS has indicated that the net passive income earned by a publicly
traded partnership will be treated as investment income to its unitholders. In
addition, a unitholder's share of our portfolio income will be treated as
investment income.

   Entity-Level Collections. If we are required or elect under applicable law
to pay any federal, state, foreign or local income tax on behalf of any
unitholder or the non-managing general partner or any former unitholder, we are
authorized to pay those taxes from our funds. That payment, if made, will be
treated as a distribution of cash to the unitholder on whose behalf the payment
was made. If the payment is made on behalf of a person whose identity cannot be
determined, we are authorized to treat the payment as a distribution to all
current unitholders. We are authorized to amend the partnership agreement in
the manner necessary to maintain uniformity of intrinsic tax characteristics of
units and to adjust later distributions, so that after giving effect to these
distributions, the priority and characterization of distributions otherwise
applicable under the 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 an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain a credit or
refund.

   Allocation of Income, Gain, Loss and Deduction. In general, if we have a net
profit, our items of income, gain, loss and deduction will be allocated among
the non-managing general partner and the unitholders in accordance with their
percentage interests in us. At any time that distributions are made to the
common units in excess of distributions to the senior subordinated units or
junior subordinated units, or incentive distributions are made to Inergy
Holdings, gross income will be allocated to the recipients to the extent of
these distributions. If we have a net loss for the entire year, that loss will
be allocated first to the non-managing general partner and the unitholders in
accordance with their percentage interests in us to the extent of their
positive capital accounts and, second, to the non-managing general partner.

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   Specified 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 the non-managing general partner and its
affiliates, referred to in this discussion as "Contributed Property." The
effect of these allocations to a unitholder purchasing common units will be
essentially the same as if the tax basis of our assets were equal to their fair
market value at the time of contribution. In addition, recapture income will be
allocated to the extent possible to the unitholder who was allocated the
deduction giving rise to the treatment of that gain as recapture income in
order to minimize the recognition of ordinary income by other unitholders.
Finally, although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital accounts
nevertheless result, our income and gain will be allocated in an amount and
manner to eliminate the negative balance as quickly as possible.

   An allocation of our income, gain, loss or deduction, other than an
allocation required by the Internal Revenue Code to eliminate the difference
between a partner's "book" capital account, credited with the fair market value
of Contributed Property, and "tax" capital account, credited with the tax basis
of Contributed Property, referred to in this discussion as the "Book-Tax
Disparity," will generally be given effect for federal income tax purposes in
determining a unitholder's share of an item of income, gain, loss or deduction
only if the allocation has substantial economic effect. In any other case, a
unitholder's share of an item will be determined on the basis of his interest
in us, which will be determined by taking into account all the facts and
circumstances, including his relative contributions to us, the interests of all
the unitholders in profits and losses, the interest of all the unitholders in
cash flow and other nonliquidating distributions and the rights of all the
unitholders to distributions of capital upon liquidation.

   Vinson & Elkins L.L.P. is of the opinion that, with the exception of the
issues described in "--Tax Consequences of Unit Ownership--Section 754
Election" and "--Disposition of Common Units--Allocations Between Transferors
and Transferees," allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a unitholder's share of
our income, gain, loss or deduction.

   Treatment of Short Sales. A unitholder whose units are loaned to a "short
seller" to cover a short sale of units may be considered as having disposed of
those units. If so, he would no longer be a partner for tax purposes with
respect to those units during the period of the loan and may recognize gain or
loss from the disposition. As a result, during this period:

  .  any of our income, gain, loss or deduction with respect to those units
     would not be reportable by the unitholder,

  .  any cash distributions received by the unitholder as to those units
     would be fully taxable, and

  .  all of these distributions would appear to be ordinary income.

   Vinson & Elkins L.L.P. has not rendered an opinion regarding the treatment
of a unitholder whose common units are loaned to a short seller. Therefore,
unitholders desiring to assure their status as partners and avoid the risk of
gain recognition should modify any applicable brokerage account agreements to
prohibit their brokers from loaning their units. The IRS has announced that it
is studying issues relating to the tax treatment of short sales of partnership
interests. Please also read "--Disposition of Common Units--Recognition of Gain
or Loss."

   Alternative Minimum Tax. Each unitholder will be required to take into
account his share of any items of our income, gain, loss or deduction for
purposes of the alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of alternative minimum
taxable income in excess of the exemption amount and 28% on any additional
alternative minimum taxable income. Prospective unitholders are urged to
consult with their tax advisors as to the impact of an investment in units on
their liability for the alternative minimum tax.

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   Tax Rates. In general the highest effective United States federal income tax
rate for individuals for 2002 is 38.6% and the maximum United States federal
income tax rate for net capital gains of an individual for 2002 is 20% if the
asset disposed of was held for more than 12 months at the time of disposition.

   Section 754 Election. We have made the election permitted by Section 754 of
the Internal Revenue Code. That election is irrevocable without the consent of
the IRS. The election will generally permit us to adjust a common unit
purchaser's tax basis in our assets ("inside basis") under Section 743(b) of
the Internal Revenue Code to reflect his purchase price. The Section 743(b)
adjustment belongs to the purchaser and not to other unitholders. For purposes
of this discussion, a unitholder's inside basis in our assets will be
considered to have two components: (1) his share of our tax basis in our assets
("common basis") and (2) his Section 743(b) adjustment to that basis.

   Treasury regulations under Section 743 of the Internal Revenue Code require,
if the remedial allocation method is adopted (which we have adopted), a portion
of the Section 743(b) adjustment attributable to recovery property to be
depreciated over the remaining cost recovery period for the Section 704(c)
built-in gain. Under Treasury Regulation Section l.167(c)-l(a)(6), a Section
743(b) adjustment attributable to property subject to depreciation under
Section 167 of the Internal Revenue Code rather than cost recovery deductions
under Section 168 is generally required to be depreciated using either the
straight-line method or the 150% declining balance method. Under our
partnership agreement, the managing general partner is authorized to take a
position to preserve the uniformity of units even if that position is not
consistent with these Treasury Regulations. Please read "--Tax Treatment of
Operations--Uniformity of Units."

   Although Vinson & Elkins L.L.P. is unable to opine as to the validity of
this approach because there is no clear authority on this issue, we intend to
depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to the extent of
any unamortized Book-Tax Disparity, using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the common basis of the property, or treat that portion as non-
amortizable to the extent attributable to property the common basis of which is
not amortizable. This method is consistent with the regulations under Section
743 but is arguably inconsistent with Treasury Regulation Section l.167(c)-
l(a)(6) which is not expected to directly apply to a material portion of our
assets. To the extent a Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax Disparity, we will
apply the rules described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken, we may take a
depreciation or amortization position under which all purchasers acquiring
units in the same month would receive depreciation or amortization, whether
attributable to common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest in our assets.
This kind of aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to some unitholders.
Please read "--Tax Treatment of Operations--Uniformity of Units."

   A Section 754 election is advantageous if the transferee's tax basis in his
units is higher than the units' share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of the election,
the transferee would have, among other items, a greater amount of depreciation
and depletion deductions and his share of any gain or loss on a sale of our
assets would be less. Conversely, a Section 754 election is disadvantageous if
the transferee's tax basis in his units is lower than those units' share of the
aggregate tax basis of our assets immediately prior to the transfer. Thus, the
fair market value of the units may be affected either favorably or unfavorably
by the election.

   The calculations involved in the Section 754 election are complex and will
be made on the basis of assumptions as to the value of our assets and other
matters. For example, the allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue Code. The IRS could
seek to reallocate some or all of any Section 743(b) adjustment allocated by us
to our tangible assets to goodwill instead. Goodwill, as an intangible asset,
is generally amortizable over a longer period of time or under a less

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accelerated method than tangible assets. We cannot assure you that the
determinations we make will not be successfully challenged by the IRS and that
the deductions resulting from them may not 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
permission is granted, a subsequent purchaser of units may be allocated more
income than he would have been allocated had the election not been revoked.

Tax Treatment of Operations

   Accounting Method and Taxable Year. We use the year ending December 31 as
our taxable year and the accrual method of accounting for federal income tax
purposes. Each unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending within or with
his taxable year. In addition, a unitholder who has a taxable year ending on a
date other than December 31 and who disposes of all of his units following the
close of our taxable year but before the close of his taxable year must include
his share of our income, gain, loss and deduction in income for his taxable
year, with the result that he will be required to include in income for his
taxable year his share of more than one year of our income, gain, loss and
deduction. Please read "--Disposition of Common Units--Allocations Between
Transferors and Transferees."

   Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets is used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets.
The federal income tax burden associated with the difference between the fair
market value of our assets and their tax basis immediately prior to this
offering will be borne by the non-managing general partner, its affiliates and
the owners of units immediately prior to this offering. Please read "--
Allocation of Income, Gain, Loss and Deduction."

   To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We will not take any
amortization deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be depreciated
using accelerated methods permitted by the Internal Revenue Code.

   If we dispose of depreciable property by sale, foreclosure, or otherwise,
all or a portion of any gain, determined by reference to the amount of
depreciation previously deducted and the nature of the property, may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a unitholder who has taken cost recovery or depreciation deductions
with respect to property we own will likely be required to recapture some or
all of those deductions as ordinary income upon a sale of his interest in us.
Please read "--Tax Consequences of Unit Ownership--Allocation of Income, Gain,
Loss and Deduction" and "--Disposition of Common Units--Recognition of Gain or
Loss."

   The costs incurred in selling our units (called "syndication expenses") must
be capitalized and cannot be deducted currently, ratably or upon termination of
Inergy, L.P. There are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, 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 units will depend in part on
our estimates of the relative fair market values, and determination of the
initial tax basis, of our assets. Although we may from time to time consult
with professional appraisers regarding valuation matters, we will make many of
the relative fair market value estimates ourselves. These estimates, and
determination of basis, are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value are later found to be
incorrect, the character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and unitholders
might be required to adjust their tax liability for prior years and incur
interest and penalties with respect to those adjustments.

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Disposition of Common Units

   Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the unitholder's
tax basis for the units sold. A unitholder's amount realized will be measured
by the sum of the cash or the fair market value of other property received
plus his share of our nonrecourse liabilities. Because the amount realized
includes a unitholder's share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability in excess of
any cash received from the sale. We do not currently have any nonrecourse
liabilities.

   Prior distributions from us in excess of cumulative net taxable income for
a common unit that decreased a unitholder's tax basis in that common unit
will, in effect, become taxable income if the common unit is sold at a price
greater than the unitholder's tax basis in that common unit, even if the price
is less than his original cost.

   Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain
recognized by an individual on the sale of units held more than 12 months will
generally be taxed at a maximum rate of 20%. A portion of this gain or loss,
which will likely be substantial, however, will be separately computed and
taxed as ordinary income or loss under Section 751 of the Internal Revenue
Code to the extent attributable to Section 751 Assets. Ordinary income
attributable to Section 751 Assets may exceed net taxable gain realized upon
the sale of a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize both ordinary
income and a capital loss upon a sale of units. Net capital loss may offset
capital gains and 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 those interests, a portion of that tax basis must be
allocated to the interests sold using an "equitable apportionment" method.
Treasury regulations under Section 1223 of the Internal Revenue Code allow a
selling unitholder who can identify common units transferred with an
ascertainable holding period to elect to use the actual holding period of the
common units transferred. Thus, according to the ruling, a common unitholder
will be unable to select high or low basis common units to sell as would be
the case with corporate stock, but, under the Treasury regulations, can
designate specific common units sold for purposes of determining the holding
period of the units sold. A unitholder electing to use the actual holding
period of common units transferred must consistently use that identification
method for all subsequent sales or exchanges of common units. A unitholder
considering the purchase of additional units or a sale of common units
purchased in separate transactions is urged to consult his tax advisor as to
the possible consequences of this ruling and application of the regulations.

   Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests such
as our units, by treating a taxpayer as having sold an "appreciated"
partnership interest, one in which gain would be recognized if it were sold,
assigned or terminated at its fair market value, if the taxpayer or related
persons enter(s) into:

  . a short sale,

   .an offsetting notional principal contract, or

   .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. The Secretary of
Treasury is also authorized to issue regulations that treat a taxpayer that
enters into

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transactions or positions that have substantially the same effect as the
preceding transactions as having constructively sold the financial position.

   Allocations Between Transferors and Transferees. In general, our taxable
income and losses will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion
to the number of units owned by each of them as of the opening of the
applicable exchange on the first business day of the month (the "Allocation
Date"). However, gain or loss realized on a sale or other disposition of our
assets other than in the ordinary course of business will be allocated among
the unitholders on the Allocation Date in the month in which that gain or loss
is recognized. As a result, a unitholder transferring units may be allocated
income, gain, loss and deduction realized after the date of transfer.

   The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Vinson & Elkins L.L.P. is unable to opine on the
validity of this method of allocating income and deductions between the
transferors and transferees of units. If this method is not allowed under the
Treasury Regulations or only applies to transfers of less than all of the
unitholder's interest, our taxable income or losses might be reallocated among
the unitholders. We are authorized to revise our method of allocation between
transferors and transferees, as well as among, unitholders whose interest
otherwise vary during a taxable period, to conform to a method which is
permitted.

   A unitholder who owns units at any time during a quarter and who disposes of
them prior to the record date set for a cash distribution for that quarter will
be allocated a share of our income, gain, loss and deductions attributable to
that quarter but will not be entitled to receive that cash distribution.

   Notification Requirements. A unitholder who sells or exchanges units is
required to notify us in writing of that sale or exchange within 30 days after
the sale or exchange. We are required to notify the IRS of that transaction and
to furnish specified information to the transferor and transferee. However,
these reporting requirements do not apply to a sale by an individual who is a
citizen of the United States and who effects the sale or exchange through a
broker. Failure to notify us of a purchase may lead to the imposition of
substantial penalties.

   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 constructive
termination results in the closing of our taxable year for all unitholders. In
the case of a unitholder reporting on a taxable year other than a fiscal 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 his taxable income for
the year of termination. We would be required to make new tax elections after a
termination, including a new election under Section 754 of the Internal Revenue
Code, and a termination would result in a deferral of any 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 before the termination.

Uniformity of Units

   Because we cannot match transferors and transferees of units, we must
maintain uniformity of the economic and tax characteristics of the units to a
purchaser of these units. In the absence of uniformity, we may be unable to
completely comply with a number of federal income tax requirements, both
statutory and regulatory. A lack of uniformity can result from a literal
application of Treasury Regulation Section l.167(c)-l(a)(6). Any non-uniformity
could have a negative impact on the value of the units. Please read "--Tax
Consequences of Unit Ownership--Section 754 Election."

   We depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to the extent of
any unamortized Book-Tax Disparity, using a rate of

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depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the common basis of that property, or treat
that portion as nonamortizable, to the extent attributable to property the
common basis of which is not amortizable. This method is consistent with the
regulations under Section 743, but is arguably inconsistent with Treasury
Regulation Section l.167(c)-l(a)(6) which is not expected to directly apply to
a material portion of our assets. Please read "--Tax Consequences of Unit
Ownership--Section 754 Election." To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we apply the rules described in the Treasury
Regulations and legislative history. If we determine that this position cannot
reasonably be taken, we may adopt a depreciation and amortization position
under which all purchasers acquiring units in the same month would receive
depreciation and amortization deductions, whether attributable to a common
basis or Section 743(b) adjustment, based upon the same applicable rate as if
they had purchased a direct interest in our property. If this position is
adopted, it may result in lower annual depreciation and amortization deductions
than would otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization deductions not taken in the year that these
deductions are otherwise allowable. This position will not be adopted if we
determine that the loss of depreciation and amortization deductions will have a
material adverse effect on the unitholders. If we choose not to utilize this
aggregate method, we may use any other reasonable depreciation and amortization
method to preserve the uniformity of the intrinsic tax characteristics of any
units that would not have a material adverse effect on the unitholders. The IRS
may challenge any method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained, the uniformity
of units might be affected, and the gain from the sale of units might be
increased without the benefit of additional deductions. Please read "--
Disposition of Common Units--Recognition of Gain or Loss."

Tax-Exempt Organizations and Other Investors

   Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations, other non-U.S.
persons and regulated investment companies (mutual funds) raises issues unique
to those investors and, as described below, may have substantially adverse tax
consequences to them. Employee benefit plans and most other organizations
exempt from federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on unrelated business
taxable income. Virtually all of our income allocated to a unitholder which is
a tax-exempt organization will be unrelated business taxable income and will be
taxable to them.

   A regulated investment company or "mutual fund" is required to derive 90% or
more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. It is
not anticipated that any significant amount of our gross income will include
that type of income.

   Non-resident aliens and foreign corporations, trusts or estates that own
units will be considered to be engaged in business in the United States because
of the ownership of units. As a consequence they will be required to file
federal tax returns to report their share of our income, gain, loss or
deduction and pay federal income tax at regular rates on their share of our net
income or gain. Under rules applicable to publicly traded partnerships, we will
withhold at the highest marginal tax rate applicable to individuals on cash
distributions made quarterly to foreign unitholders. Each foreign unitholder
must obtain a taxpayer identification number from the IRS and submit that
number to our transfer agent on a Form W-8 BEN or applicable substitute form in
order to obtain credit for these withholding taxes. A change in applicable law
may require us to change these procedures.

   In addition, because a foreign corporation that owns units will be treated
as engaged in a United States trade or business, that corporation may be
subject to the United States branch profits tax at a rate of 30%, in addition
to regular federal income tax, on its 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 in which the foreign corporate unitholder is a
"qualified resident." In addition, this type of

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unitholder is subject to special information reporting requirements under
Section 6038C of the Internal Revenue Code.

   Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on
the sale or disposition of that unit to the extent that this gain is
effectively connected with a United States trade or business of the foreign
unitholder. Apart from the ruling, a foreign unitholder will not be taxed or
subject to withholding upon the sale or disposition of a unit if he has owned
less than 5% in value of the units during the five-year period ending on the
date of the disposition and if the units are regularly traded on an
established securities market at the time of the sale or disposition.

Administrative Matters

   Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-l, which describes his share of our
income, gain, loss and deduction for our preceding taxable year. In preparing
this information, which will not be reviewed by counsel, we will take various
accounting and reporting positions, some of which have been mentioned earlier,
to determine the unitholders share of income, gain, loss and deduction. We
cannot assure you that those positions will yield a result that conforms to
the requirements of the Internal Revenue Code, Treasury Regulations or
administrative interpretations of the IRS. Neither we nor Vinson & Elkins
L.L.P. can assure prospective unitholders that the IRS will not successfully
contend in court that those positions are impermissible. Any challenge by the
IRS could negatively affect the value of the units.

   The IRS may audit our federal income tax information returns. Adjustments
resulting from an IRS audit may require each unitholder to adjust a prior
year's tax liability, and possibly may result in an audit of that unitholder's
own return. Any audit of a unitholder's return could result in adjustments not
related to our returns as well as those related to our returns.

   Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS
and tax settlement proceedings. The tax treatment of partnership items of
income, gain, loss and deduction are determined in a partnership proceeding
rather than in separate proceedings with the partners. The Internal Revenue
Code requires that one partner be designated as the "Tax Matters Partner" for
these purposes. The partnership agreement names Inergy GP, LLC as our Tax
Matters Partner.

   The Tax Matters Partner has made and will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters Partner can extend
the statute of limitations for assessment of tax deficiencies against
unitholders for items in our returns. The Tax Matters Partner may bind a
unitholder with less than a 1% profits interest in us to a settlement with the
IRS unless that unitholder elects, by filing a statement with the IRS, not to
give that authority to the Tax Matters Partner. The Tax Matters Partner may
seek judicial review, by which all the unitholders are bound, of a final
partnership administrative adjustment and, if the Tax Matters Partner fails to
seek judicial review, judicial review may be sought by any unitholder having
at least a 1% interest in profits or by any group of unitholders having in the
aggregate at least a 5% interest in profits. However, only one action for
judicial review will go forward, and each unitholder with an interest in the
outcome may participate.

   A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of
this consistency requirement may subject a unitholder to substantial
penalties.

   Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:

     (a) the name, address and taxpayer identification number of the
  beneficial owner and the nominee;

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     (b) whether the beneficial owner is:

       (1) a person that is not a United States person,

       (2) a foreign government, an international organization or any wholly
    owned agency or instrumentality of either of the foregoing, or

       (3) a tax-exempt entity;

     (c) the amount and description of units held, acquired or transferred
  for the beneficial owner; and

     (d) specific 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 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 that information to
us. The nominee is required to supply the beneficial owner of the units with
the information furnished to us.

   Registration as a Tax Shelter. The Internal Revenue Code requires that "tax
shelters" be registered with the Secretary of the Treasury. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of
the Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not
constitute a tax shelter. However, we have registered as a tax shelter with
the Secretary of Treasury in the absence of assurance that we will not be
subject to tax shelter registration and in light of the substantial penalties
which might be imposed if registration is required and not undertaken.

   Our tax shelter registration number is 01204000001. A unitholder who sells
or otherwise transfers a unit in a later transaction must furnish the
registration number to the transferee. The penalty for failure of the
transferor of a unit to furnish the registration number to the transferee is
$100 for each failure. The unitholders must disclose our tax shelter
registration number on Form 8271 to be attached to the tax return on which any
deduction, loss or other benefit we generate is claimed or on which any of our
income is included. A unitholder who fails to disclose the tax shelter
registration number on his return, without reasonable cause for that failure,
will be subject to a $250 penalty for that failure. Any penalties discussed
are not deductible for federal income tax purposes.

   Issuance of this registration number does not indicate that investment in
us or the claimed tax benefits have been reviewed, examined or approved by the
IRS.

   Accuracy-related Penalties. An additional tax equal to 20% of the amount of
any portion of an underpayment of tax that is attributable to one or more
specified 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, for 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 regarding that portion.

   A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax
required to be shown on the return for the taxable year or $5,000 ($10,000 for
most corporations). The amount of any understatement subject to penalty
generally is reduced if any portion is attributable to a position adopted on
the return:

     (1) for which there is, or was, "substantial authority"; or

     (2) as to which there is a reasonable basis and the pertinent facts of
  that position are disclosed on the return.

                                      128

   More stringent rules apply to "tax shelters," a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result in that kind of
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 the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.

State, Local and Other Tax Considerations

   In addition to federal income taxes, you will be subject to other taxes,
including state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder is urged
to consider their potential impact on his investment in us. We presently
anticipate that substantially all of our income will be generated in the
following states: Arkansas, Florida, Georgia, Illinois, Indiana, Michigan,
North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Wisconsin.
Each of these states, except Florida and Texas, currently imposes a personal
income tax. A unitholder will likely be required to file state income tax
returns and to pay state income taxes in these states and may be subject to
penalties for failure to comply with these requirements. In some states, tax
losses may not produce a tax benefit in the year incurred and also may not be
available to offset income in subsequent taxable years. Some of the states may
require us, or we may elect, to withhold a percentage of income from amounts to
be distributed to a unitholder who is not a resident of the state. Withholding,
the amount of which may be greater or less than a particular unitholder's
income tax liability to the state, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return. Amounts withheld
may be treated as if distributed to unitholders for purposes of determining the
amounts distributed by us. Please read "--Tax Consequences of Unit Ownership--
Entity-Level Collections." Based on current law and our estimate of our future
operations, the managing general partner anticipates that any amounts required
to be withheld will not be material. We may also own property or do business in
other states in the future.

   It is the responsibility of each unitholder to investigate the legal and tax
consequences, under the laws of pertinent states and localities, of his
investment in us. Accordingly, each prospective unitholder should consult, and
must depend upon, his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each unitholder to file all state
and local, as well as federal tax returns, that may be required of him. Vinson
& Elkins L.L.P. has not rendered an opinion on the state or local tax
consequences of an investment in us.

                                      129

              INVESTMENT IN INERGY, L.P. 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 ERISA, and
restrictions imposed by Section 4975 of the Internal Revenue Code. For these
purposes the term "employee benefit plan" includes, but is not limited to,
qualified pension, profit-sharing and stock bonus plans, Keogh plans,
simplified employee pension plans and tax deferred annuities or IRAs
established or maintained by an employer or employee organization. Among other
things, consideration should be given to:

     (a) whether the investment is prudent under Section 404(a)(1)(B) of
  ERISA,

     (b) whether in making the investment, that plan will satisfy the
  diversification requirements of Section 404(a)(1)(C) of ERISA, and

     (c) whether the investment will result in recognition of unrelated
  business taxable income by the plan and, if so, the potential after-tax
  investment return.

   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 plan.

   Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
employee benefit plans, and also IRAs 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
plan.

   In addition to considering whether the purchase of common units is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether the plan will, by investing in us, be deemed to own an undivided
interest in our assets, with the result that the managing general partner also
would be a fiduciary of the plan and our operations 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.

   The Department of Labor regulations provide guidance with respect to whether
the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under some circumstances. Under these
regulations, an entity's assets would not be considered to be "plan assets" if,
among other things,

     (a) the equity interests acquired by employee benefit plans are publicly
  offered securities; i.e., the equity interests are widely held by 100 or
  more investors independent of the issuer and each other, freely
  transferable and registered under some provisions of the federal securities
  laws,

     (b) the entity is an "operating company," i.e., it is primarily engaged
  in the production or sale of a product or service other than the investment
  of capital either directly or through a majority owned subsidiary or
  subsidiaries, or

     (c) there is no significant investment by benefit plan investors, which
  is defined to mean that less than 25% of the value of each class of equity
  interest, disregarding some interests held by the managing general partner,
  its affiliates, and some other persons, is held by the employee benefit
  plans referred to above, IRAs and other employee benefit plans not subject
  to ERISA, including governmental plans.

   Our assets should not be considered "plan assets" under these regulations
because it is expected that the investment will satisfy the requirements in (a)
above.

   Plan fiduciaries contemplating a purchase of common units should consult
with their own counsel regarding the consequences under ERISA and the Internal
Revenue Code in light of the serious penalties imposed on persons who engage in
prohibited transactions or other violations.

                                      130

                                  UNDERWRITING

   Subject to the terms and conditions of the underwriting agreement among us,
the selling unitholders and the underwriters, the underwriters have agreed
severally to purchase from us and the selling unitholders the following number
of common units at the offering price less the underwriting discount set forth
on the cover page of this prospectus.

                                                                     Number of
Underwriter                                                         Common Units
- -----------                                                         ------------
                                                                 
A.G. Edwards & Sons, Inc. .........................................    350,000
Raymond James & Associates, Inc. ..................................    350,000
UBS Warburg LLC....................................................    350,000
First Union Securities, Inc. ......................................    350,000
                                                                     ---------
  Total............................................................  1,400,000
                                                                     =========

   The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions and that the underwriters will purchase all
such common units if any of the units are purchased. The underwriters are
obligated to take and pay for all of the common units offered hereby, other
than those covered by the over-allotment option described below, if any are
taken.

   The underwriters have advised us that they propose to offer the common units
to the public at the offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $0.98 per unit. The underwriters may allow, and such dealers may re-allow, a
concession not in excess of $0.10 per unit to certain other dealers. After the
offering, the offering price and other selling terms may be changed by the
underwriters.

   Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days after the date of this prospectus, to
purchase up to 210,000 additional common units at the offering price, less the
underwriting discount set forth on the cover page of this prospectus, solely to
cover over-allotments.

   To the extent the underwriters exercise such option, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional units as the number set forth next to such
underwriter's name in the preceding table bears to the total number of units in
the table, and we will be obligated, pursuant to the option, to sell such units
to the underwriters.

   Inergy, L.P., New Inergy Propane, LLC, the general partners and certain
other affiliates have agreed that during the 90 days after the date of this
prospectus, they will not, without the prior written consent of A.G. Edwards &
Sons, Inc., directly or indirectly, offer for sale, contract to sell, sell,
distribute, grant any option, right or warrant to purchase, pledge, hypothecate
or otherwise dispose of any common units, any securities convertible into, or
exercisable or exchangeable for, common units or any other rights to acquire
such common units, other than pursuant to employee benefit plans as in
existence as of the date of this prospectus.

   A.G. Edwards may, in its sole discretion, allow any of these parties to
offer for sale, contract to sell, sell, distribute, grant any option, right or
warrant to purchase, pledge, hypothecate or otherwise dispose of any common
units, any securities convertible into, or exercisable or exchangeable for,
common units or any other rights to acquire such common units prior to the
expiration of such 90-day period in whole or in part at anytime without notice.
There are, however, no agreements between A.G. Edwards and these parties that
would allow them to do so as of the date of this prospectus. A.G. Edwards has
informed us that in the event that consent to a waiver of these restrictions is
requested by us or any other person, A.G. Edwards, in deciding whether to grant
its consent, will consider, among other factors, the unitholder's reasons for
requesting the release, the number of units for which the release is being
requested, and market conditions at the time of the request for such release.
However, A.G. Edwards has informed us that as of the date of this prospectus
there

                                      131

are no agreements between A.G. Edwards and any party that would allow such
party to transfer any common units, nor does it have any intention of releasing
any of the common units subject to the lock-up agreements prior to the
expiration of the lock-up period at this time.

   The following table summarizes the discounts that Inergy, L.P. and the
selling unitholders will pay to the underwriters in this offering. These
amounts assume both no exercise and full exercise of the underwriters' option
to purchase additional common units.

                                                       No Exercise Full Exercise
                                                       ----------- -------------
                                                             
Per Unit.............................................. $     1.64   $     1.64
Total................................................. $2,296,000   $2,640,400

   We expect to incur expenses of approximately $1.2 million in connection with
this offering.

   Inergy, L.P., New Inergy Propane, LLC, the general partners and certain
other affiliates and the selling unitholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.

   In connection with this offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.

  .  Stabilizing transactions permit bids to purchase the underlying security
     so long as the stabilizing bids do not exceed a specified maximum.

  .  Over-allotment transactions involve sales by the underwriters of the
     common units in excess of the number of units the underwriters are
     obligated to purchase, which creates a syndicate short position. The
     short position may be either a covered short position or a naked short
     position. In a covered short position, the number of units over-allotted
     by the underwriters are not greater than the number of units it may
     purchase in the over-allotment option. In a naked short position, the
     number of units involved is greater than the number of units in the
     over-allotment option. The underwriters may close out any short position
     by either exercising their over-allotment option and/or purchasing
     common units in the open market.

  .  Syndicate covering transactions involve purchases of the common units in
     the open market after the distribution has been completed in order to
     cover syndicate short positions. In determining the source of the common
     units to close out the short position, the underwriters will consider,
     among other things, the price of common units available for purchase in
     the open market as compared to the price at which they may purchase
     common units through the over-allotment option. If the underwriters sell
     more common units than could be covered by the over-allotment option, a
     naked short position, the position can only be closed out by buying
     common units in the open market. A naked short position is more likely
     to be created if the underwriters are concerned that there could be
     downward pressure on the price of the common units in the open market
     after pricing that could adversely affect investors who purchase in the
     offering.

  .  Penalty bids permit the underwriters to reclaim a selling concession
     from a syndicate member when the common units originally sold by the
     syndicate member are purchased in a stabilizing or syndicate covering
     transaction to cover syndicate short positions.

   Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of the common units or preventing or retarding a decline in the
market price of the common units. As a result, the price of the common units
may be higher than the price that might otherwise exist in the open market.

   The underwriters will deliver a prospectus to all purchasers of common units
in the short sales. The purchasers of common units in short sales are entitled
to the same remedies under the federal securities laws as any other purchaser
of common units covered by this prospectus.

                                      132

   The underwriters are not obligated to engage in any of the transactions
described above. If they do engage in any of these transactions, they may
discontinue them at any time.

   Neither Inergy, L.P. nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common units. In addition, neither
Inergy, L.P. nor the underwriters make any representation that the underwriters
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

   Because the National Association for Securities Dealers, Inc. views the
common units offered hereby as interests in a direct participation program, the
offering is being made in compliance with Rule 2810 of the NASD's Conduct
Rules. Investor suitability with respect to the common units should be judged
similarly to the suitability with respect to other securities that are listed
for trading on a national securities exchange.

   First Union National Bank, an affiliate of First Union Securities, Inc.,
which is one of the underwriters, is administrative agent and one of the
lenders under our credit facility, for which it received customary
compensation. The proceeds of this offering will be used to repay a portion of
this indebtedness. In addition, First Union Securities, Inc. was the placement
agent for the private offering of our senior secured notes. The proceeds of the
notes offering were used to repay borrowings under the credit facility. A.G.
Edwards has performed various financial advisory services for Inergy, L.P. and
Inergy Partners, LLC for which it received customary compensation. AG. Edwards,
First Union Securities, Inc. and Raymond James were underwriters in our initial
public offering that closed on July 31, 2001. The underwriters may, from time
to time, engage in transactions with and perform services for us in the
ordinary course of their business.

   Wachovia Corporation conducts its investment banking, institutional and
capital markets business through its various bank, broker-dealer and non-bank
subsidiaries (including one of the underwriters, First Union Securities, Inc.)
under the trade name of Wachovia Securities. Any references to Wachovia
Securities in this prospectus, however, do not include Wachovia Securities,
Inc., member NASD/SIPC and a separate broker-dealer subsidiary of Wachovia
Corporation and sister affiliate of the underwriter that may or may not be
participating as a selling dealer in the distribution of the units.

                          VALIDITY OF THE COMMON UNITS

   The validity of the common units will be passed upon for us by Vinson &
Elkins L.L.P., Houston, Texas. Certain legal matters in connection with the
common units offered hereby will be passed upon for the underwriters by Baker
Botts L.L.P., Houston, Texas.

                                    EXPERTS

   Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Inergy, L.P. and Subsidiary (successor to Inergy
Partners, LLC and subsidiaries) at September 30, 2000 and 2001, and for each of
the three years in the period ended September 30, 2001, the combined financial
statements of the Hoosier Propane Group at September 30, 1999 and 2000 and
December 31, 2000, and for each of the three years in the period ended
September 30, 2000 and the three months ended December 31, 2000 and the balance
sheet of Inergy GP, LLC at September 30, 2001, as set forth in their reports.
We have included these financial statements in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.

   Arthur Andersen LLP, independent auditors, have audited the consolidated
financial statements of Independent Propane Company Holdings at September 30,
2000 and 2001, and for each of the three years in the period ended September
30, 2001, as set forth in their report. We have included these financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Arthur Andersen LLP's report, given on their authority as experts
in accounting and auditing.

                                      133

                                 OTHER MATTERS

   Arthur Andersen LLP, the independent public accountants for IPC, provided us
with an audit report with respect to IPC's financial statements contained in
this prospectus. Prior to the date of this prospectus, the partners of Arthur
Andersen LLP who reviewed the most recent audited financial statements relating
to IPC have resigned from Arthur Andersen LLP. While we obtained the written
consent of Arthur Andersen LLP with our initial filing of the registration
statement (of which this prospectus forms a part), after reasonable efforts, we
have been unable to obtain Arthur Andersen LLP's updated written consent to the
inclusion in the registration statement of its audit report with respect to
IPC's financial statements. Accordingly, we have dispensed with the requirement
to file their consent in reliance upon Rule 437a of the Securities Act of 1933.
Because Arthur Andersen LLP has not consented to the inclusion of their report
in this prospectus, you will not be able to recover against Arthur Andersen LLP
under Section 11 of the Securities Act for any untrue statements of a material
fact contained in the financial statements audited by Arthur Andersen LLP or
any omissions to state a material fact required to be stated therein.

                      WHERE YOU CAN FIND MORE INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 regarding the common units. This prospectus does not
contain all of the information found in the registration statement. For further
information regarding Inergy and the common units offer by this prospectus, you
may desire to review the full registration statement, including its exhibits
and schedules, filed under the Securities Act of 1933. The registration
statement of which this prospectus forms a part, including its exhibits and
schedules, may be inspected and copied at the public reference room maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of the materials may also be obtained from the SEC at prescribed rates by
writing to the public reference room maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the SEC at
l-800-SEC-0330.

   The SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov. Our registration statement, of which this prospectus
constitutes a part, can be downloaded from the SEC's web site.

   We furnish our unitholders with annual reports containing our audited
financial statements and furnish or make available quarterly reports containing
our unaudited interim financial information for the first three fiscal quarters
of each fiscal year.

                                      134

                           FORWARD-LOOKING STATEMENTS

   Some of the information in this prospectus may contain forward-looking
statements. All statements other than statements of historical fact are
forward-looking statements. These statements can be identified by the use of
forward-looking terminology including "may," "believe," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements
discuss future expectations, contain projections of results of operations or of
financial condition or state other "forward-looking" information. These
forward-looking statements involve risks and uncertainties. When considering
these forward-looking statements, you should keep in mind the risk factors and
other cautionary statements in this prospectus. Specific factors could cause
our actual results to differ materially from those contained in any forward-
looking statement. These factors include, but are not limited to:

  . the effect of weather conditions on demand for propane;

  . the price volatility and availability of propane;

  . the availability of capacity to transport propane to market areas and our
    customers;

  . competition from other energy sources and within the propane industry;

  . improvements in energy efficiency and technology trends resulting in
    reduced demand for propane;

  . our ability to achieve expected operating cost savings, synergies and
    productivity improvements from the integration of the propane
    distribution businesses we acquire, including Independent Propane Company
    Holdings;

  . our inability to make business acquisitions on economically acceptable
    terms;

  . our ability to obtain new customers and retain existing customers;

  . operating hazards and risks incidental to transporting, storing and
    distributing propane and related products, including the risk of
    explosions and fires resulting in personal injury and property damage;

  . liability for environmental claims;

  . adverse labor relations;

  . governmental legislation and regulation;

  . the condition of the capital markets in the United States; and

  . the political and economic stability of oil producing nations of the
    world.

   When considering our forward-looking statements, you should keep in mind the
risk factors described in the "Risk Factors" section of this prospectus. These
risk factors could cause our actual results to differ materially from those
contained in any forward-looking statement. We will not update our forward-
looking statements unless applicable securities laws require us to do so.

                                      135

                         INDEX TO FINANCIAL STATEMENTS

                                                                        
Inergy, L.P. and Subsidiary (Successor to Inergy Partners, LLC and
 Subsidiaries) Consolidated Financial Statements:
  Report of Independent Auditors..........................................  F-2
  Consolidated Balance Sheets as of September 30, 2000 and 2001 and March
   31, 2002 (unaudited)...................................................  F-3
  Consolidated Statements of Operations for the years ended September 30,
   1999, 2000 and 2001 and the six months ended March 31, 2001 and 2002
   (unaudited)............................................................  F-4
  Consolidated Statements of Redeemable Preferred Members' Interest and
   Members' Equity/Partners' Capital for the years ended September 30,
   1999, 2000 and 2001 and the six months ended March 31, 2002
   (unaudited)............................................................  F-6
  Consolidated Statements of Cash Flows for the years ended September 30,
   1999, 2000 and 2001 and the six months ended March 31, 2001 and 2002
   (unaudited)............................................................  F-9
  Notes to Consolidated Financial Statements.............................. F-11

Independent Propane Company Holdings and Subsidiaries Consolidated
 Financial Statements:
  Report of Independent Public Accountants................................ F-28
  Consolidated Balance Sheets as of September 30, 2000 and 2001........... F-29
  Consolidated Statements of Operations for the years ended September 30,
   1999, 2000 and 2001.................................................... F-30
  Consolidated Statements of Changes in Shareholders' Deficit for the
   years ended September 30, 1999, 2000 and 2001.......................... F-31
  Consolidated Statements of Cash Flows for the years ended September 30,
   1999, 2000 and 2001.................................................... F-32
  Notes to Consolidated Financial Statements.............................. F-33

Hoosier Propane Group Combined Financial Statements:
  Report of Independent Auditors.......................................... F-41
  Combined Balance Sheets as of September 30, 1999 and 2000 and December
   31, 2000............................................................... F-42
  Combined Statements of Income for the years ended September 30, 1998,
   1999 and 2000 and the three months ended December 31, 1999 (unaudited)
   and 2000............................................................... F-43
  Combined Statements of Stockholders' Equity for the years ended
   September 30, 1998, 1999 and 2000 and the three months ended December
   31, 2000............................................................... F-44
  Combined Statements of Cash Flows for the years ended September 30,
   1998, 1999 and 2000 and the three months ended December 31, 1999
   (unaudited) and 2000................................................... F-45
  Notes to Combined Financial Statements.................................. F-46

Inergy GP, LLC Financial Statements:
  Report of Independent Auditors.......................................... F-53
  Balance Sheet as of September 30, 2001.................................. F-54
  Notes to Balance Sheet.................................................. F-55

                                      F-1

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Members
Inergy, L.P. and Subsidiary
(Successor to Inergy Partners, LLC and Subsidiaries)

   We have audited the accompanying consolidated balance sheets of Inergy, L.P.
and Subsidiary (Successor to Inergy Partners, LLC and Subsidiaries) (the
"Partnership") as of September 30, 2000 and 2001, and the related consolidated
statements of operations, redeemable preferred members' interest and members'
equity/partners' capital and cash flows for each of the three years in the
period ended September 30, 2001. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Inergy, L.P.
and Subsidiary (Successor to Inergy Partners, LLC and Subsidiaries) at
September 30, 2000 and 2001, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended September
30, 2001 in conformity with accounting principles generally accepted in the
United States.

                                          /s/ Ernst & Young LLP

Kansas City, Missouri
December 10, 2001, except for
 Notes 4 and 12, as to which
 the date is December 20, 2001

                                      F-2

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

                          CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Unit Data)

                                                   September 30,
                                                  -----------------   March 31,
                                                   2000      2001       2002
                                                  -------  --------  -----------
                                                                     (Unaudited)
                ASSETS (Note 4)
                                                            
Current assets:
  Cash..........................................  $ 1,373  $  2,171   $  2,475
  Accounts receivable, less allowance for
   doubtful accounts of $225 and $186 at
   September 30, 2000 and 2001, respectively and
   $1,537 at March 31, 2002.....................   12,602    11,457     24,111
  Inventories...................................    3,630    12,694     16,591
  Prepaid expenses and other current assets.....    1,014     1,411      1,975
  Assets from price risk management activities..    3,580     9,187      8,897
                                                  -------  --------   --------
Total current assets............................   22,199    36,920     54,049
Property, plant and equipment, at cost:
  Land and buildings............................      740     4,511     11,205
  Office furniture and equipment................      808     1,172      5,857
  Vehicles......................................    4,138    11,435     17,644
  Tanks and plant equipment.....................   30,283    58,737    100,147
                                                  -------  --------   --------
                                                   35,969    75,855    134,853
  Less accumulated depreciation.................   (2,533)   (5,812)    (9,378)
                                                  -------  --------   --------
Net property, plant and equipment...............   33,436    70,043    125,475
Intangible assets (Note 2):
  Covenants not to compete......................    3,228     3,771      6,124
  Deferred financing costs......................      333     2,985      4,977
  Deferred acquisition costs....................      460       115         --
  Customer accounts.............................    3,500    14,000     41,411
  Goodwill......................................    6,880    32,121     47,053
                                                  -------  --------   --------
                                                   14,401    52,992     99,565
  Less accumulated amortization.................   (1,246)   (4,431)    (6,489)
                                                  -------  --------   --------
Net intangible assets...........................   13,155    48,561     93,076
Other...........................................      134       129        473
                                                  -------  --------   --------
Total assets....................................  $68,924  $155,653   $273,073
                                                  =======  ========   ========

   LIABILITIES AND MEMBERS' EQUITY/PARTNERS'
                    CAPITAL
                                                            
Current liabilities:
  Accounts payable..............................  $11,502  $  8,416   $  9,041
  Accrued expenses..............................    3,715     5,679      6,743
  Customer deposits.............................    1,676    10,060      5,314
  Liabilities from price risk management
   activities...................................    2,294     4,612      4,618
  Current portion of long-term debt (Note 4)....      605    10,469      3,722
                                                  -------  --------   --------
Total current liabilities.......................   19,792    39,236     29,438
Deferred income taxes (Note 6)..................      942        --         --
Long-term debt, less current portion (Note 4)...   34,322    43,663    138,442
Redeemable preferred members' interest (Notes 2
 and 7).........................................   10,896        --         --
Members' equity/partners' capital (Notes 2, 4, 7
 and 8):
  Class A preferred interest....................    4,892        --         --
  Common interest...............................   (1,686)       --         --
  Deferred compensation.........................     (234)       --         --
  Common unitholders (1,840,000 and 2,617,872
   units issued and outstanding as of September
   30, 2001 and March 31, 2002, respectively)...       --    24,981     49,514
  Senior subordinated unitholders (3,313,367
   units issued and outstanding as of September
   30, 2001 and March 31, 2002).................       --    45,060     51,421
  Junior subordinated unitholders (572,542 units
   issued and outstanding as of September 30,
   2001 and March 31, 2002).....................       --     1,258      2,358
  Non-managing general partner (2% interest with
   dilutive effect equivalent to 116,855 and
   132,730 units issued and outstanding as of
   September 30, 2001 and March 31, 2002,
   respectively)................................       --     1,455      1,900
                                                  -------  --------   --------
Total members' equity/partners' capital.........    2,972    72,754    105,193
                                                  -------  --------   --------
Total liabilities and members' equity/partners'
 capital........................................  $68,924  $155,653   $273,073
                                                  =======  ========   ========

                            See accompanying notes.

                                      F-3

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Unit Data)

                                                             Six Months Ended
                                 Year Ended September 30,        March 31,
                                 --------------------------  ------------------
                                  1999     2000      2001      2001      2002
                                 -------  -------  --------  --------  --------
                                                                (unaudited)
                                                        
Revenue:
  Propane......................  $16,227  $89,042  $212,441  $165,209  $156,442
  Other........................    2,984    4,553    10,698     5,230     7,618
                                 -------  -------  --------  --------  --------
                                  19,211   93,595   223,139   170,439   164,060
Cost of product sold...........   13,754   81,636   182,582   141,425   113,787
                                 -------  -------  --------  --------  --------
Gross profit...................    5,457   11,959    40,557    29,014    50,273
Expenses:
  Operating and
   administrative..............    4,119    8,990    23,501    11,464    23,326
  Depreciation and
   amortization................      690    2,286     6,532     2,588     5,145
                                 -------  -------  --------  --------  --------
Operating income...............      648      683    10,524    14,962    21,802
Other income (expense):
  Interest expense (Note 4)....     (962)  (2,740)   (6,670)   (3,020)   (3,236)
  Gain (loss) on sale of
   property, plant and
   equipment...................      101       --        37        --      (119)
  Finance charges..............       79      176       290       158        85
  Other........................        5       59       168        87        36
                                 -------  -------  --------  --------  --------
Income (loss) before income
 taxes.........................     (129)  (1,822)    4,349    12,187    18,568
Provision for income taxes.....       56        7        --        --        52
                                 -------  -------  --------  --------  --------
Net income (loss)..............  $  (185) $(1,829) $  4,349  $ 12,187  $ 18,516
                                 =======  =======  ========  ========  ========
Predecessor net income for the
 period from October 1, 2000 to
 July 31, 2001.................                    $  6,664
                                                   ========
Inergy, L.P. net loss for the
 period from July 31, 2001
 through September 30, 2001....                    $ (2,315)
                                                   ========
Partners' interest information
 for the period from July 31,
 2001 through September 30,
 2001 and six months ended
 March 31, 2002:
  Non-managing general
   partner's interest in net
   income (loss)...............                    $    (46)           $    370
                                                   ========            ========

                                      F-4

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

               CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
                      (In Thousands, Except Per Unit Data)

                                             Year Ended           Six Months
                                            September 30,       Ended March 31,
                                       -----------------------  ---------------
                                        1999    2000    2001     2001    2002
                                       ------- ------- -------  ------- -------
                                                                  (Unaudited)
                                                         
Limited partners' interest in net
 loss:
  Common unit interest:
    Allocation of net income (loss)...                 $  (729)         $ 6,702
    Less beneficial conversion value
     allocated to senior subordinated
     units (Notes 1 and 7)............                  (8,600)              --
                                                       -------          -------
    Net common unit interest..........                  (9,329)           6,702
  Senior subordinated interest:
    Allocation of net income (loss)...                  (1,313)           9,758
    Plus beneficial conversion value
     allocated to senior subordinated
     units (Notes 1 and 7)............                   8,600               --
                                                       -------          -------
    Net senior subordinated unit
     interest.........................                   7,287            9,758
  Junior subordinated unit interest...                    (227)           1,686
                                                       -------          -------
Total limited partners' interest in
 net income (loss)....................                 $(2,269)         $18,146
                                                       =======          =======
Net income (loss) per limited partner
 unit:
  Basic...............................                 $ (0.40)         $  2.94
                                                       =======          =======
  Diluted.............................                 $ (0.40)         $  2.90
                                                       =======          =======
Weighted average limited partners'
 units outstanding:
  Basic...............................                   5,726            6,162
                                                       =======          =======
  Diluted.............................                   5,726            6,249
                                                       =======          =======

                            See accompanying notes.

                                      F-5

                          INERGY, L.P. AND SUBSIDIARY
             (Successor to Inergy Partners, LLC and Subsidiaries)

     CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED MEMBERS' INTEREST AND
                       MEMBERS' EQUITY/PARTNERS' CAPITAL
                                (In Thousands)

                                      Members' Equity                      Partners' Capital
                              -------------------------------- ------------------------------------------
                   Redeemable                                                                      Non-
                   Preferred   Class A                         Common     Senior       Junior    Managing  Total Members'
                    Members'  Preferred  Common     Deferred    Unit   Subordinated Subordinated General  Equity/Partners'
                    Interest  Interest  Interest  Compensation Capital Unit Capital Unit Capital Partner      Capital
                   ---------- --------- --------  ------------ ------- ------------ ------------ -------- ----------------
                                                                               
Balance at
September 30,
1998..............  $     --   $ 2,345  $   658     $  (392)   $    --   $    --       $   --     $   --      $  2,611
  Common and
  preferred
  interests issued
  in acquisitions
  (Note 2)........        --     2,548      397          --         --        --           --         --         2,945
  Amortization of
  deferred
  compensation....        --        --       --          78         --        --           --         --            78
  Members'
  distributions...        --        --     (180)         --         --        --           --         --          (180)
  Net loss........        --        --     (185)         --         --        --           --         --          (185)
                    --------   -------  -------     -------    -------   -------       ------     ------      --------
Balance at
September 30,
1999..............        --     4,893      690        (314)        --        --           --         --         5,269
  Redeemable
  preferred
  interests issued
  in acquisitions
  (Note 2)........     9,000        --       --          --         --        --           --         --            --
  Redeemable
  preferred
  interests issued
  for cash, net of
  offering costs
  of $104.........     1,896        --       --          --         --        --           --         --            --
  Redemption of
  preferred
  interest........        --        (1)      --           1         --        --           --         --            --
  Amortization of
  deferred
  compensation....        --        --       --          79         --        --           --         --            79
  Members'
  distributions...        --        --     (547)         --         --        --           --         --          (547)
  Net loss........        --        --   (1,829)         --         --        --           --         --        (1,829)
                    --------   -------  -------     -------    -------   -------       ------     ------      --------
Balance at
September 30,
2000..............    10,896     4,892   (1,686)       (234)        --        --           --         --         2,972

                                      F-6

                          INERGY, L.P. AND SUBSIDIARY
             (Successor to Inergy Partners, LLC and Subsidiaries)

     CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED MEMBERS' INTEREST AND
                 MEMBERS' EQUITY/PARTNERS' CAPITAL (Continued)
                                (In Thousands)

                                      Members' Equity                      Partners' Capital
                              -------------------------------- -------------------------------------------
                   Redeemable                                                                       Non-
                   Preferred   Class A                         Common      Senior       Junior    Managing  Total Members'
                    Members'  Preferred  Common     Deferred    Unit    Subordinated Subordinated General  Equity/Partners'
                    Interest  Interest  Interest  Compensation Capital  Unit Capital Unit Capital Partner      Capital
                   ---------- --------- --------  ------------ -------  ------------ ------------ -------- ----------------
                                                                                
Balance at
September 30,
2000..............  $ 10,896   $ 4,892  $(1,686)    $  (234)   $    --    $    --       $   --     $   --      $  2,972
  Net income
  October 1, 2000
  to July 31,
  2001............        --        --    6,664          --         --         --           --         --         6,664
  Redeemable
  preferred
  interests issued
  for cash, net of
  offering costs
  of $513.........    16,087        --       --          --         --         --           --         --            --
  Redeemable
  preferred
  interests issued
  in acquisition
  (Note 2)........     7,402        --       --          --         --         --           --         --            --
  Inergy Partners,
  LLC members'
  distributions...        --        --   (2,554)         --         --         --           --         --        (2,554)
  Redemption of
  preferred
  interest........        --       (41)       8          --         --         --           --         --           (33)
  Amortization of
  deferred
  compensation....        --        --       --          65         --         --           --         --            65
  Assets
  (liabilities)
  retained by
  Inergy Partners
  LLC.............        --        --     (909)         --         --         --           --         --          (909)
  Accelerated
  vesting of
  deferred
  compensation due
  to initial
  public
  offering........        --        --       --         169         --         --           --         --           169
  Net proceeds
  from initial
  public
  offering........        --        --       --          --     34,310         --           --         --        34,310
  Transfers of
  capital in
  accordance with
  initial public
  offering........   (34,385)   (4,851)  (1,523)         --         --     37,773        1,485      1,501        34,385
  Net loss July
  31, 2001 through
  September 30,
  2001............        --        --       --          --       (729)    (1,313)        (227)       (46)       (2,315)
  Beneficial
  conversion
  feature of the
  conversion of
  certain
  Redeemable
  Preferred
  Members'
  Interests to
  Senior
  Subordinated
  Units...........        --        --       --          --     (8,600)     8,600           --         --            --
                    --------   -------  -------     -------    -------    -------       ------     ------      --------
Balance at
September 30,
2001..............        --        --       --          --     24,981     45,060        1,258      1,455        72,754

                                      F-7

                          INERGY, L.P. AND SUBSIDIARY
             (Successor to Inergy Partners, LLC and Subsidiaries)

     CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED MEMBERS' INTEREST AND
                 MEMBERS' EQUITY/PARTNERS' CAPITAL (Continued)
                                (In Thousands)

                                      Members' Equity                     Partners' Capital
                              ------------------------------- -------------------------------------------
                   Redeemable                                                                      Non-
                   Preferred   Class A                        Common      Senior       Junior    Managing  Total Members'
                    Members'  Preferred  Common    Deferred    Unit    Subordinated Subordinated General  Equity/Partners'
                    Interest  Interest  Interest Compensation Capital  Unit Capital Unit Capital Partner      Capital
                   ---------- --------- -------- ------------ -------  ------------ ------------ -------- ----------------
                                                                               
Balance at
September 30,
2001..............  $     --   $    --  $    --     $  --     $24,981    $45,060       $1,258     $1,455      $ 72,754
  Proceeds from
  issuance of
  common units
  (unaudited).....        --        --       --        --         480         --           --         --           480
  Issuance of
  common units in
  connection with
  acquisition of
  retail propane
  company
  (unaudited).....        --        --       --        --      19,723         --           --         --        19,723
  Contribution
  from non-
  managing general
  partner
  (unaudited).....        --        --       --        --          --         --           --        205           205
  Partners'
  distributions
  (unaudited).....        --        --       --        --      (2,372)    (3,396)        (587)      (130)       (6,485)
  Net income
  (unaudited).....        --        --       --        --       6,702      9,757        1,687        370        18,516
                    --------   -------  -------     -----     -------    -------       ------     ------      --------
Balance at March
31, 2002
(unaudited).......  $     --   $    --  $    --     $  --     $49,514    $51,421       $2,358     $1,900      $105,193
                    ========   =======  =======     =====     =======    =======       ======     ======      ========

                            See accompanying notes.

                                      F-8

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

                                                            Six Months Ended
                               Year Ended September 30          March 31
                              ----------------------------  ------------------
                                1999      2000      2001      2001      2002
                              --------  --------  --------  --------  --------
                                                               (Unaudited)
                                                       
Operating activities
Net income (loss)...........  $   (185) $ (1,829) $  4,349  $ 12,187  $ 18,516
Adjustments to reconcile net
 income (loss) to net cash
 provided by (used in)
 operating activities:
  Provision for doubtful
   accounts.................        77       139       912       812       680
  Depreciation..............       440     1,427     3,438     1,368     3,634
  Amortization..............       250       859     3,094     1,220     1,511
  Amortization of deferred
   financing costs..........        73        87       424       160       547
  Loss (gain) on disposal of
   property, plant and
   equipment................      (101)       --       (37)       --       119
  Net assets (liabilities)
   from price risk
   management activities....     1,206    (2,492)   (3,289)      946       296
  Deferred income taxes.....         8        --        --        39        --
  Deferred compensation.....        78        79       234        --        --
  Changes in operating
   assets and liabilities,
   net of effects from
   acquisition of retail
   propane companies:
    Accounts receivable.....    (3,451)   (5,842)   13,370   (10,869)   (6,532)
    Inventories.............    (3,812)    1,660    (6,154)    2,922       (65)
    Prepaid expenses and
     other current assets...       (86)     (388)     (321)       22       (36)
    Other assets............       (13)     (121)        5        (3)      (93)
    Accounts payable........     2,642     3,836   (19,115)   (3,596)   (1,410)
    Accrued expenses........       913     2,049     1,871       807      (911)
    Customer deposits.......     1,187       314     5,878    (3,421)   (5,623)
                              --------  --------  --------  --------  --------
Net cash provided by (used
 in) operating activities...      (774)     (222)    4,659     2,594    10,633
Investing activities
Acquisition of retail
 propane companies, net of
 cash acquired..............   (11,430)   (9,600)  (56,263)  (56,263)  (84,553)
Purchases of property, plant
 and equipment..............    (1,354)   (2,275)   (4,758)   (1,861)   (2,525)
Deferred financing and
 acquisition costs
 incurred...................      (473)     (573)   (3,114)   (1,989)   (1,979)
Proceeds from sale of
 property, plant and
 equipment..................       127        --       118        --        91
Other.......................        --       (16)       (8)      (66)       --
                              --------  --------  --------  --------  --------
Net cash used in investing
 activities.................   (13,130)  (12,464)  (64,025)  (60,179)  (88,966)

                                      F-9

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                 (In Thousands)

                                                            Six Months Ended
                              Year Ended September 30           March 31
                            -----------------------------  -------------------
                              1999      2000      2001       2001      2002
                            --------  --------  ---------  --------  ---------
                                                              (Unaudited)
                                                      
Financing activities
Proceeds from issuance of
 long-term debt...........  $ 25,373  $ 35,787  $ 178,054  $106,675  $ 220,621
Principal payments on
 long-term debt and
 noncompete obligations...   (11,137)  (23,229)  (163,849)  (62,205)  (136,184)
Contribution from non-
 managing general
 partner..................        --        --         --        --        205
Net proceeds from issuance
 of redeemable preferred
 members' interest........        --     1,896     16,087    16,015         --
Net proceeds from issuance
 of common units in
 initial public offering..        --        --     34,310        --         --
Proceeds from issuance of
 common units.............        --        --         --        --        480
Cash retained by Inergy
 Partners LLC.............        --        --     (1,851)       --         --
Redemption of preferred
 stock....................        --        --        (33)       --         --
Distributions to members..      (180)     (547)    (2,554)     (745)    (6,485)
                            --------  --------  ---------  --------  ---------
Net cash provided by
 financing activities.....    14,056    13,907     60,164    59,740     78,637
                            --------  --------  ---------  --------  ---------
Net increase in cash......       152     1,221        798     2,155        304
Cash at beginning of
 period...................        --       152      1,373     1,373      2,171
                            --------  --------  ---------  --------  ---------
Cash at end of period.....  $    152  $  1,373  $   2,171  $  3,528  $   2,475
                            ========  ========  =========  ========  =========
Supplemental disclosure of
 cash flow information
Cash paid during the year
 for interest.............  $    823  $  2,538  $   6,171  $  1,929  $   3,025
                            ========  ========  =========  ========  =========
Supplemental schedule of
 noncash investing and
 financing activities
Additions to covenants not
 to compete through the
 issuance of noncompete
 obligations..............  $  2,052  $     32  $      --  $     --  $      --
                            ========  ========  =========  ========  =========
Acquisitions of retail
 propane companies through
 the issuances of common
 units....................  $  2,945  $  9,000  $   7,402  $  7,402  $  19,723
                            ========  ========  =========  ========  =========
Acquisition of retail
 propane company through
 the issuance of
 subordinated debt, which
 was subsequently retired
 in 2001..................  $     --  $     --  $   5,000  $  5,000  $      --
                            ========  ========  =========  ========  =========

                            See accompanying notes.

                                      F-10

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (In Thousands Except Unit and Per Unit Data)

                          September 30, 2000 and 2001
   (Information Pertaining to the Six Months Ended March 31, 2001 and 2002 is
                                   Unaudited)

1. Accounting Policies

 Organization

   Inergy, L.P. (the Partnership) was formed on March 7, 2001 as a Delaware
limited partnership. The Partnership and its subsidiary Inergy Propane, LLC
(the Operating Company), were formed to acquire, own and operate the propane
business and substantially all the assets and liabilities (other than a portion
of the cash and deferred income tax liabilities) of Inergy Partners, LLC and
subsidiaries (Inergy Partners and referred to subsequent to the initial public
offering described below as the Non-managing General Partner). In addition,
Inergy Sales and Service, Inc. (Services), a subsidiary of the Operating
Company, was formed to acquire and operate the service, work and appliance
parts and sales business of Inergy Partners. The Partnership, the Operating
Company, and Services are collectively referred to hereinafter as the
Partnership Entities. In order to simplify the Partnership's obligations under
the laws of several jurisdictions in which the Partnership will conduct
business, the Partnership's activities are conducted through the Operating
Company.

   The Partnership Entities consummated in July 2001, an initial public
offering (the Offering) of 1,840,000 common units representing limited partner
interests in the Partnership (the Common Units) for an offering price of $22.00
per Common Unit aggregating $40,480 before approximately $6,170 of underwriting
discounts and commissions and other expenses related to the Offering. The
Operating Company assumed the Non-managing General Partner's obligation under
its funded debt in connection with the conveyance in July 2001 (the Partnership
Conveyance) by Inergy GP, LLC (the Managing General Partner) and the Non-
managing General Partner (together referred to as the General Partners), of
substantially all of their assets and liabilities (excluding $1,851 of cash and
the deferred tax liabilities associated with the subsidiaries of Wilson Oil
Company of Johnston County, Inc. (Wilson) and Rolesville Gas & Oil Company,
Inc. (Rolesville)). The net proceeds from the Offering were used to repay the
subordinated debt issued in connection with the acquisition of the Hoosier
Propane Group (Note 2) and a portion of the outstanding credit agreement
borrowings.

   Pursuant to the terms of certain of the redeemable Class A preferred
interest agreements issued by Inergy Partners prior to the Offering, in the
event of an initial public offering, these interests would automatically
convert into senior subordinated units of a master limited partnership. As
such, in conjunction with the Offering, an additional 2,006,456 Senior
Subordinated Units were issued to holders of the remaining redeemable Class A
preferred interests of Inergy Partners, representing a 34.3% limited partner
interest in the Partnership Entities.

   Certain of the redeemable Class A preferred interests of Inergy Partners
contained conversion terms that were more advantageous than the terms of the
other preferred interests issued by Inergy Partners as further described in
Note 7. These beneficial conversion terms resulted in Inergy, L.P. recognizing
a decrease in common unit capital of $8.6 million with a corresponding increase
in senior subordinated unit capital in the fourth quarter of fiscal 2001
following the Offering. Net income available to common unitholders for the
fourth quarter and year ended September 30, 2001 is decreased by $8.6 million
while net income attributable to senior subordinated unitholders is increased
by the same amount.

   Inergy, L.P. has no employees and is managed by Inergy GP, LLC. Pursuant to
the Partnership Agreement, Inergy GP, LLC or any of its affiliates is entitled
to reimbursement for all direct and indirect expenses incurred or payments it
makes on behalf of Inergy, L.P., and all other necessary or appropriate
expenses allocable to Inergy, L.P. or otherwise reasonably incurred by the
Inergy GP, LLC in connection with

                                      F-11

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

operating Inergy, L.P. business. These costs, which totaled approximately
$2,435 and $4,556 for the period from August 1, 2001 through September 30, 2001
and the six months ended March 31, 2002, respectively, include compensation and
benefits paid to officers and employees of Inergy GP, LLC.

   The Non-Managing General Partner owns a 2% general partner interest in the
Partnership. In addition, the Non-managing General Partner owns Senior
Subordinated Units and Junior Subordinated Units through its ownership of New
Inergy Propane, LLC, approximating a 19% limited partner interest.

 Basis of Presentation

   The accompanying consolidated financial statements presented herein reflect
the effects of the Partnership Conveyance, in which the Partnership Entities
became the successor to the businesses of Inergy Partners. As such, the
consolidated financial statements represent Inergy Partners prior to the
Partnership Conveyance and the Partnership Entities subsequent to the
Partnership Conveyance. Because the Partnership Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership Entities as the
successor to the continuing businesses of Inergy Partners. The entity
representative of both the operations of (i) Inergy Partners prior to the
Partnership Conveyance; and (ii) the Partnership Entities subsequent to the
Partnership Conveyance, is referred to herein as "Inergy'. The Non-Managing
General Partner retained those assets and liabilities not conveyed to the
Partnership. All significant intercompany balances and transactions have been
eliminated in consolidation.

 Nature of Operations

   Inergy is engaged primarily in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The retail market is seasonal because
propane is used primarily for heating in residential and commercial buildings,
as well as for agricultural purposes. Inergy's operations are concentrated in
the Midwest and Southeast regions of the United States.

 Accounting for Price Risk Management

   Inergy, through its wholesale operations, offers price risk management
services to its customers and, in addition, trades for its own account (see
Note 3). Financial instruments utilized in connection with trading activities
are accounted for using the mark-to-market method. Under the mark-to-market
method of accounting, forwards, swaps, options and storage contracts are
reflected at fair value, inclusive of reserves, and are shown in the
consolidated balance sheet as assets and liabilities from price risk management
activities. Unrealized gains and losses from newly originated contracts,
contract restructuring and the impact of price movements are recognized in cost
of products sold. Changes in the assets and liabilities from trading and price
risk management activities result primarily from changes in the market prices,
newly originated transactions and the timing of settlement relative to the
receipt of cash for certain contracts. The market prices used to value these
transactions reflect management's best estimate considering various factors
including closing exchange and over-the-counter quotations, time value and
volatility factors underlying the commitments. The values are adjusted to
reflect the potential impact of liquidating Inergy's position in an orderly
manner over a reasonable period of time under present market conditions.

   The cash flow impact of financial instruments is reflected as cash flows
from operating activities in the consolidated statements of cash flows. See
Note 3 for further discussion of Inergy's price risk management activities.

                                      F-12

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

 Revenue Recognition

   Sales of propane are recognized at the time product is shipped or delivered
to the customer. Revenue from the sale of propane appliances and equipment is
recognized at the time of sale or installation. Revenue from repairs and
maintenance is recognized upon completion of the service.

 Credit Concentrations

   Inergy is both a retail and wholesale supplier of propane gas. Inergy
generally extends unsecured credit to its wholesale customers throughout the
Midwestern and Eastern portions of the United States. Credit is generally
extended to retail customers through delivery into company and customer owned
propane gas storage tanks. Provisions for doubtful accounts receivable are
reflected in Inergy's consolidated financial statements and have generally been
within management's expectations.

 Unaudited Financial Information

   The financial information as of March 31, 2002 and for the six-month periods
ended March 31, 2001 and 2002 contained herein is unaudited. The Partnership
believes this information has been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and Article 10 of Regulation S-X. The Partnership also believes
this information includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the periods then ended. The results of operations
for the six-month period ended March 31, 2002 are not necessarily indicative of
the results of operations that may be expected for the entire year.

 Use of Estimates

   The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.

 Inventories

   Inventories for retail operations, which mainly consist of liquid propane,
are stated at the lower of cost, determined using the average cost method or
market. Inventories for wholesale operations, which consist mainly of liquid
propane commodities, are stated at market, as discussed in Note 3. The market
adjustment was an unrealized gain (loss) of $39 and $(396) at September 30,
2000 and 2001, respectively, and $(68) and $1,824 at March 31, 2001 and 2002,
respectively.

 Shipping and Handling Costs

   Shipping and handling costs are recorded as part of cost of products sold at
the time product is shipped or delivered to the customer.

                                      F-13

                          INERGY, L.P. AND SUBSIDIARY
             (Successor to Inergy Partners, LLC and Subsidiaries)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                 (In Thousands Except Unit and Per Unit Data)

 Property, Plant, and Equipment

   Property, plant, and equipment are stated at cost. Depreciation is computed
by the straight-line method over the assets' estimated useful lives, as
follows:

                                                                           Years
                                                                           -----
                                                                        
   Buildings and improvements.............................................    25
   Office furniture and equipment.........................................  5-10
   Vehicles...............................................................  5-10
   Tanks and plant equipment.............................................. 10-30

 Intangible Assets

   Intangible assets are amortized on a straight-line basis over their
estimated economic lives, as follows:

                                                                         Years
                                                                         -----
                                                                      
   Covenants not to compete............................................. 5-10
   Deferred financing costs.............................................  1-3
   Customer accounts....................................................   15
   Goodwill (prior to adoption of SFAS No. 142 effective October 1,
    2001)...............................................................   15

   Deferred financing costs represent financing costs incurred in obtaining
financing and are being amortized over the term of the debt. Covenants not to
compete, customer accounts and goodwill arose from the various acquisitions by
Inergy and are discussed in Notes 2 and 12.

   Deferred acquisition costs represent costs incurred to date on acquisitions
that Inergy is actively pursuing, most of which relate to the acquisitions
completed subsequent to year end, as discussed in Note 12.

   Inergy reviews its long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-lived Assets to be Disposed of," for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If such events or changes in circumstances
are present, a loss is recognized if the carrying value of the asset is in
excess of the sum of the undiscounted cash flows expected to result from the
use of the asset and its eventual disposition. An impairment loss is measured
as the amount by which the carrying amount of the asset exceeds the fair value
of the asset. See Recently Issued Accounting Pronouncements discussion below.

 Income Taxes

   The earnings of the Partnership and Operating Company are included in the
Federal and state income tax returns of the individual partners. As a result,
no income tax expense has been reflected in Inergy's consolidated financial
statements relating to the earnings of the Partnership and Operating Company.
Federal and state income taxes are, however, provided on the earnings of
Services. The Partnership entities provide deferred income taxes to recognize
the effect of temporary differences between Services' basis of assets and
liabilities for income tax and financial statement purposes. No income tax
provision was necessary at September 30, 2001. Net earnings for financial
statement purposes may differ significantly from taxable income reportable to
unitholders as a result of differences between the tax basis and the financial
reporting basis of assets and liabilities and the taxable income allocation
requirements under the partnership agreement. Federal and state income tax
expense for periods prior to the Partnership Conveyance relate to Wilson and
Rolesville,

                                     F-14

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

wholly owned subsidiaries of Inergy Partners, which were C Corporations and
accounted for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. In connection with the Partnership Conveyance, all income tax
liabilities of Inergy Partners were retained by the Non-managing General
Partner.

 Customer Deposits

   Customer deposits primarily represent cash received by Inergy from wholesale
and retail customers for propane purchased that will be delivered at a future
date.

 Fair Value

   The carrying amounts of cash, accounts receivable and accounts payable
approximate their fair value. Based on the estimated borrowing rates currently
available to Inergy for long-term debt with similar terms and maturities, the
aggregate fair value of Inergy's floating rate long-term debt approximates the
aggregate carrying amount as of September 30, 2000 and 2001 and March 31, 2002.

 Income (Loss) per Limited Partner Unit

   Basic net income (loss) per limited partner unit is computed by dividing net
income (loss), after considering the General Partner's interest, by the
weighted average number of Common and Subordinated Units outstanding. Diluted
net income (loss) per limited partner unit is computed by dividing net income
(loss), after considering the General Partner's interest, by the weighted
average number of Common and Subordinated Units outstanding and the dilutive
effect of unit options granted under the long-term incentive plan. Unit options
were antidilutive in 2001 due to the loss incurred for the period from July 31,
2001 through September 30, 2001. As such, basic and diluted net income (loss)
per limited partner unit are identical in 2001.

 Segment Information

   In fiscal 1999, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards
for reporting information about operating segments, as well as related
disclosures about products and services, geographic areas, and major customers.
Further, SFAS No. 131 defines operating segment as components of an enterprise
for which separate financial information is available that is evaluated
regularly by the chief operating decision-maker in deciding how to allocate
resources and assessing performance. In determining the Company's reportable
segments under the provisions of SFAS No. 131, the Company examined the way it
organizes its business internally for making operating decisions and assessing
business performance. See Note 11 for disclosures related to the Company's
retail and wholesale segments. No single customer represents 10% or more of
consolidated revenues. In addition, nearly all of the Company's revenues are
derived from sources within the United States, and all of its long-lived assets
are located in the United States.

 Recently Issued Accounting Pronouncements

   In June 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141
requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting. Under Statement No. 142,
goodwill is no longer subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Additionally, an acquired
intangible asset

                                      F-15

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

should be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented or exchanged, regardless of the
acquirer's intent to do so. Those assets will be amortized over their useful
lives, other than assets what have an indefinite life. Statement No. 142 is
required to be applied starting with fiscal years beginning after December 15,
2001.

   Inergy adopted Statement No. 142 on October 1, 2001 and accordingly has
discontinued the amortization of goodwill existing at the time of adoption.
Under the provisions of Statement No. 142, Inergy has six months from the time
of adoption to have completed the valuation of each of Inergy's operating
segments to determine whether any impairment exists on the date of adoption.
However, management does not believe that any impairment existed at adoption.
The adoption of Statement No. 142 will eliminate goodwill amortization that
would have totaled approximately $2,079 in fiscal 2002, based on the balances
of September 30, 2001, and totaled approximately $1,720 in fiscal 2001.

   In August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This
statement retains the fundamental provisions of Statement No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used, and measurement of long-lived assets to be disposed of by sale. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal
years, with early application encouraged. Management has not determined the
method, timing, or impact of adopting Statement No. 144.

 Reclassifications

   Certain reclassifications have been made to the 1999 and 2000 consolidated
financial statements to conform to the 2001 presentation.

2. Acquisitions

   During fiscal 1999, Inergy acquired substantially all of the assets of Ernie
Lee Oil & LP Gas, LLC (December 1998), Longston Gas & Oil Company, Inc. (May
1999), Castleberry's, Inc. (July 1999), and Bradley Propane, Inc. (September
1999). In addition, Inergy acquired 100% of the oustanding stock of Wilson Oil
Company of Johnston County, Inc. (December 1998) and Rolesville Gas & Oil
Company, Inc. (August 1999) through a stock exchange and a purchase agreement.
These acquired retail companies are involved in the sale and distribution of
propane to local customer bases throughout the United States. The acquisitions
have been accounted for using the purchase method of accounting. The acquired
companies were purchased in separate transactions for an aggregate purchase
price of $19,659 including acquisition costs and $3,232 in liabilities assumed.
The consideration utilized in the fiscal 1999 acquisitions consisted of cash
payments of $11,430 funded by the issuance of long-term debt, common and Class
A preferred interests issued to certain former owners of these companies
totaling $2,945, and the issuance of noncompete obligations in the amount of
$2,052. Of the aggregate purchase price, $2,810 (including cash paid at
closing) was allocated to covenants not to compete. The excess of aggregate
purchase price over the fair market values of the net tangible and

                                      F-16

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

identifiable intangible assets acquired amounted to $942 and has been recorded
as an increase in goodwill. The operating results of all acquisitions are
included in Inergy's consolidated results of operations from the dates of
acquisition.

   During fiscal year 2000, Inergy acquired substantially all of the assets of
Butane-Propane Gas Company of Tenn., Inc. (November 1999) and substantially all
of the assets of Country Gas Company, Inc. (June 2000). These acquired retail
companies are involved in the sale of propane to local customer bases
throughout the United States. The acquisitions have been accounted for using
the purchase method of accounting. The acquired companies were purchased in
separate transactions for an aggregate purchase price of $19,787, including
acquisition costs, and $1,155 in liabilities assumed. The consideration
utilized in the 2000 acquisitions consisted of cash payments of $9,600 funded
by the issuance of long-term debt, redeemable Class A preferred interests
issued to certain former owners of these companies totaling $9,000 (see Note 7)
and the issuance of noncompete obligations in the amount of $32. Of the
aggregate purchase price, $102 (including cash paid at closing) was allocated
to covenants not to compete. The excess of aggregate purchase prices over the
fair market values of the net tangible and identifiable intangible assets
acquired, including $3,500 allocated to customer accounts, amounted to $5,594
and has been recorded as an increase in goodwill. The operating results of all
acquisitions are included in Inergy's consolidated results of operations from
the dates of acquisition.

   On January 12, 2001, Inergy acquired substantially all of the assets and
assumed certain liabilities of Investors 300, Inc., Domex, Inc. and L&L
Leasing, Inc., three companies owned by a common group of shareholders
(referred to as the Hoosier Propane Group). The acquisition has been accounted
for using the purchase method of accounting. The Hoosier Propane Group is
involved in the sale and transportation of propane to local customer bases
throughout the United States. The purchase price of approximately $74.0 million
consisted of cash payments of approximately $55.4 million funded by the
issuance of long-term debt and redeemable Class A preferred interests,
acquisition costs of $0.6 million, a redeemable Class A preferred interest
issued to certain former owners of the Hoosier Propane Group totaling $7.4
million, subordinated debentures issued to the Hoosier Propane Group
shareholders totaling $5.0 million, and $5.6 million of liabilities assumed.
The excess of purchase price over the fair market value of the net tangible and
identifiable intangible assets acquired, including $10,500 allocated to
customer accounts, amounted to $25,241 and has been recorded as an increase in
goodwill. The acquisition was effective January 1, 2001 and Inergy's
consolidated results of operations for the year ended September 30, 2001
include the Hoosier Propane Group operating results from the effective date.

   During November 2000, Inergy also acquired substantially all the assets of
Bear-Man Propane for $520 in cash. Inergy's consolidated results of operations
for the year ended September 30, 2001 include Bear-Man Propane from the date of
acquisition.

                                      F-17

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

   The following unaudited pro forma data summarize the results of operations
for the periods indicated as if these acquisitions had been completed October
1, 1999 and 2000, the beginning of the 2000 and 2001 fiscal years. The pro
forma data give effect to actual operating results prior to the acquisitions
and adjustments to interest expense, goodwill and customer accounts
amortization, and income taxes. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisitions had occurred on October 1, 1999 and 2000 or that will be obtained
in the future. The pro forma data does not give effect to acquisitions
completed subsequent to September 30, 2001.

                                                                 Year Ended
                                                                September 30,
                                                              ------------------
                                                                2000      2001
                                                              --------  --------
                                                                  
   Sales..................................................... $167,031  $254,680
   Net income (loss).........................................   (3,522)    6,012

3. Price Risk Management and Financial Instruments

   Inergy has recorded its trading activities at fair value in accordance with
Emerging Issues Task Force Issue (EITF) No. 98-10, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities." EITF No. 98-10
requires energy trading contracts to be recorded at fair value on the
consolidated balance sheet, with the changes in fair value included in
earnings.

 Trading Activities

   Inergy, through its wholesale operations, offers price risk management
services to energy related businesses through a variety of financial and other
instruments including forward contracts involving physical delivery of propane.
In addition, Inergy manages its own trading portfolio using forward physical
and futures contracts. Inergy attempts to balance its contractual portfolio in
terms of notional amounts and timing of performance and delivery obligations.
However, net unbalanced positions can exist or are established based on
assessment of anticipated short-term needs or market conditions.

   The price risk management services are offered to propane retailers and
other related businesses through a variety of financial and other instruments
including forward contracts involving physical delivery of propane, swap
agreements, which require payments to (or receipt of payments from)
counterparties based on the differential between a fixed and variable price for
propane, options and other contractual arrangements.

   Instruments used for trading purposes include forwards, swaps and options,
as defined above, as well as futures contracts.

 Notional Amounts and Terms

   The notional amounts and terms of these financial instruments at September
30, 2000 and 2001 include fixed price payor for 1,526 and 2,505 barrels,
respectively, and fixed price receiver for 1,479 and 2,862 barrels,
respectively. The notional amounts and terms of these financial instruments at
March 31, 2002 include fixed price payor 3,578 barrels and fixed price receiver
for 4,160 barrels.

   Notional amounts reflect the volume of the transactions, but do not
represent the amounts exchanged by the parties to the financial instruments.
Accordingly, notional amounts do not accurately measure Inergy's exposure to
market or credit risks.

                                      F-18

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

 Fair Value

   The fair value of the financial instruments related to price risk management
activities as of September 30, 2000 and 2001 was assets of $3,580 and $9,187,
respectively, and liabilities of $2,294 and $4,612, respectively, related to
propane. The fair value of the financial instruments related to price risk
management activities as of March 31, 2002 was assets of $8,897 and liabilities
of $4,618 related to propane. The effects of all intercompany transactions have
been appropriately eliminated.

   The net change in unrealized gains and losses related to trading and price
risk management activities for the years ended September 30, 1999, 2000, and
2001 of $(154), $1,479, and $2,214, respectively, and $(1,055) and $1,925 for
the six months ended March 31, 2001 and 2002, respectively, are included in
cost of product sold in the accompanying consolidated statements of operations.

 Market and Credit Risk

   Inherent in the resulting contractual portfolio are certain business risks,
including market risk and credit risk. Market risk is the risk that the value
of the portfolio will change, either favorably or unfavorably, in response to
changing market conditions. Credit risk is the risk of loss from nonperformance
by suppliers, customers, or financial counterparties to a contract. Inergy
takes an active role in managing and controlling market and credit risk and has
established control procedures, which are reviewed on an ongoing basis. Inergy
monitors market risk through a variety of techniques, including daily reporting
of the portfolio's value to senior management. Inergy provides for such risks
at the time trading activities are adjusted to fair value and when specific
risks become known. Inergy attempts to minimize credit risk exposure through
credit policies and periodic monitoring procedures and obtaining customer
deposits on sales contracts. The counterparties associated with assets from
price risk management activities as of September 30, 2000 and 2001 and March
31, 2002 are energy marketers.

4. Long-Term Debt

   Long-term debt consisted of the following:

                                                       September 30,
                                                      ---------------  March
                                                       2000    2001   31, 2002
                                                      ------- ------- --------
                                                             
   Credit agreement.................................. $33,250 $53,000 $138,215
   Obligations under noncompetition agreements and
    notes to former owners of businesses acquired....   1,625   1,101    3,929
   Other.............................................      52      31       20
                                                      ------- ------- --------
                                                       34,927  54,132  142,164
   Less current portion..............................     605  10,469    3,722
                                                      ------- ------- --------
                                                      $34,322 $43,663 $138,422
                                                      ======= ======= ========

   During fiscal 2000, Inergy had a credit agreement with a financial
institution providing Inergy with the capacity to borrow up to $41,000 ($9,000
under working capital lines of credit and $32,000 under a long-term acquisition
line of credit). At September 30, 2000, borrowings under the working capital
lines of credit and the acquisition line of credit were $4,900 and $28,350,
respectively. The prime rate and LIBOR plus the applicable spreads were 9.5%
and 9.37% to 9.93%, respectively, at September 30, 2000.

   Inergy's credit agreement was amended in January 2001 in connection with the
Hoosier Propane Group acquisition and resulted in a $96 million facility
consisting of a $25 million revolving working capital line of

                                      F-19

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

credit and an acquisition term note of $71 million, with a maturity date of
January 10, 2004. On July 25, 2001, in conjunction with the Offering (July 2001
amendment), the credit facility was again amended such that Inergy Propane, LLC
was made the sole borrower and resulted in a $30 million revolving working
capital line of credit and a $70 million revolving acquisition facility for
acquisition and growth capital borrowings. The credit facility has a term of
three years expiring July 2004 and is guaranteed by Inergy, L.P. and each
subsidiary of Inergy Propane, LLC. Inergy is required to reduce the principal
outstanding on the revolving working capital line of credit to $4,000 or less
for a minimum of 30 consecutive days during the period commencing March 1 and
ending September 30. As such $4,000 of the outstanding balance at September 30,
2001 has been classified as a long-term liability in the accompanying 2001
consolidated balance sheet. At September 30, 2001, the balance outstanding
under this amended credit facility was $53,000, including $14,000 under the
working capital facility. The prime rate and LIBOR plus the applicable spreads
were between 5.10% and 6.00% for all outstanding debt.

   Inergy's credit agreement was again amended in December 2001 in connection
with the IPC Acquisition (December 2001 amendment), as discussed in Note 12.
This December 2001 amendment resulted in a $195 million facility comprised of a
$50 million revolving working capital facility, a $75 million revolving
acquisition facility and a $70 million term note. The December 2001 amendment
has a term of three years, expiring December 2004 except for the term note
which is due in April 2003, and has similar interest terms to the July 2001
amendment.

   During fiscal 2001, Inergy entered into interest rate hedging agreements in
the form of interest rate swaps. Immediately prior to the closing of the
Offering in July 2001, the interest rate hedging agreements were terminated in
connection with the repayment of the long-term debt with offering proceeds. The
termination of the interest rate swaps resulted in an interest expense charge
of $507 in the fourth quarter of fiscal 2001.

   The credit agreement, including the December 2001 amendment, contains
several covenants which, among other things, require the maintenance of various
financial performance ratios, restrict the payment of dividends to unitholders,
and require financial reports to be submitted periodically to the financial
institutions. Unused borrowings under the credit agreement amounted to $47
million at September 30, 2001.

   Noninterest-bearing obligations due under noncompetition agreements consist
of agreements between Inergy and the sellers of retail propane companies
acquired from fiscal years 1999 through 2001 with payments due through 2009
with imputed interest at 8.5% to 9.0%. Noninterest-bearing obligations consist
of $2,130 and $1,448 in total payments due under noncompetition agreements,
less unamortized discount based on imputed interest of $505 and $347 at
September 30, 2000 and 2001, respectively.

   The aggregate amounts of principal to be paid on the outstanding long-term
debt during the next five years ending September 30 and thereafter, considering
the terms of the credit facilities amended in December 2001 as discussed above,
are as follows:

   Year Ending September 30,
   -------------------------
                                                                     
   2002................................................................ $10,469
   2003................................................................      75
   2004................................................................  43,081
   2005................................................................      86
   2006................................................................      92
   Thereafter..........................................................     329
                                                                        -------
                                                                        $54,132
                                                                        =======

                                      F-20

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

5. Leases

   Inergy has several noncancelable operating leases mainly for office space,
which expire at various times over the next nine years.

   Future minimum lease payments under noncancelable operating leases for the
next five years ending September 30 and thereafter consist of the following:

   Year Ending September 30,
   -------------------------
                                                                      
   2002................................................................. $  513
   2003.................................................................    406
   2004.................................................................    359
   2005.................................................................    222
   2006.................................................................     50
   Thereafter...........................................................     68
                                                                         ------
   Total minimum lease payments......................................... $1,618
                                                                         ======

   Rent expense for all operating leases during 1999, 2000, and 2001 amounted
to $196, $424 and $581, respectively, and $265 and $760 for the six months
ended March 31, 2001 and 2002, respectively.

6. Income Taxes

   Deferred income taxes related to Wilson and Rolesville reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. Components of the deferred taxes at September 30, 2000 are a
noncurrent deferred tax liability of $942 related to book/tax basis
differences. This liability was excluded from the Partnership Conveyance as
discussed in Note 1.

   The provision for income taxes for the years ended September 30, 1999 and
2000 and the six months ended March 31, 2002 consists of the following:

                                                         September 30,
                                                         --------------  March 31,
                                                          1999    2000     2002
                                                         ------  ------  ---------
                                                                
   Current:
     Federal............................................ $   41  $   --     $45
     State..............................................      7       7       7
                                                         ------  ------     ---
   Total current........................................     48       7      52
   Deferred:
     Federal............................................      7      --      --
     State..............................................      1      --      --
                                                         ------  ------     ---
   Total deferred.......................................      8      --      --
                                                         ------  ------     ---
                                                            $56  $    7     $52
                                                         ======  ======     ===

   For the years ended September 30, 1999 and 2000, the Wilson and Rolesville
effective tax rate differed from the statutory rate primarily due to the effect
of graduated rates and state taxes. There was no provision for income taxes in
fiscal 2001 or for the six months ended March 31, 2001.

                                      F-21

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

7. Redeemable Preferred Members' Interests and Members' Equity

   During December 1999, Inergy issued redeemable Class A preferred interests
to a new member for total proceeds of $2,000 less offering costs of $104.
During June 2000, Inergy issued redeemable Class A preferred interests to
certain former owners of Country Gas Company, Inc. totaling $9,000 in
connection with the acquisition of Country Gas Company, Inc. These preferred
interests were automatically converted into Senior Subordinated Units of
Inergy, L.P. in connection with the Offering. The conversion rates were
determined as of the issuance date based on negotiations between Inergy and the
unrelated third parties and were derived by multiplying the recorded value of
each party's preferred interest by a multiple of 2.25 for the December 1999
transaction and 1.0 for the June 2000 transaction and dividing the resulting
total by the $22.00 unit price in the Offering. The beneficial conversion
feature present in the December 1999 issuance, valued at $2 million, has been
recognized upon completion of the Offering as discussed in Note 1.

   During January 2001, Inergy issued redeemable Class A preferred interests to
new and existing members for total proceeds of $15,000, less offering costs of
$485. The preferred interests were issued to facilitate the refinancing of
Inergy's credit facilities described in Note 4 on a long-term basis and
complete the Hoosier Propane Group acquisition in January 2001. In March and
May 2001, additional redeemable preferred interests were issued at the same
valuation for total proceeds of $1,600 less offering costs of $28.

   These preferred interests were automatically converted into Senior
Subordinated Units of Inergy, L.P. in connection with the Offering. The
conversion rates were determined as of the issuance date based on negotiations
between Inergy and the third party investors and were derived by multiplying
the recorded value of each party's preferred interest by a multiple of 1.4 and
dividing the resulting total by the $22.00 unit price in the Offering. The
beneficial conversion feature present in these preferred interest issuances
valued at $6.6 million has been recognized upon completion of the Offering as
described in Note 1.

   The redeemable preferred interests issued in December 1999, June 2000, and
January 2001 provided the holders the option to require Inergy to redeem the
preferred interests, as provided in the agreements, but no earlier than the
fifth anniversary of the issuance. The preferred interest issued to members for
cash in December 1999 and January 2001 were redeemable in an amount between one
and two times face value at issuance, depending on Inergy's operating
performance, as defined in the agreement. The preferred interests issued to
certain former owners of Country Gas Company, Inc. and the Hoosier Propane
Group were redeemable in an amount equal to face value at issuance plus any
unpaid dividends. No amounts were required to be redeemed during the next five
years following issuance, except in certain circumstances, as provided for in
the agreements. All preferred interests were converted into Senior Subordinated
Units as described above.

   The Class A preferred interest earned cumulative dividends of 8% to 10% per
annum, depending on the date and amount of the preferred interest issued. Class
A preferred members were not entitled to any voting rights. In the event of a
public offering, Inergy was to use its best efforts to permit the holders of
Class A preferred interest units to exchange their Class A preferred interest
units for Common Units, notwithstanding the conversion terms discussed above.
Upon liquidation, Class A preferred members were entitled to an aggregate
preference distribution of the unpaid dividends prior to any liabilities.
Additionally, Class A preferred members were also entitled to preference over
common interests subsequent to the payment of the Company's liabilities.
Distributions totaling $180, $547, and $2,554 were paid to Class A preferred
members in 1999, 2000, and 2001, respectively. Unpaid distributions on
preferred interests as of September 30, 2001 amounted to $0.4 million and were
declared and paid in October 2001.

                                      F-22

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

8. Partners' Capital

   Partners' capital at September 30, 2001 consists of 1,840,000 Common Units
representing a 31.5% limited partner interest, 3,313,367 Senior Subordinated
Units representing a 56.7% limited partner interest, 572,542 Junior
Subordinated Units representing a 9.8% limited partner interest and a 2%
general partner interest.

   The amended and restated Agreement of Limited Partnership of Inergy, L.P.
(Partnership Agreement) contains specific provisions for the allocation of net
earnings and losses to each of the partners for purposes of maintaining the
partner capital accounts.

   During the Subordination Period (as defined below), the Partnership may
issue up to 800,000 additional Common Units (excluding Common Units issued in
connection with conversion of Subordinated Units into Common Units) or an
equivalent number of securities ranking on a parity with the Common Units and
an unlimited number of partnership interests junior to the Common Units without
a Unitholder vote. The Partnership may also issue additional Common Units
during the Subordination Period in connection with certain acquisitions or the
repayment of certain indebtedness. After the Subordination Period, the
Partnership Agreement authorizes the General Partner to cause the Partnership
to issue an unlimited number of limited partner interests of any type without
the approval of any Unitholders.

 Quarterly Distributions of Available Cash

   The Partnership is expected to make quarterly cash distributions of all of
its Available Cash, generally defined as income (loss) before income taxes plus
depreciation and amortization, maintenance capital expenditures and net changes
in reserves established by the General Partner for future requirements. These
reserves are retained to provide for the proper conduct of the Partnership
business, or to provide funds for distributions with respect to any one or more
of the next four fiscal quarters.

   Distributions by the Partnership in an amount equal to 100% of its Available
Cash will generally be made 98% to the Common and Subordinated Unitholders and
2% to the General Partner, subject to the payment of incentive distributions to
the holders of Incentive Distribution Rights to the extent that certain target
levels of cash distributions are achieved. To the extent there is sufficient
Available Cash, the holders of Common Units have the right to receive the
Minimum Quarterly Distribution ($0.60 per Unit), plus any arrearages, prior to
any distribution of Available Cash to the holders of Subordinated Units. Common
Units will not accrue arrearages for any quarter after the Subordination Period
(as defined below) and Subordinated Units will not accrue any arrearages with
respect to distributions for any quarter.

   In general, the Subordination Period will continue indefinitely until the
first day of any quarter beginning after June 30, 2006 for the Senior
Subordinated Units and June 30, 2008 for the Junior Subordinated Units in which
distributions of Available Cash equal or exceed the Minimum Quarterly
Distribution on the Common Units and the Subordinated Units for each of the
three consecutive four-quarter periods immediately preceding such data. Prior
to the end of the Subordination Period, 828,342 Senior Subordinated Units will
convert to Common Units after June 30, 2004 and 143,136 Junior Subordinated
Units will convert to Common Units after June 30, 2006 and another 828,342
Senior Subordinated Units will convert to Common Units after June 30, 2005 and
143,136 Junior Subordinated Units will convert to Common Units after June 30,
2007, if distributions of Available Cash on the Common Units and Subordinated
Units equal or exceed the Minimum Quarterly Distribution for each of the three
consecutive four-quarter periods preceding such date. Upon expiration of the
Subordination Period, all remaining Subordinated Units will convert to Common
Units.

                                      F-23

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

   The Partnership is expected to make distributions of its Available Cash
within 45 days after the end of each fiscal quarter ending December, March,
June, and September to holders of record on the applicable record date. The
Partnership made distributions to unitholders amounting to $6,485 during the
six months ended March 31, 2002.

 Long-Term Incentive Plan

   An affiliate of Inergy's managing general partners adopted the Inergy Long-
Term Incentive Plan for employees, consultants, and directors of the managing
general partner and employees of its affiliates that perform services for
Inergy. The long-term incentive plan currently permits the grant of awards
covering an aggregate of 589,000 common units, which can be granted in the form
of unit options and/or restricted units; however, not more than 192,000
restricted units may be granted under the plan. With the exception of 28,038
unit options (exercise prices from $3.83 to $10.67) granted to non-executive
employees in exchange for option grants made by the predecessor in fiscal 1999,
all unit options and restricted units granted under the plan will vest no
sooner than, and in the same proportion as, Senior Subordinated Units convert
into Common Units as described above. The compensation committee of the
managing general partner's board of directors administers the plan.

 Restricted Units

   A restricted unit is a "phantom" unit that entitles the grantee to receive a
common unit upon the vesting of the phantom unit, or in the discretion of the
compensation committee, cash equivalent to the value of a common unit. In
general, restricted units granted to employees will vest three years from the
date of grant and are subject to the vesting provisions described above in
connection with the subordination period. In addition, the restricted units
will become exercisable upon a change of control of the managing general
partner or Inergy.

   The restricted units are intended to serve as a means of incentive
compensation for performance and not primarily as an opportunity to participate
in the equity appreciation of the common units. Therefore, plan participants
will not pay any consideration for the common units they receive, and Inergy
will receive no remuneration for the units.

   As of September 30, 2001 and March 31, 2002, there were no restricted units
issued under the long-term incentive plan.

 Unit Options

   Unit options issued under the long-term incentive plan will generally have
an exercise price equal to the fair market value of the units on the date of
grant. In general, unit options will expire after 10 years and are subject to
the vesting provisions described above in connection with the subordination
period. In addition, the unit options will become exercisable upon a change of
control of the managing general partner or Inergy. Subsequent to the Offering,
292,782 unit options were granted to various Inergy employees with exercise
prices ranging from $16.37 to $22.00 per unit. Total unit options outstanding
at September 30, 2001 were 321,820 with exercise prices ranging from $3.83 to
$22.00. During the six months ended March 31, 2002, 77,500 unit options were
granted with exercise prices ranging from $22.49 to $27.65. None of the
outstanding unit options were exercisable at September 30, 2001 or March 31,
2002.

   Inergy applies APB Opinion No. 25, Accounting for Stock Issued to Employees.
Inergy follows the disclosure only provision of SFAS No. 123, Accounting for
Stock-based Compensation. Pro forma net income (loss) and net income (loss) per
limited partner unit under the fair value method of accounting for equity
instruments under SFAS No. 123 would not be materially different from reported
net income (loss) and net income (loss) per limited partner unit.

                                      F-24

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

9. Employee Benefit Plans

   Inergy's subsidiaries have a 401(k) profit-sharing plan for those employees
who have completed one year of service and have attained the age of 21. The
plan permits employees to make contributions up to 15% of their salary and
provides for matching contributions by Inergy. Matching contributions made by
Inergy were $21, $52, and $101 as of September 30, 1999, 2000, and 2001,
respectively.

10. Commitments

   Inergy periodically enters into agreements to purchase fixed quantities of
liquid propane at fixed prices with suppliers. At September 30, 2001, the total
of these firm purchase commitments was approximately $40,244.

   At September 30, 2001, Inergy is contingently liable for letters of credit
outstanding totaling $900, which guarantees various trade activities.

11. Segments

   Inergy's financial statements reflect two reportable segments: retail sales
operations and wholesale sales operations. Inergy's retail sales operations
include propane sales to end users, the sale of propane-related appliances and
service work for propane-related equipment. The wholesale sales operations,
which originated in April 1999, provide marketing and distribution services to
other resellers of propane, including Inergy's retail operations. Inergy's
President and Chief Executive Officer has been identified as the Chief
Operating Decision Maker (CODM). The CODM evaluates performance and allocates
resources based on revenues and gross profit of each segment. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. All intersegment revenues and profits
associated with propane sales and other services between the wholesale and
retail segments have been eliminated.

   The identifiable assets associated with each reportable segment reviewed by
the CODM include accounts receivable and inventories. The net asset/liability
from price risk management, as reported in the accompanying consolidated
balance sheet, is related to the wholesale trading activities and is
specifically reviewed by the CODM. Capital expenditures, reported as purchases
of property, plant and equipment in the accompanying consolidated statements of
cash flows, substantially all relate to the retail sales segment. Inergy does
not report property, plant and equipment, intangible assets, and depreciation
and amortization by segment to the CODM.

   Revenues, gross profit, and identifiable assets for each of Inergy's
reportable segments are presented below.

                                           Six Months Ended March 31, 2002
                                     -------------------------------------------
                                       Retail   Wholesale
                                       Sales      Sales    Intersegment
                                     Operations Operations Eliminations  Total
                                     ---------- ---------- ------------ --------
                                                            
   Revenues.........................  $77,229    $104,405    $(17,574)  $164,060
   Gross profit.....................   46,901       3,822        (450)    50,273
   Identifiable assets..............   19,292      21,410          --     40,702

                                      F-25

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

                                           Six Months Ended March 31, 2001
                                     -------------------------------------------
                                       Retail   Wholesale
                                       Sales      Sales    Intersegment
                                     Operations Operations Eliminations  Total
                                     ---------- ---------- ------------ --------
                                                            
   Revenues.........................  $53,488    $143,623    $(26,672)  $170,439
   Gross profit.....................   24,251       6,802      (2,039)    29,014
   Identifiable assets..............   12,919      14,835      (1,477)    26,277

                                            Year Ended September 30, 2001
                                     -------------------------------------------
                                       Retail   Wholesale
                                       Sales      Sales    Intersegment
                                     Operations Operations Eliminations  Total
                                     ---------- ---------- ------------ --------
                                                            
   Revenues.........................  $71,340    $187,521    $(35,722)  $223,139
   Gross profit.....................   34,633       8,747      (2,823)    40,557
   Identifiable assets..............    5,704      18,447          --     24,151

                                            Year Ended September 30, 2000
                                     -------------------------------------------
                                       Retail   Wholesale
                                       Sales      Sales    Intersegment
                                     Operations Operations Eliminations  Total
                                     ---------- ---------- ------------ --------
                                                            
   Revenues.........................  $23,461    $ 78,517    $ (8,383)  $ 93,595
   Gross profit.....................   10,693       2,179        (913)    11,959
   Identifiable assets..............    5,006      11,623        (397)    16,232

                                            Year Ended September 30, 1999
                                     -------------------------------------------
                                       Retail   Wholesale
                                       Sales      Sales    Intersegment
                                     Operations Operations Eliminations  Total
                                     ---------- ---------- ------------ --------
                                                            
   Revenues.........................  $ 9,860    $ 10,276    $   (925)  $ 19,211
   Gross profit.....................    4,946         511          --      5,457
   Identifiable assets..............    2,993       8,032        (925)    10,100

12. Subsequent Events

   Effective November 1, 2001, Inergy acquired substantially all of the assets
and assumed certain liabilities of Pro Gas Sales & Service, Spe-D Gas Company,
Great Lakes Propane Company and Ottawa LP Gas Company, four companies under
common control (collectively Pro Gas) $12.5 million in total consideration. Pro
Gas is a retail propane distributor located in central Michigan. Inergy
purchased Pro Gas with cash funded through its credit facility.

   Effective December 20, 2001, IPC Acquisition Corporation, a newly formed and
wholly-owned subsidiary of Inergy Holdings, LLC, purchased all of the
outstanding stock and assumed the outstanding debt of Independent Propane
Company, Inc. for total consideration of $84.8 million including working
capital acquired. Immediately thereafter, Inergy purchased from Inergy
Holdings, LLC substantially all of the assets and assumed certain liabilities
of IPC Acquisition Corporation for $74.6 million in cash, funded through its
credit facility, and the issuance of 759,620 common units with a fair value of
$19.7 million, and $2.5 million of assumed liabilities, for total consideration
of $96.8 million, including $7.5 million paid for working capital acquired (the
IPC Acquisition). The $10.3 million greater consideration paid by Inergy over
that paid by IPC Acquisition Corp. relates to the tax liability generated by
the sale of the assets by IPC Acquisition Corp. to Inergy. Independent Propane
Company, Inc. operates as a retail distributor of propane in seven states, with
its primary operations in Texas.

                                      F-26

                          INERGY, L.P. AND SUBSIDIARY
              (Successor to Inergy Partners, LLC and Subsidiaries)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                  (In Thousands Except Unit and Per Unit Data)

   The following unaudited pro forma data summarize the results of operations
for the periods indicated as if the Pro Gas and IPC acquisitions had been
completed October 1, 2000 and 2001, the beginning of the 2001 and 2002 fiscal
years and as if the Hoosier Propane Group acquisition effective January 1, 2001
(see Note 2) had been completed October 1, 2000. The pro forma data give effect
to actual operating results prior to the acquisitions and adjustments to
interest expense, goodwill (amortization prior to the October 1, 2001 adoption
of SFAS No. 142) and customer accounts amortization, among other things. These
pro forma amounts do not purport to be indicative of the results that would
have actually been obtained if the acquisitions had occurred on October 1, 2000
and 2001 or that will be obtained in the future.

                                                               Six-Month Period
                                                  Year ended    Ended March 31,
                                                 September 30, -----------------
                                                     2001        2001     2002
                                                 ------------- -------- --------
                                                               
   Revenue......................................   $350,420    $242,327 $178,823
   Net income ..................................   $ 14,877      23,051   20,148

   As discussed in Note 4, Inergy's credit facility was amended in December
2001 in conjunction with the IPC Acquisition.

   On November 14, 2001, Inergy paid a distribution of $0.40 per Common and
Subordinated Unit with a proportionate amount to the 2% nonmanaging general
partner, or an aggregate of $2,337, including $47 to the nonmanaging general
partner.

13. Quarterly Financial Data (Unaudited)

   Summarized unaudited quarterly financial data is presented below. Inergy's
business is seasonal due to weather conditions in its service areas. Propane
sales to residential and commercial customers are affected by winter heating
season requirements, which generally results in higher operating revenues and
net income during the period from October through March of each year and lower
operating revenues and either net losses or lower net income during the period
from April through September of each year. Sales to industrial and agricultural
customers are much less weather sensitive.

                                                   Quarter Ended
                                     ------------------------------------------
                                     December 31 March 31 June 30  September 30
                                     ----------- -------- -------  ------------
                                                       
Fiscal 2001
  Revenues..........................   $72,411   $98,028  $21,803    $30,897
  Operating income (loss)...........     4,076    10,726   (2,200)    (2,078)
  Net income (loss).................     3,209     8,978   (4,162)    (3,676)
  Basic and diluted net income
   (loss) per limited partner unit
   for the period from July 31, 2001
   through September 30, 2001.......                                   (0.40)

Fiscal 2000
  Revenues..........................   $20,563   $29,894  $13,208    $29,930
  Operating income (loss)...........     1,198     2,225   (1,298)    (1,442)
  Net income (loss).................       698     1,663   (1,953)    (2,237)

                                      F-27

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Independent Propane Company Holdings:

   We have audited the accompanying consolidated balance sheets of Independent
Propane Company Holdings (a Delaware corporation) and subsidiaries (the
"Company") as of September 30, 2000 and 2001, and the related consolidated
statements of operations, changes in shareholders' deficit, and cash flows for
each of the three years in the period ended September 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Independent Propane Company
Holdings and subsidiaries as of September 30, 2000 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.

                                          /s/ ARTHUR ANDERSEN LLP

Dallas, Texas,
November 16, 2001

                                      F-28

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                          September 30, 2000 and 2001

                                                        2000          2001
                                                    ------------  ------------
                      ASSETS
                                                            
CURRENT ASSETS:
  Cash............................................  $    809,997  $  1,003,667
  Accounts receivable, net of allowance for
   doubtful accounts of approximately $707,000 and
   $867,000, respectively.........................     5,831,190     5,772,793
  Inventories, net................................     3,601,690     3,324,495
  Other current assets............................       396,306       586,764
                                                    ------------  ------------
    Total current assets..........................    10,639,183    10,687,719
                                                    ------------  ------------
PROPERTY, PLANT, AND EQUIPMENT:
  Land............................................     1,663,412     1,515,322
  Buildings.......................................     2,666,662     2,747,273
  Office furniture and equipment..................     3,276,085     3,169,399
  Shop equipment..................................       950,540     1,232,236
  Tanks...........................................    37,083,629    38,166,897
  Vehicles........................................     9,122,812    10,028,647
                                                    ------------  ------------
                                                      54,763,140    56,859,774
  Less--Accumulated depreciation..................   (14,158,003)  (18,201,121)
                                                    ------------  ------------
    Net property, plant, and equipment............    40,605,137    38,658,653
                                                    ------------  ------------
GOODWILL, net of accumulated amortization of
 $5,175,632 and $6,840,356, respectively..........    20,702,730    19,216,266
NONCOMPETITION AGREEMENTS, net of accumulated
 amortization of $1,993,740 and $2,696,431,
 respectively.....................................     2,031,873     1,341,582
DEBT ISSUANCE COSTS, net of accumulated
 amortization of $1,373,892 and $1,730,298,
 respectively.....................................     1,039,870       683,464
OTHER NONCURRENT ASSETS, net......................       389,017       490,517
                                                    ------------  ------------
    Total assets..................................  $ 75,407,810  $ 71,078,201
                                                    ============  ============
      LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
  Accounts payable................................  $  5,322,396  $  4,879,937
  Accrued liabilities.............................     1,399,882     1,466,905
  Short-term notes payable........................       466,000            --
  Current maturities of long-term debt............     4,721,242     6,408,576
                                                    ------------  ------------
    Total current liabilities.....................    11,909,520    12,755,418
                                                    ------------  ------------
CUSTOMER DEPOSITS.................................       241,495       174,823
DEFERRED TAXES, net...............................       100,000       100,000
DIVIDENDS PAYABLE ON SERIES E SENIOR REDEEMABLE
 PREFERRED STOCK..................................     9,466,691    15,143,381
LONG-TERM DEBT, net of current maturities.........    56,687,136    48,557,593
SERIES E SENIOR REDEEMABLE PREFERRED STOCK, 35,000
 shares authorized, 29,000 issued and outstanding,
 $1,000 redemption and carrying value.............    29,000,000    29,000,000
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
SHAREHOLDERS' DEFICIT:
  Common stock--par value $.01 per share, 170,613
   and 168,113 shares issued, respectively........         1,706         1,681
  Additional paid-in capital......................     1,221,127     1,221,152
  Retained deficit................................   (24,361,528)  (27,017,510)
                                                    ------------  ------------
                                                     (23,138,695)  (25,794,677)
  Treasury stock--86,033 shares, at cost..........    (8,858,337)   (8,858,337)
                                                    ------------  ------------
    Total shareholders' deficit...................   (31,997,032)  (34,653,014)
                                                    ------------  ------------
    Total liabilities and shareholders' deficit...  $ 75,407,810  $ 71,078,201
                                                    ============  ============

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-29

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Years Ended September 30, 1999, 2000, and 2001

                                          1999          2000         2001
                                       -----------  ------------  -----------
                                                         
SALES:
  Propane............................. $37,685,218  $ 49,372,705  $67,358,523
  Other...............................   7,304,299     9,600,372    9,061,668
                                       -----------  ------------  -----------
    Total sales.......................  44,989,517    58,973,077   76,420,191
                                       -----------  ------------  -----------
COST OF SALES:
  Propane.............................  12,405,337    24,078,875   34,130,449
  Other...............................   3,631,276     4,249,833    3,630,779
                                       -----------  ------------  -----------
    Total cost of sales...............  16,036,613    28,328,708   37,761,228
                                       -----------  ------------  -----------
GROSS PROFIT..........................  28,952,904    30,644,369   38,658,963

OPERATING EXPENSES:
  Selling, general, and
   administrative.....................  21,305,182    21,922,915   22,321,832
  Depreciation and amortization.......   5,544,293     6,883,411    7,018,730
                                       -----------  ------------  -----------
    Total operating expenses..........  26,849,475    28,806,326   29,340,562
                                       -----------  ------------  -----------
OPERATING PROFIT......................   2,103,429     1,838,043    9,318,401
INTEREST EXPENSE, net.................   5,094,672     7,393,941    6,297,693
                                       -----------  ------------  -----------
NET INCOME (LOSS) BEFORE INCOME
 TAXES................................  (2,991,243)   (5,555,898)   3,020,708
INCOME TAXES..........................          --            --           --
                                       -----------  ------------  -----------
NET INCOME (LOSS).....................  (2,991,243)   (5,555,898)   3,020,708
LESS: DIVIDENDS ON PREFERRED STOCK....  (4,309,777)   (4,945,571)  (5,676,690)
                                       -----------  ------------  -----------
NET LOSS AVAILABLE TO COMMON
 SHAREHOLDERS......................... $(7,301,020) $(10,501,469) $(2,655,982)
                                       ===========  ============  ===========

NET LOSS PER COMMON SHARE:
  Basic and diluted................... $    (42.13) $     (61.07) $    (15.68)

WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES AND COMMON SHARE EQUIVALENTS
 OUTSTANDING:
  Basic and diluted...................     173,304       171,959      169,363

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-30

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
             For the Years Ended September 30, 1999, 2000, and 2001

                                 Additional                                Total
                         Common   Paid-in     Retained     Treasury    Shareholders'
                         Stock    Capital     Deficit        Stock        Equity
                         ------  ---------- ------------  -----------  -------------
                                                        
BALANCE, September 30,
 1998................... $1,733  $1,221,100 $ (6,559,039) $(8,858,337) $(14,194,543)
  Preferred stock
   dividends............     --          --   (4,309,777)          --    (4,309,777)
  Net loss..............     --          --   (2,991,243)          --    (2,991,243)
                         ------  ---------- ------------  -----------  ------------
BALANCE, September 30,
 1999...................  1,733   1,221,100  (13,860,059)  (8,858,337)  (21,495,563)
  Cancellation of
   subscription
   receivable...........    (27)         27           --           --            --
  Preferred stock
   dividends............     --          --   (4,945,571)          --    (4,945,571)
  Net loss..............     --          --   (5,555,898)          --    (5,555,898)
                         ------  ---------- ------------  -----------  ------------
BALANCE, September 30,
 2000...................  1,706   1,221,127  (24,361,528)  (8,858,337)  (31,997,032)
  Cancellation of
   subscription
   receivable...........    (25)         25           --           --            --
  Preferred stock
   dividends............     --          --   (5,676,690)          --    (5,676,690)
  Net income............     --          --    3,020,708           --     3,020,708
                         ------  ---------- ------------  -----------  ------------
BALANCE, September 30,
 2001................... $1,681  $1,221,152 $(27,017,510) $(8,858,337) $(34,653,014)
                         ======  ========== ============  ===========  ============

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-31

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
            For the Years Ended September 30, 1999 , 2000, and 2001

                                            1999         2000         2001
                                        ------------  -----------  -----------
                                                          
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).................... $ (2,991,243) $(5,555,898) $ 3,020,708
  Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities--
    Depreciation and amortization......    5,544,293    6,883,411    7,018,730
    Amortization of debt issuance
     costs.............................      707,265      389,508      356,406
    Changes in, (net of effects from
     acquisitions)--
      Accounts receivable, net.........   (1,019,744)  (2,090,924)      58,397
      Inventories, net.................     (398,640)    (308,756)     277,195
      Other current assets.............     (103,580)      (5,883)    (190,458)
      Accounts payable and accrued
       liabilities.....................    1,174,654    1,517,475     (375,436)
      Customer deposits................       14,150      (45,224)     (66,672)
                                        ------------  -----------  -----------
        Net cash provided by operating
         activities....................    2,927,155      783,709   10,098,870
                                        ------------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures, net............   (3,739,147)  (2,799,446)  (2,736,547)
  Net cash paid in acquisitions........  (18,675,845)  (5,273,317)          --
  (Increase) decrease in other
   noncurrent assets...................      580,909       18,588     (260,444)
                                        ------------  -----------  -----------
        Net cash used in investing
         activities....................  (21,834,083)  (8,054,175)  (2,996,991)
                                        ------------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on short-term notes
   payable.............................     (160,000)  (1,212,000)    (466,000)
  Net (payments) proceeds from credit
   agreement...........................   19,490,330   10,200,878   (4,382,528)
  Proceeds from long-term debt.........      959,873           --           --
  Payments on long-term debt...........   (1,393,486)  (1,601,984)  (2,059,681)
  Debt issuance costs..................     (134,148)      (8,445)          --
                                        ------------  -----------  -----------
        Net cash (used in) provided by
         financing activities..........   18,762,569    7,378,449   (6,908,209)
                                        ------------  -----------  -----------
NET INCREASE (DECREASE) IN CASH........     (144,359)     107,983      193,670
CASH, beginning of period..............      846,373      702,014      809,997
                                        ------------  -----------  -----------
CASH, end of period.................... $    702,014  $   809,997  $ 1,003,667
                                        ============  ===========  ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
  Cash paid during the year for
   interest............................ $  4,340,771  $ 6,904,101  $ 5,864,832
  Noncash activities--
    Debt issued in acquisitions........ $  1,919,000  $   696,500  $        --
    Preferred stock dividends.......... $  4,309,777  $ 4,945,571  $ 5,676,690

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      F-32

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          September 30, 2000 and 2001

1. The Company:

   Independent Propane Company Holdings, a Delaware corporation, and
subsidiaries (the "Company"), is a distributor of propane gas and related
merchandise with operations primarily in the Southern and Southeastern United
States. At September 30, 2001, the Company had 44 branch locations and 24
satellite locations. The Company's business expansion to date has occurred
mainly through the acquisitions of other propane outlets. Acquisitions which
occurred during the periods presented in the accompanying consolidated
financial statements are discussed in Note 6.

2. Summary of Significant Accounting Policies:

 Consolidation

   All significant intercompany accounts and transactions have been eliminated
in the accompanying consolidated financial statements.

 Inventories

   Inventories are stated at the lower of cost (weighted average for propane
and first-in, first-out for merchandise) or market.

 Property, Plant, and Equipment

   Property, plant, and equipment are stated at cost. Depreciation on property,
plant, and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Original cost and related accumulated
depreciation are removed from the accounts in the year assets are retired.
Maintenance and repairs are charged to expense as incurred.

 Intangibles

   Intangible assets include the cost of noncompetition agreements and purchase
price in excess of the estimated fair value of net assets acquired
("goodwill"). The cost of noncompetition agreements is being amortized over
periods of 2 to 7 years, while goodwill is being amortized over 15 years, using
the straight-line method.

 Accounting for the Impairment of Long-Lived Assets

   In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company records impairment for losses on its
long-lived assets and goodwill when events or circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of the assets. No
such impairment losses have been recognized to date.

 Debt Issuance Costs

   Debt issuance costs incurred in connection with obtaining and amending the
debt are being amortized over the life of the related loan and are included in
interest expense in the accompanying consolidated statements of operations.

                                      F-33

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Income Taxes

   Deferred income taxes are recorded, where appropriate, to reflect the
estimated future tax effects of differences between financial statement bases
and tax bases of assets and liabilities.

 Revenue Recognition

   Propane sales are recognized when the product is delivered to the customer.
Other revenue, which primarily includes other fuel sales, merchandise sales,
and tank rental income, is recognized when products are delivered and as
services are rendered.

 Use of Estimates

   The preparation of these consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

 Credit Concentration

   The Company generally extends credit to its retail customers through
delivery into company and customer owned propane tanks. No individual customer
comprises more than 5% of the Company's business thus reducing the risk as a
result of the large volume of customers. Provisions for doubtful accounts
receivable are reflected in the consolidated financial statements and have
generally been within management's expectations.

 Fair Value of Financial Instruments

   The Company enters into various financial instruments in the normal course
of business. The carrying values of the Company's short-term financial
instruments, including cash, receivables, and short-term notes payable
approximate their fair value because of the short maturity of the instruments.
The carrying value of the long-term debt approximates fair value because of its
variable interest rate.

 New Accounting Standard

   In July 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was
issued. The Company is required to adopt this new standard at the beginning of
fiscal 2003, although early adoption is permitted at the beginning of fiscal
2002. Subsequent to the adoption of SFAS No. 142, recorded goodwill is not
amortized. Adoption of the standard also includes transitional impairment
testing of previously recorded goodwill. The Company has not early adopted this
new standard and has not determined if impairment of goodwill will be required
at the date of adoption.

3. Inventories:

   As of September 30, 2000 and 2001, inventories consisted of:

                                                            2000        2001
                                                         ----------  ----------
                                                               
   Propane.............................................. $2,080,454  $1,845,677
   Merchandise..........................................  1,616,826   1,585,827
   Other fuels..........................................    164,410     152,991
   Reserves.............................................   (260,000)   (260,000)
                                                         ----------  ----------
                                                         $3,601,690  $3,324,495
                                                         ==========  ==========

                                      F-34

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Property, Plant, and Equipment:

   A summary of the estimated useful lives utilized for depreciation purposes
is as follows:

                                                                       Estimated
                                                                         Lives
                                                                        (Years)
                                                                       ---------
                                                                    
   Buildings..........................................................       40
   Office furniture and equipment.....................................  5 to 10
   Shop equipment.....................................................       10
   Tanks..............................................................       20
   Vehicles...........................................................        5

   Depreciation expense related to property, plant, and equipment in 1999,
2000, and 2001 was approximately $3,759,000, $4,658,000, and $4,363,000,
respectively. Certain of the Company's property, plant, and equipment has been
pledged as security under certain long-term debt agreements and the Amended and
Restated Credit Agreement (see Note 8).

5. Intangibles:

   As of September 30, 2000 and 2001, intangibles consisted primarily of
goodwill and noncompetition agreements (see Note 2). Amortization expense
related to intangible assets for 1999, 2000, and 2001 totaled approximately
$1,785,000, $2,225,000, and $2,656,000, respectively.

6. Acquisitions:

   In fiscal 2000, the Company acquired assets of nine Texas propane companies.
The total purchase price for those acquisitions included approximately
$6,044,000 in cash and $697,000 in promissory notes with terms ranging from 1
to 7 years. In fiscal 2001, the Company did not complete any acquisitions.

   In connection with one acquisition, the Company also entered into a certain
noncompetition agreement with the previous owner for approximately $235,000 for
7 years. Purchase price in excess of the fair value of assets acquired of
approximately $3,067,000 was allocated to intangible assets.

7. Short-Term Notes Payable:

   As of September 30, 2000 and 2001, short-term notes payable consisted of
notes payable, at varying interest rates, to previous owners of acquired
companies totaling $466,000 and $0, respectively, payable within one year of
the related acquisition date.

                                      F-35

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Long-Term Debt:

   As of September 30, 2000 and 2001 long-term debt consisted of the following:

                                                            2000        2001
                                                         ----------- -----------
                                                               
Revolving line of credit up to a maximum of $21,000,000
 at September 30, 2000 and 2001, matures on September
 30, 2003, requires monthly payments of interest at
 either the Bank Prime Loan Rate or LIBOR, plus an
 incremental interest rate of up to 4% (10.6% and 7.1%
 at September 30, 2000 and 2001, respectively).........  $17,724,262 $16,541,734
Term A Loan, matures on September 30, 2003, requires
 quarterly payments of principal and interest at either
 the Bank Prime Loan Rate or LIBOR, plus an incremental
 interest rate of up to 4% (10.6% and 7.1% at September
 30, 2000 and 2001, respectively), quarterly
 installments range from $50,000 beginning after June
 30, 2000, to $2,500,000 beginning after December 31,
 2002..................................................   19,000,000  16,000,000
Term B Loan, matures on September 30, 2003, requires
 quarterly payments of principal and interest at either
 the Bank Prime Loan Rate or LIBOR, plus an incremental
 interest rate of up to 4% (10.6% and 7.1% at September
 30, 2000 and 2001, respectively), payable quarterly in
 installments of 0.25% of Term B loan outstanding......   19,650,000  19,450,000
Notes payable to sellers for acquisitions, mature on
 various dates from February 2001 through June 2010,
 principal and interest varying from 8% to 12% payable
 in monthly installments...............................    4,143,209   2,611,987
Other..................................................      890,907     362,448
                                                         ----------- -----------
                                                          61,408,378  54,966,169
Less--Current maturities...............................    4,721,242   6,408,576
                                                         ----------- -----------
Total long-term debt, net of current maturities........  $56,687,136 $48,557,593
                                                         =========== ===========

   The Company has a credit agreement which consists of a revolving line of
credit, Term A loan, and Term B loan (collectively, the "Credit Agreement").
The Credit Agreement matures on September 30, 2003, and is collateralized by
the assets of the Company.

   The Credit Agreement contains various financial covenants under which the
Company is obligated. These financial covenants, among others, include
requirements for debt to cash flow, interest coverage, and fixed charge
coverage. As of September 30, 2001, the Company is in compliance with these
covenants.

   At September 30, 2000 and 2001, the weighted average interest rate for
outstanding balances under this agreement equaled 10.6% and 7.2%, respectively.

   As part of the Credit Agreement, the lender received a warrant to purchase
100 shares of Series D Convertible Preferred Stock (see Note 12). The lender
also invested $1,000,000 in exchange for Series E Preferred Stock and a related
warrant.

                                      F-36

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   Principal maturities of long-term debt outstanding at September 30, 2001,
over the next five fiscal years and thereafter are as follows:

                                                                  
   2002............................................................. $ 6,408,576
   2003.............................................................  47,836,207
   2004.............................................................     263,561
   2005.............................................................     189,356
   2006.............................................................     116,607
   Thereafter.......................................................     151,862
                                                                     -----------
                                                                     $54,966,169
                                                                     ===========

9. Leases:

   The Company rents most of its office and branch location space under leases
which range from 1 to 15 years. The Company also leases vehicles, equipment,
and land under leases ranging from 6 months to 15 years. At September 30, 2001,
the Company was committed to make future rental payments under several long-
term operating lease agreements. The future minimum payments required over the
next five fiscal years and thereafter are summarized below:

                                                                  
   2002............................................................. $  909,784
   2003.............................................................    833,316
   2004.............................................................    688,668
   2005.............................................................    571,441
   2006.............................................................    229,369
   Thereafter.......................................................    290,675
                                                                     ----------
   Total minimum lease payments..................................... $3,523,253
                                                                     ==========

   Total rent expense for the years ended September 30, 1999, 2000, and 2001,
was approximately $820,000, $848,000, and $797,000, respectively, and is
included in selling, general, and administrative expenses.

10. Income Taxes:

   The Company recorded no income tax benefit for the years ended September 30,
1999 and 2000, due to an offsetting amount increasing the valuation allowance.
The Company made no provision for income taxes for the year ended September 30,
2001, due to the utilization of the net operating loss carryforward and a
corresponding reduction in the valuation allowance.

   As of September 30, 2000 and 2001, the tax effects of temporary differences
which gave rise to the net deferred income tax liability were as follows:

                                                         2000         2001
                                                      -----------  -----------
                                                             
   Allowance for doubtful accounts................... $   240,380  $   294,780
   Property, plant, and equipment....................  (2,007,482)  (2,331,079)
   Net operating loss carryforwards..................   4,458,587    3,464,470
   Other.............................................     (58,380)      35,567
   Valuation allowance...............................  (2,733,105)  (1,563,738)
                                                      -----------  -----------
     Net noncurrent deferred tax liability........... $  (100,000) $  (100,000)
                                                      ===========  ===========

                                      F-37

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   As of September 30, 2001, the Company had net operating loss carryforwards
of approximately $10,190,000 for federal income tax purposes. The Company's
income tax provision differed from the federal statutory rate of 34% due to the
establishment of a valuation allowance for the net operating loss
carryforwards, the realization of which cannot be assured at this time.
Substantially all of the net operating loss carryforwards at September 30,
2001, are subject to certain limitations under Internal Revenue Code Section
382.

11. Other Related-Party Transactions:

   For the years ended September 30, 1999, 2000, and 2001, the Company had
purchased legal services totaling approximately $102,000, $86,000, and $32,000,
respectively, from certain shareholders. These legal costs were primarily
associated with the various acquisitions, and the amendments to the Credit
Agreement.

   As of September 30, 1999, 2000, and 2001, in connection with the sale of
stock, the Company had a note receivable from officers of the Company totaling
$653,650, $250,000, and $0, respectively, which are included as a reduction in
additional paid-in capital. The notes bore interest at 8%.

12. Put Warrants:

   In connection with the Credit Agreement, the lender received a warrant to
purchase 100 shares of the Series D Convertible Preferred Stock, $.01 par
value, at an exercise price of $1.00 per share. The warrant is exercisable from
September 11, 1998, through September 11, 2008. The holder of the warrant has
the right to put its warrant to the Company at a price as defined in the Credit
Agreement. The put exercise period is anytime after September 11, 2003. The
warrant is adjusted annually to its fair market value through earnings.

   Series E Senior Redeemable Preferred Stock (Note 13) includes warrants to
purchase 82,492 shares of common stock at an exercise price of $.01 per share.
The warrants may be exercised at any time up to the expiration date of
September 11, 2008. These warrants have a put feature that allows the holder to
put the warrants to the Company after September 11, 2003, at current market
price as defined in the stock purchase agreement. The warrants are adjusted
annually to their fair market value through earnings.

   The fair market value assigned to the warrants upon issuance was $0 and
there has been no change in market value since their issuance.

13. Series E Redeemable Preferred Stock:

   Series E Senior Redeemable Preferred Stock ("Series E") consist of 35,000
designated shares of which 29,000 were issued and outstanding as of September
30, 2000 and 2001. Each share of Series E stock has a liquidation value of
$1,000 plus accrued and unpaid dividends. Dividends accrue at a rate of 14% per
year and are compounded on a quarterly basis and totaled approximately
$15,144,000 at September 30, 2001. Series E stock has an optional redemption
feature that allows the Company to redeem shares at a percentage of liquidation
value. These percentages range from 112% in 1998, to 100% in 2004 and
thereafter, and the percentage reduces 2% per year for all years between 1998
and 2004. The Series E stock is mandatorily redeemed beginning August 31, 2003,
in 6.25% increments of original shares outstanding at the issuance date,
payable quarterly. Any remaining shares outstanding as of August 31, 2005, must
be redeemed in full as of that date.

                                      F-38

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Shareholders' Deficit:

   As of September 30, 2000 and 2001, the Company's authorized capital
structure consisted of 500,000 shares of common stock and 50,000 shares of
preferred stock, all of which have a par value of $.01 per share. Following is
a summary of each class of stock:

  . Common stock--500,000 authorized shares of which 170,613 and 168,113
    shares were issued as of September 30, 2000 and 2001, respectively,
    including 86,033 treasury shares.

  . Series D Convertible Preferred Stock ("Series D")--100 shares designated
    of which no shares are issued. Each share of Series D stock has no
    dividends, unless declared by the Board of Directors of the Company. The
    Series D stock can also be converted into a total of 7,228 shares of
    common stock.

   Certain current and former employees of the Company and other individuals
have stock options exercisable beginning at a date subject to the grant date
and vesting period. The remaining 1,250 unvested stock options vest in March
2002. These options are to purchase shares of common stock of the Company at
values from $5 to $165 per share. At September 30, 2001, the Company had
allocated 28,044 shares of common stock for issuance under the plan. During
2001, 5,000 options were granted that qualify for variable accounting
treatment, which requires the recognition of compensation expense based on
changes in the fair value of the common stock. During 2001, no compensation
expense was recognized. A summary of stock option activity for the years ended
September 30, 1999, 2000, and 2001, is presented in the table below:

                                September 30,   September 30,   September 30,
                                    1999            2000            2001
                               --------------- --------------- ---------------
                                      Weighted        Weighted        Weighted
                                      Average         Average         Average
                                      Exercise        Exercise        Exercise
                               Shares  Price   Shares  Price   Shares  Price
                               ------ -------- ------ -------- ------ --------
                                                    
Outstanding, beginning of
 year......................... 8,299  $121.58  8,299  $121.58  6,210  $106.97
  Granted.....................    --       --     --       --  5,000     5.00
  Exercised...................    --       --     --       --     --       --
  Expired.....................    --       --     --       --  3,044   100.00
  Cancelled...................    --       --  2,089   165.00  2,500   100.00
                               -----  -------  -----  -------  -----  -------
Outstanding, end of year...... 8,299  $121.58  6,210  $106.97  5,666  $ 23.81
                               =====  =======  =====  =======  =====  =======
Exercisable at end of year.... 4,335  $109.99  4,960  $108.73  4,416  $ 29.13
                               =====  =======  =====  =======  =====  =======

   The Company has elected to account for stock-based compensation programs
using the intrinsic value method under Accounting Principles Board Opinion No.
25. The following pro forma disclosures are presented to reflect amounts as if
the fair value method defined in SFAS No. 123 were applied:

                                                  September 30,
                                       --------------------------------------
                                          1999          2000         2001
                                       -----------  ------------  -----------
                                                         
Net loss available to common
 shareholders......................... $(7,792,528) $(10,764,686) $(2,718,513)
Net loss per common share--basic and
 diluted.............................. $    (44.96) $     (62.60) $    (16.05)

   The Company used the minimum value method to estimate the fair values of
options for the above pro forma information. For purposes of the minimum value
method, the Company used risk-free interest rates of 6.7%, 5.1% and 6.3%,
respectively, assumed no volatility or future dividends, and assumed the
expected life of the options to be through the applicable expiration dates.

                                      F-39

             INDEPENDENT PROPANE COMPANY HOLDINGS AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   The following table summarized information about stock options outstanding
at September 30, 2001:

                                                                                Remaining
         Exercise            Number                    Number                  Contractual
          Price            Outstanding               Exercisable                  Life
         --------          -----------               -----------               -----------
                                                                      
          $5.00               5,000                     3,750                      9.1
         $165.00               666                       666                       1.9

15. Subsequent Events (Unaudited):

   On December 19, 2001, IPCH Acquisition Corp., a newly formed and wholly
owned subsidiary of Inergy Holdings, LLC purchased all of the outstanding stock
and assumed the outstanding debt of the Company.

                                      F-40

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Domex, Inc., Investors 300, Inc., L & L Leasing, Inc.

   We have audited the accompanying combined balance sheets as of September 30,
1999 and 2000 and December 31, 2000, of Domex, Inc., Investors 300, Inc. and
L & L Leasing, Inc. (the "Hoosier Propane Group"), and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 2000 and the three months ended
December 31, 2000. These financial statements are the responsibility of the
Hoosier Propane Group's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position at September 30, 1999
and 2000 and December 31, 2000, of the Hoosier Propane Group, and the combined
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000 and the three months ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
May 2, 2001

                                      F-41

                             HOOSIER PROPANE GROUP

                            COMBINED BALANCE SHEETS
                       (In thousands, except share data)

                                                 September 30,
                                               ------------------  December 31,
                                                 1999      2000        2000
                                               --------  --------  ------------
                                                          
               ASSETS (Note 3)
Current assets:
 Cash and cash equivalents...................  $    777  $    702    $  1,711
 Marketable securities.......................       424       460         453
 Accounts receivable.........................     2,482     4,423      13,134
 Inventories.................................     7,537     2,301       3,172
 Prepaid expenses and other current assets...       211       491         207
                                               --------  --------    --------
Total current assets.........................    11,431     8,377      18,677
Property, plant and equipment:
 Land and buildings..........................     2,283     2,310       2,310
 Office furniture and equipment..............       698       704         704
 Vehicles....................................    11,894    12,296      12,363
 Tanks and plant equipment...................    17,523    18,215      18,401
                                               --------  --------    --------
                                                 32,398    33,525      33,778
 Less accumulated depreciation...............   (10,291)  (11,299)    (11,643)
                                               --------  --------    --------
                                                 22,107    22,226      22,135
Intangible assets (Note 2)...................     1,566     1,566       1,566
 Less accumulated amortization...............      (119)     (223)       (249)
                                               --------  --------    --------
                                                  1,447     1,343       1,317
Notes receivable from stockholders (Note 6)..       352       292         285
Other assets.................................       742       879         884
                                               --------  --------    --------
Total assets.................................  $ 36,079  $ 33,117    $ 43,298
                                               ========  ========    ========
    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Notes payable to bank (Note 3)..............  $  3,000  $  1,575    $  5,575
 Accounts payable............................     2,204     1,552       7,576
 Customer deposits...........................     3,678     3,927       2,626
 Accrued expenses............................       689       933       1,460
 Notes payable to stockholders (Note 6)......       --        --          995
 Current portion of long-term debt (Note 3)..       803     4,950       4,668
                                               --------  --------    --------
Total current liabilities....................    10,374    12,937      22,900

Long-term debt, less current portion (Note
 3)..........................................     8,740     2,609       1,600

Notes payable to stockholders (Note 6).......     1,265     1,065         --

Stockholders' equity:
 Common stock, no par value (Note 4).........     1,218     1,218       1,218
 Retained earnings...........................    15,735    16,506      18,805
 Accumulated other comprehensive income......       359       394         387
 Less 520 shares of treasury stock, at cost..    (1,612)   (1,612)     (1,612)
                                               --------  --------    --------
Total stockholders' equity...................    15,700    16,506      18,798
                                               --------  --------    --------
Total liabilities and stockholders' equity...  $ 36,079  $ 33,117    $ 43,298
                                               ========  ========    ========

                            See accompanying notes.

                                      F-42

                             HOOSIER PROPANE GROUP

                         COMBINED STATEMENTS OF INCOME
                                 (In thousands)

                                  Year Ended September      Three Months Ended
                                           30,                 December 31,
                                 -------------------------  -------------------
                                  1998     1999     2000       1999      2000
                                 -------  -------  -------  ----------- -------
                                                            (Unaudited)
                                                         
Revenue:
 Propane.......................  $50,646  $38,792  $58,712    $19,050   $29,174
 Freight.......................    4,806    4,530    5,669      1,367     2,037
 Other.........................      288      356    1,214        363       330
                                 -------  -------  -------    -------   -------
                                  55,740   43,678   65,595     20,780    31,541

Cost of product sold...........   42,823   28,889   49,049     15,604    25,172
                                 -------  -------  -------    -------   -------
Gross profit...................   12,917   14,789   16,546      5,176     6,369

Operating and administrative
 expenses......................    7,617    8,274    9,375      2,493     2,538
Depreciation and amortization..    1,529    1,690    1,623        389       373
                                 -------  -------  -------    -------   -------
Operating income...............    3,771    4,825    5,548      2,294     3,458

Other income (expense):
 Interest expense..............     (594)    (941)  (1,029)      (287)     (246)
 Interest and dividend income..      239      205      230         32        57
 Gain (loss) on sale of
  property, plant and
  equipment....................      (43)     (63)      51         17        10
 Other income, net.............      158      130      184         81        90
                                 -------  -------  -------    -------   -------
                                    (240)    (669)    (564)      (157)      (89)
                                 -------  -------  -------    -------   -------
Net income.....................  $ 3,531  $ 4,156  $ 4,984    $ 2,137   $ 3,369
                                 =======  =======  =======    =======   =======

                            See accompanying notes.

                                      F-43

                             HOOSIER PROPANE GROUP

                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

                                            Accumulated
                                               Other                   Total
                          Common Retained  Comprehensive Treasury  Stockholders'
                          Stock  Earnings     Income      Stock       Equity
                          ------ --------  ------------- --------  -------------
                                                    
Balance at September 30,
 1997...................  $1,218 $13,477       $510      $(1,612)     $13,593
Net income..............     --    3,531        --           --         3,531
Net unrealized loss on
 available-for-sale
 securities.............     --      --         (77)         --           (77)
                                                                      -------
Comprehensive income....                                                3,454
Distributions to
 stockholders...........     --   (3,137)       --           --        (3,137)
                          ------ -------       ----      -------      -------
Balance at September 30,
 1998...................   1,218  13,871        433       (1,612)      13,910
Net income..............     --    4,156        --           --         4,156
Net unrealized loss on
 available-for-sale
 securities.............     --      --         (74)         --           (74)
                                                                      -------
Comprehensive income....                                                4,082
Distributions to
 stockholders...........     --   (2,292)       --           --        (2,292)
                          ------ -------       ----      -------      -------
Balance at September 30,
 1999...................   1,218  15,735        359       (1,612)      15,700
Net income..............     --    4,984        --           --         4,984
Net unrealized gain on
 available-for-sale
 securities.............     --      --          35          --            35
                                                                      -------
Comprehensive income....                                                5,019
Distributions to
 stockholders...........     --   (4,213)       --           --        (4,213)
                          ------ -------       ----      -------      -------
Balance at September 30,
 2000...................   1,218  16,506        394       (1,612)      16,506
Net income..............     --    3,369        --           --         3,369
Net unrealized loss on
 available-for-sale
 securities.............     --      --          (7)         --            (7)
                                                                      -------
Comprehensive income....                                                3,362
Distributions to
 stockholders...........     --   (1,070)       --           --        (1,070)
                          ------ -------       ----      -------      -------
Balance at December 31,
 2000...................  $1,218 $18,805       $387      $(1,612)     $18,798
                          ====== =======       ====      =======      =======

                            See accompanying notes.

                                      F-44

                             HOOSIER PROPANE GROUP

                       COMBINED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                 Year Ended September      Three Months Ended
                                          30,                 December 31,
                                -------------------------  -------------------
                                 1998     1999     2000       1999      2000
                                -------  -------  -------  ----------- -------
                                                           (Unaudited)
                                                        
Operating activities
Net income....................  $ 3,531  $ 4,156  $ 4,984    $ 2,137   $ 3,369
Adjustments to reconcile net
 income to net cash provided
 by (used in) operating
 activities:
  Depreciation................    1,515    1,586    1,519        363       347
  Amortization................       14      104      104         26        26
  (Gain) loss on sale of
   property, plant and
   equipment..................       43       63      (51)       (17)      (10)
  Changes in operating assets
   and liabilities:
   Accounts receivable........     (244)     397   (1,941)    (3,698)   (8,711)
   Inventories................    3,909   (2,557)   5,236      4,214      (871)
   Prepaid expenses and other
    current assets............     (277)     232     (280)       197       284
   Other assets...............      545      (50)    (137)       (12)       (5)
   Accounts payable...........    1,240   (1,157)    (652)     1,069     6,024
   Customer deposits..........   (1,617)  (1,605)     249       (986)   (1,301)
   Accrued expenses...........      186      (17)     243        441       527
                                -------  -------  -------    -------   -------
Net cash provided by (used in)
 operating activities.........    8,845    1,152    9,274      3,734      (321)
Investing activities
Acquisitions..................   (1,266)  (3,850)     --         --        --
Purchases of property, plant
 and equipment................   (2,697)  (2,361)  (1,935)      (709)     (278)
Proceeds from sale of
 property, plant and
 equipment....................      172      385      348         89        32
Purchases of short-term
 investments..................     (901)     --       --         --        --
Proceeds from sale of short-
 term investments.............      --       901      --         --        --
Collections on note receivable
 from stockholder.............       44       32       60          5         7
                                -------  -------  -------    -------   -------
Net cash used in investing
 activities...................   (4,648)  (4,893)  (1,527)      (615)     (239)
Financing activities
Proceeds from issuance of
 notes payable................      --     3,000    2,575      1,000     4,000
Principal payments on notes
 payable......................      --       --    (4,000)    (2,000)      --
Proceeds from issuance of
 long-term debt...............    2,000    5,000      500        500       --
Principal payments on long-
 term debt....................   (1,503)  (3,168)  (2,484)      (176)   (1,291)
Principal payments on notes
 payable to stockholders......      --       --      (200)       --        (70)
Distributions to
 stockholders.................   (3,137)  (2,292)  (4,213)      (331)   (1,070)
                                -------  -------  -------    -------   -------
Net cash provided by (used in)
 financing activities.........   (2,640)   2,540   (7,822)    (1,007)    1,569
                                -------  -------  -------    -------   -------
Net increase (decrease) in
 cash and cash equivalents....    1,557   (1,201)     (75)     2,112     1,009
Cash and cash equivalent at
 beginning of period..........      421    1,978      777        777       702
                                -------  -------  -------    -------   -------
Cash and cash equivalents at
 end of period................  $ 1,978  $   777  $   702    $ 2,889   $ 1,711
                                =======  =======  =======    =======   =======
Supplemental disclosure of
 cash flow information
Cash paid for interest during
 the period...................  $   596  $   937  $ 1,042    $   224   $   245
                                =======  =======  =======    =======   =======
Supplemental schedule of
 noncash financing activity
Acquisition of covenants not
 to compete through the
 issuance of noncompete
 obligations..................  $   949  $   --   $   --     $   --    $   --
                                =======  =======  =======    =======   =======
Note payable issued to seller
 of acquired company..........  $   200  $   --   $   --     $   --    $   --
                                =======  =======  =======    =======   =======

                            See accompanying notes.

                                      F-45

                             HOOSIER PROPANE GROUP

                     NOTES TO COMBINED FINANCIAL STATEMENTS
               (Information pertaining to the three months ended
                        December 31, 1999 is unaudited)
                        (In thousands except share data)

1. Significant Accounting Policies

 Principles of Combination

   The combined financial statements of the Hoosier Propane Group include the
accounts of three companies under common ownership: Domex, Inc., Investors 300,
Inc. and L & L Leasing, Inc. (collectively referred to as the Hoosier Propane
Group). All significant intercompany accounts and transactions have been
eliminated in the combination. Although Domex, Inc.'s year end has historically
been October 31, Investors 300, Inc.'s year end has historically been September
30, and L & L Leasing, Inc.'s year end has historically been December 31, all
accounts have been presented in these combined financial statements as of
September 30, 1999 and 2000 and December 31, 2000 and for each of the three
years in the period ended September 30, 2000 and the three months ended
December 31, 1999 and 2000.

 Business Activities and Credit Concentrations

   The Hoosier Propane Group is involved in the transportation and wholesale
and retail distribution of propane gas. The Hoosier Propane Group also builds
and services trucks used to transport propane gas. The Hoosier Propane Group
generally extends unsecured credit to their wholesale customers in the
midwestern United States. Credit is generally extended to retail customers
through delivery into company and customer owned propane gas storage tanks.

 Unaudited Financial Information

   The financial information for the three-month period ended December 31, 1999
contained herein is unaudited. The Hoosier Propane Group believes this
information has been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
Article 10 of Regulation S-X. The Hoosier Propane Group also believes this
information includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the periods then ended.

 Use of Estimates

   The preparation of combined financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the combined financial statements and accompanying notes. Actual results
could differ from those estimates.

 Cash and Cash Equivalents

   All highly liquid debt instruments purchased with a maturity of three months
or less are deemed to be cash and cash equivalents. Cash and cash equivalents
are carried at cost, which approximates fair value.

                                      F-46

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

 Inventories

   Propane inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and an actual cost basis
for parts and materials. The major components of inventory consist of the
following:

                                                      September 30,
                                                      ------------- December 31,
                                                       1999   2000      2000
                                                      ------ ------ ------------
                                                           
   Propane........................................... $6,769 $1,647    $2,606
   Parts and materials...............................    653    623       561
   Other.............................................    115     31         5
                                                      ------ ------    ------
                                                      $7,537 $2,301    $3,172
                                                      ====== ======    ======

 Property, Plant and Equipment

   Property, plant and equipment are stated at cost. Depreciation of the cost
of the related asset, less estimated salvage value on certain vehicles, is
determined using straight-line and accelerated depreciation methods over the
estimated useful lives of the assets, as follows:

                                                                         Years
                                                                        --------
                                                                     
Buildings.............................................................. 30 to 40
Office furniture and equipment.........................................  5 to 7
Vehicles...............................................................  5 to 7
Tanks and plant equipment..............................................  7 to 50

 Marketable Securities

   Investments in marketable equity securities are classified as available for
sale and are carried at their fair market value. Unrealized gains and losses
are recorded as a separate component of stockholders' equity. The aggregate
cost of the marketable equity securities was $65 at September 30, 1999 and 2000
and at December 31, 2000.

 Intangible Assets

   Intangible assets consist of goodwill and covenants not to compete which
were acquired primarily in the 1998 and 1999 acquisitions described in Note 2
and are amortized on a straight-line basis over their estimated useful lives,
not to exceed 15 years.

   The Hoosier Propane Group reviews its long-lived assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of," for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such events or changes
in circumstances are present, a loss is recognized if the carrying value of the
asset is in excess of the sum of the undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. An impairment loss is
measured as the amount by which the carrying amount of the asset exceeds the
fair value of the asset.

 Customer Deposits

   Customer deposits primarily represent cash received by the Hoosier Propane
Group from wholesale and retail customers for propane purchased that will be
delivered at a future date.

                                      F-47

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

 Income Taxes

   The stockholders of each of Domex, Inc., Investors 300, Inc. and L & L
Leasing, Inc. have elected under Subchapter S of the Internal Revenue Code to
include the income of each of Domex, Inc., Investors 300, Inc. and L & L
Leasing, Inc. in the stockholders' income for income tax reporting purposes.
Accordingly, Domex, Inc., Investors 300, Inc. and L & L Leasing, Inc. are not
subject to income taxes.

 Revenue Recognition

   The sales and related cost of products and services sold are recognized upon
delivery.

 Fair Value

   The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, investments and accounts payable approximate their fair
value. Based on the estimated borrowing rates currently available to the
Hoosier Propane Group for notes payable and long-term debt with similar terms
and maturities, the aggregate fair value of the Hoosier Propane Group's long-
term debt approximates the aggregate carrying amount as of September 30, 1999
and 2000 and December 31, 2000.

 Segment Information

   The Hoosier Propane Group adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," in fiscal 1999. SFAS No. 131
established standards for reporting information about operating segments as
well as related disclosures about products and services, geographic areas and
major customers. In determining the Hoosier Propane Group's reportable segments
under the provisions of SFAS No. 131, the Hoosier Propane Group examined the
way they organize their business internally for making operating decisions and
assessing business performance. Based on this examination, the Hoosier Propane
Group has determined that it has a single reportable segment which engages in
the distribution of propane and related equipment and supplies. No single
customer represents 10% or more of combined revenues. In addition, all of the
Hoosier Propane Group's revenues are derived from sources within the United
States, and all of its long-lived assets are located in the United States.

 Pending Accounting Pronouncement

   In June 1988, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires that an entity recognize all derivative instruments as either
assets or liabilities and measure them at fair value. The accounting for
changes in fair value depends on the purpose of the derivative instrument and
whether it is designated and qualifies for hedge accounting. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133 (an
amendment of FASB Statement No. 133)," which deferred the effective date of
SFAS No. 133. The Hoosier Propane Group will be required to adopt SFAS No. 133
in fiscal 2001. As of September 30, 2000, the Hoosier Propane Group's only
derivatives consist of contracts to purchase and sell fixed quantities of
propane at fixed prices over specified periods, aggregating approximately
$5,200 and $5,700, respectively. As of December 31, 2000, the Hoosier Propane
Group had contracts to purchase and sell fixed quantities of propane
aggregating approximately $2,000 and $2,400, respectively. As these commitments
are generally settled by the physical delivery of propane in the normal course
of the Hoosier Propane Group's business, they are excluded from scope of SFAS
No. 133. As such, the fair value of the contracts will not be required to be
reflected in the Hoosier Propane Group's financial position or results of
operations, and the method of accounting for these contracts will be unaffected
by SFAS No. 133.

                                      F-48

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

2. Acquisitions

   In October 1998, the Hoosier Propane Group acquired certain assets of Dekalb
Agra, Inc. (Dekalb) for a cash purchase price of $3,850 which was financed
through the issuance of long-term debt.

   During August 1998, the Hoosier Propane Group acquired certain assets of
Tri-State Propane, Inc. and Wolverine Propane, Inc. for an aggregate purchase
price of $2,416. The acquisitions were financed through cash in the amount of
$1,266, a note payable to the sellers of one of the companies in the amount of
$200 and the issuance of noncompete obligations in the amount of $950.

   Each of the acquired companies is involved in the retail sale of propane to
local customer bases in northern Indiana. The acquisitions have been accounted
for using the purchase method of accounting. Accordingly, the purchase price of
each acquisition has been allocated to assets acquired based on the fair market
values at the date of acquisition. The excess of the purchase price over the
fair market values of the tangible and identifiable intangible assets acquired
has been recorded as goodwill. The Hoosier Propane Group recorded goodwill of
$400 in connection with the Dekalb acquisition and $209 in connection with the
1998 acquisitions. In addition, $950 of the aggregate purchase price in the
1998 acquisitions was allocated to covenants not to compete.

   The operating results of all acquisitions are included in the Hoosier
Propane Group's combined results of operations from the dates of acquisitions.
The following unaudited pro forma data summarize the results of operations for
the year indicated as if this acquisition had been completed October 1, 1997,
the beginning of fiscal 1998. The pro forma data give effect to actual
operating results prior to the acquisitions and adjustments to interest
expense, depreciation expense and amortization of intangible assets. These pro
forma amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisitions had occurred on October 1, 1997 or
that the Hoosier Propane Group will obtain in the future. Reported operating
results for 1999 and 2000 include the results of the acquired companies due to
the dates of acquisition.

                                                                      Pro Forma
                                                                     Fiscal 1998
                                                                     -----------
                                                                     (Unaudited)
                                                                  
   Revenue..........................................................   $60,235
   Net income.......................................................     3,475

3. Notes Payable and Long-Term Debt

   In May 2000, L & L Leasing, Inc. entered into a revolving credit agreement
with a bank which provides available borrowings up to $2,000 collateralized by
L & L Leasing, Inc.'s accounts receivable, inventory and machinery and
equipment balances, under which $1,575 was outstanding at September 30, 2000.
Interest is payable monthly at the bank's prime rate less 0.5% or at the London
Interbank Offered Rate (LIBOR) plus 2%, with principal payable on June 1, 2001.
The effective interest rate was 9% at September 30, 2000 and December 31, 2000.
At December 31, 2000, the outstanding balance under this revolving credit
agreement was $1,575.

   During 1999, Domex, Inc. entered into a revolving credit agreement with a
bank which provided available borrowings up to $6,000, subject to specified
percentages of Domex, Inc.'s accounts receivable, inventory and machinery and
equipment balances, under which $2,500 and $0 was outstanding at September 30,
1999 and 2000, respectively. Interest was payable monthly at the bank's prime
rate less 0.25% or a formula based on eurocurrency funding plus 2%, with
principal payable on May 1, 2000. The effective interest rate was 7.44% at
September 30, 1999. Effective May 1, 2000, Domex, Inc. entered into a new
revolving credit agreement with the bank which provides available borrowings up
to $5,000, collateralized by Domex, Inc.'s accounts receivable and inventory

                                      F-49

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

balances, under which no borrowings were outstanding at September 30, 2000.
Interest is payable monthly at the bank's prime rate less 0.5% or at LIBOR plus
2%, with principal payable on May 1, 2001. At December 31, 2000, the
outstanding balance under this revolving credit agreement was $4,000. The
effective interest rate was 7.51% at December 31, 2000.

   Investors 300, Inc. entered into a revolving credit agreement with a bank
which provides available borrowings up to $500, subject to a specified
percentage of Investors 300, Inc.'s accounts receivable balance, under which
$500 and $-0- was outstanding at September 30, 1999 and 2000, respectively.
Interest on this credit agreement was payable monthly at 8.25%, with principal
payable on May 1, 2000.

   Long-term debt consists of the following:

                                                  September 30,    December 31,
                                                  ---------------  ------------
                                                   1999    2000        2000
                                                  ------  -------  ------------
                                                          
Revolving credit agreement with a bank with
 interest payable monthly at the bank's prime
 rate or a formula based on eurocurrency funding
 plus 2.25% (effective interest rate of 7.63%
 and 8.88% at September 30, 1999 and 2000,
 respectively and 9.5% at December 31, 2000) and
 principal payable on May 1, 2002...............  $2,281  $ 1,000    $ 1,000
Term loan with a bank with monthly payments of
 $50 plus interest at the bank's prime rate or a
 formula based on eurocurrency funding plus
 2.25% (effective interest rate of 7.75% and 9%
 at September 30, 1999 and 2000, respectively
 and 9% at December 31, 2000) with the remaining
 principal balance payable on June 1, 2003, as
 discussed further below........................   6,000    5,400      5,250
Term loan with a bank with monthly payments of
 $4, including interest at the bank's prime rate
 (effective interest rate of 8.25% and 9.5% at
 September 30, 1999 and 2000, respectively),
 with the remaining principal balance payable on
 December 15, 2000..............................     109       76        --
Term loan with a bank with monthly payments of
 $2 plus interest at the bank's prime rate
 (effective interest rate of 8.25% and 9.5% at
 September 30, 1999 and 2000, respectively and
 8.25% at December 31, 2000) with the remaining
 principal balance payable on March 30, 2001....      47       24         18
Noncompete obligations with monthly payments of
 $9, including interest at 7.5%, repaid in
 December 2000..................................     913      875        --
Note payable to sellers of retail propane
 companies acquired in 1998 with monthly
 payments of $2, including interest at 7.5%,
 repaid in December 2000........................     193      184        --
                                                  ------  -------    -------
                                                   9,543    7,559      6,268
Less current portion............................    (803)  (4,950)    (4,668)
                                                  ------  -------    -------
                                                  $8,740  $ 2,609    $ 1,600
                                                  ======  =======    =======

   In July 1999, Investors 300, Inc. entered into an amended and restated
credit agreement with its bank to increase the level of financing and to
refinance most of Investors 300, Inc.'s outstanding long-term debt. This credit
agreement consisted of a $6,000 term loan and a revolving loan of up to $6,000,
subject to specified percentages of the company's accounts receivable,
inventory, and machinery and equipment balances. Investors 300, Inc. must pay
sufficient principal to reduce the outstanding revolving loan balance to an
amount not greater than $5,400 on May 1, 2000 and $600 on May 1, 2001, with the
remaining principal due on June 1, 2003. All of the credit agreements with the
Hoosier Propane Group's bank are collateralized by substantially all of the
assets of

                                      F-50

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

the Hoosier Propane Group and contain covenants which, among other things,
require the maintenance of various financial performance ratios. Repayment of
borrowings pursuant to the credit agreements of each of Domex, Inc., Investors
300, Inc. and L & L Leasing, Inc. is guaranteed by the other companies and, to
a lesser extent, by the stockholders of each of Domex, Inc., Investors 300,
Inc. and L & L Leasing, Inc.

   Due to the sale of the Hoosier Propane Group, as discussed in Note 7,
management elected not to renew or negotiate extensions of its revolving credit
and term loan agreements. As such, much of the Hoosier Propane Group's
outstanding long-term debt is classified as a current liability in the
accompanying fiscal year 2000 combined balance sheet.

   The noncompete obligations and notes payable to sellers of retail propane
companies acquired in 1998 are collateralized by the assets purchased in the
acquisition. These obligations and notes payable are subordinate to the
obligations owed by the Hoosier Propane Group to its bank.

   Principal payments of long-term debt for each of the next five years ended
September 30 and thereafter are as follows:

   Year Ending September 30,
   -------------------------
                                                                      
   2001................................................................. $4,950
   2002.................................................................  1,054
   2003.................................................................    658
   2004.................................................................     63
   2005.................................................................     67
   Thereafter...........................................................    767
                                                                         ------
                                                                         $7,559
                                                                         ======

4. Common Stock

   Shares of common stock of each of Domex, Inc., Investors 300, Inc. and L & L
Leasing, Inc. are as follows:

                                                         Investors     L & L
                                             Domex, Inc. 300, Inc. Leasing, Inc.
                                             ----------- --------- -------------
                                                          
   Authorized shares........................    1,000      1,000       1,000
   Issued shares............................      666        315         515
   Outstanding shares.......................      346        315         315

5. Employee Benefit Plan

   The Hoosier Propane Group sponsors a multiemployer 401(k) profit-sharing
plan for employees who have completed one year of service and have attained the
age of 21. The Hoosier Propane Group's discretionary contributions charged to
expense were $56, $54 and $55 in 1998, 1999 and 2000, respectively, and $14 for
the three months ended December 31, 2000.

6. Related-Party Transactions

   The Hoosier Propane Group has notes receivable from and notes payable to
various stockholders of each of Domex, Inc., Investors 300, Inc. and L & L
Leasing, Inc. The notes receivable bear interest of 7% and are due October 31,
2004. The Hoosier Propane Group received interest income from these notes of
$31, $28 and

                                      F-51

                             HOOSIER PROPANE GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

$25 in 1998, 1999 and 2000, respectively, and $5 for the three months ended
December 31, 2000. The unsecured notes payable bear interest of 7% and mature
on October 1, 2001. The Hoosier Propane Group recorded interest expense related
to these notes of $89, $89 and $88 in 1998, 1999 and 2000, respectively, and
$18 for the three months ended December 31, 2000.

7. Subsequent Event

   On January 12, 2001, the Hoosier Propane Group sold substantially all of
their assets to Inergy Partners, LLC for an aggregate purchase price of
approximately $74,000 including assumed liabilities. A portion of these
proceeds was used to repay in full the Hoosier Propane Group's notes payable to
bank, notes payable to stockholders and long-term debt.

                                      F-52

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Inergy Partners, LLC

   We have audited the accompanying balance sheet of Inergy GP, LLC as of
September 30, 2001. This balance sheet is the responsibility of Inergy
Partners, LLC's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.

   In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Inergy GP, LLC at September 30,
2001, in conformity with accounting principles generally accepted in the United
States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
May 22, 2002

                                      F-53

                                 INERGY GP, LLC

                                 BALANCE SHEET

                                                                
                                                                   September 30,
                              ASSETS                                   2001
                                                                   -------------

Current assets:
  Cash............................................................ $       1,000
                                                                   -------------
    Total assets.................................................. $       1,000
                                                                   =============

                          OWNER'S EQUITY

Owner's equity.................................................... $       1,000
                                                                   -------------
    Total owner's equity.......................................... $       1,000
                                                                   =============

                             See accompanying note.

                                      F-54

                                 INERGY GP, LLC

                             NOTE TO BALANCE SHEET

1. Nature of Operations

   Inergy GP, LLC is a Delaware limited liability company formed on March 2,
2001 to become the managing general partner of Inergy Partners, L.P. Inergy GP,
LLC is a wholly-owned subsidiary of Inergy Holdings, LLC. Inergy GP, LLC owns a
non-economic managing general partner interest in Inergy, L.P.

   On March 2, 2001, Inergy Holdings, LLC contributed $1,000 to Inergy GP, LLC
in exchange for a 100% ownership interest.

   On March 7, 2001, Inergy GP, LLC received a managing general partner
interest in Inergy, L.P. There have been no other transactions involving Inergy
GP, LLC as of September 30, 2001.

                                      F-55

                                                                     APPENDIX A

                               GLOSSARY OF TERMS

   adjusted operating surplus: For any period, operating surplus generated
during that period is adjusted to:

     (a) decrease operating surplus by:

       (1) any net increase in working capital borrowings during that
    period; and

       (2) any net reduction in cash reserves for operating expenditures
    during that period not relating to an operating expenditure made during
    that period; and

     (b) increase operating surplus by:

       (1) any net decrease in working capital borrowings during that
    period; and

       (2) any net increase in cash reserves for operating expenditures
    during that period required by any debt instrument for the repayment of
    principal, interest or premium.

   Adjusted operating surplus does not include that portion of operating
surplus included in clause (a)(1) of the definition of operating surplus.

   available cash: For any quarter ending prior to liquidation:

     (a) the sum of:

       (1) all cash and cash equivalents of Inergy, L.P. and its
    subsidiaries on hand at the end of that quarter; and

       (2) all additional cash and cash equivalents of Inergy, L.P. and its
    subsidiaries on hand on the date of determination of available cash for
    that quarter resulting from working capital borrowings made after the
    end of that quarter;

     (b) less the amount of any cash reserves that is necessary or
  appropriate in the reasonable discretion of the managing general partner
  to:

       (1) provide for the proper conduct of the business of Inergy, L.P.
    and its subsidiaries (including reserves for future capital expenditures
    and for future credit needs of Inergy, L.P. and its subsidiaries) after
    that quarter;

       (2) comply with applicable law or any debt instrument or other
    agreement or obligation to which Inergy, L.P. or any of its subsidiaries
    is a party or its assets are subject; and

       (3) provide funds for minimum quarterly distributions and cumulative
    common unit arrearages for any one or more of the next four quarters;

provided, however, that the managing general partner may not establish cash
reserves for distributions to the subordinated units unless the managing
general partner has determined that in its judgment the establishment of
reserves will not prevent Inergy, L.P. from distributing the minimum quarterly
distribution on all common units and any cumulative common unit arrearages
thereon for the next four quarters; and

provided, further, that disbursements made by Inergy, L.P. or any of its
subsidiaries or cash reserves established, increased or reduced after the end
of that quarter but on or before the date of determination of available cash
for that quarter shall be deemed to have been made, established, increased or
reduced, for purposes of determining available cash, within that quarter if
the managing partner so determines.

   capital account: The capital account maintained for a partner under the
partnership agreement. The capital account of a partner for a common unit, a
senior subordinated unit, a junior subordinated unit, an

                                      A-1

incentive distribution right or any other partnership interest will be the
amount which that capital account would be if that common unit, senior
subordinated unit, junior subordinated unit, incentive distribution right or
other partnership interest were the only interest in Inergy, L.P. held by a
partner.

   capital surplus: All available cash distributed by us from any source will
be treated as distributed from operating surplus until the sum of all available
cash distributed since the closing of the initial public offering equals the
operating surplus as of the end of the quarter before that distribution. Any
excess available cash will be deemed to be capital surplus.

   closing price: The last sale price on a day, regular way, or in case no sale
takes place on that day, the average of the closing bid and asked prices on
that day, regular way, in either case, as reported in the principal
consolidated transaction reporting system for securities listed or admitted to
trading on the principal national securities exchange on which the units of
that class are listed or admitted to trading. If the units of that class are
not listed or admitted to trading on any national securities exchange, the last
quoted price on that day. If no quoted price exists, the average of the high
bid and low asked prices on that day in the over-the-counter market, as
reported by the Nasdaq Stock Market or any other system then in use. If on any
day the units of that class are not quoted by any organization of that type,
the average of the closing bid and asked prices on that day as furnished by a
professional market maker making a market in the units of the class selected by
the managing general partner. If on that day no market maker is making a market
in the units of that class, the fair value of the units on that day as
determined reasonably and in good faith by the managing general partner.

   common unit arrearage: The amount by which the minimum quarterly
distribution for a quarter during the subordination period exceeds the
distribution of available cash from operating surplus actually made for that
quarter on a common unit, cumulative for that quarter and all prior quarters
during the subordination period.

   current market price: For any class of units listed or admitted to trading
on any national securities exchange as of any date, the average of the daily
closing prices for the 20 consecutive trading days immediately prior to that
date.

   incentive distribution right: A non-voting limited partner partnership
interest issued to Inergy Holdings, LLC in connection with the transfer of
substantially all of its member interest in Inergy Propane, LLC to Inergy, L.P.
under the partnership agreement. The partnership interest will confer upon its
holder only the rights and obligations specifically provided in the partnership
agreement for incentive distribution rights.

   incentive distributions: The distributions of available cash from operating
surplus initially made to Inergy Holdings, LLC that are in excess of the non-
managing general partner's 2% general partner interest.

   interim capital transactions: The following transactions if they occur prior
to liquidation:

     borrowings, refinancings or refundings of indebtedness and sales of debt
  securities (other than for working capital borrowings and other than for
  items purchased on open account in the ordinary course of business) by
  Inergy, L.P. or any of its subsidiaries;

     sales of equity interests by Inergy, L.P. or any of its subsidiaries;

     sales or other voluntary or involuntary dispositions of any assets of
  Inergy, L.P. or any of its subsidiaries (other than sales or other
  dispositions of inventory, accounts receivable and other assets in the
  ordinary course of business, and sales or other dispositions of assets as a
  part of normal retirements or replacements).

   operating expenditures: All expenditures of Inergy, L.P. and its
subsidiaries, including, but not limited to, taxes, reimbursements of the
general partners, repayment of working capital borrowings, debt service
payments and capital expenditures, subject to the following:

                                      A-2

     (a) Payments (including prepayments) of principal of and premium on
  indebtedness other than working capital borrowings will not constitute
  operating expenditures.

     (b) Operating expenditures will not include:

       (1) capital expenditures made for acquisitions or for capital
    improvements;

       (2) payment of transaction expenses relating to interim capital
    transactions; or

       (3) distributions to partners.

   operating surplus: For any period prior to liquidation, on a cumulative
basis and without duplication:

     (a) the sum of

       (1) $8.5 million plus all the cash of Inergy, L.P. and its
    subsidiaries on hand as of the closing date of our initial public
    offering;

       (2) all cash receipts of Inergy, L.P. and its subsidiaries for the
    period beginning on the closing date of our initial public offering and
    ending with the last day of that period, other than cash receipts from
    interim capital transactions; and

       (3) all cash receipts of Inergy, L.P. and its subsidiaries after the
    end of that period but on or before the date of determination of
    operating surplus for the period resulting from working capital
    borrowings; less

     (b) the sum of:

       (1) operating expenditures for the period beginning on the closing
    date of our initial public offering and ending with the last day of that
    period; and

       (2) the amount of cash reserves that is necessary or advisable in the
    reasonable discretion of the managing general partner to provide funds
    for future operating expenditures; provided however, that disbursements
    made (including contributions to Inergy, L.P. or its subsidiaries or
    disbursements on behalf of Inergy, L.P. or its subsidiaries) or cash
    reserves established, increased or reduced after the end of that period
    but on or before the date of determination of available cash for that
    period shall be deemed to have been made, established, increased or
    reduced for purposes of determining operating surplus, within that
    period if the managing general partner so determines.

   subordination period: The subordination period will generally extend from
the closing of the initial public offering until the first to occur of:

     (a) the first day of any quarter beginning after June 30, 2006, in the
  case of the senior subordinated units, or June 30, 2008, in the case of the
  junior subordinated units, for which:

       (1) distributions of available cash from operating surplus on each of
    the outstanding common units, senior subordinated units and junior
    subordinated units equaled or exceeded the sum of the minimum quarterly
    distribution on all of the outstanding common units, senior subordinated
    units and junior subordinated units for each of the three consecutive
    non-overlapping four-quarter periods immediately preceding that date;

       (2) the adjusted operating surplus generated during each of the three
    immediately preceding, non-overlapping four-quarter periods equaled or
    exceeded the sum of the minimum quarterly distribution on all of the
    common units, senior subordinated units and junior subordinated units
    that were outstanding during those periods on a fully-diluted basis, and
    the related distribution on the general partner interest in Inergy,
    L.P.; and

       (3) there are no outstanding cumulative common units arrearages.

                                      A-3

     (b) the date on which the managing general partner is removed as general
  partner of Inergy, L.P. upon the requisite vote by the limited partners
  under circumstances where cause does not exist and units held by the
  general partners and their affiliates are not voted in favor of the
  removal.

   working capital borrowings: Borrowings exclusively for working capital
purposes made pursuant to a credit facility or other arrangement requiring all
borrowings thereunder to be reduced to a relatively small amount each year for
an economically meaningful period of time.

                                      A-4

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   You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common
units means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these common units in any circumstances under
which the offer or solicitation is unlawful.

                                ---------------

                               TABLE OF CONTENTS

                                                                          Page
                                                                          ----
                                                                       
Guide to Reading This Prospectus.........................................  iv
Prospectus Summary.......................................................   1
Risk Factors.............................................................  14
Use of Proceeds..........................................................  24
Capitalization...........................................................  25
Price Range of Common Units and Distributions............................  26
Cash Distribution Policy.................................................  27
Unaudited Pro Forma Consolidated Financial Statements....................  35
Selected Historical Financial and Operating Data.........................  45
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  49
Business.................................................................  70
Management...............................................................  81
Security Ownership of Certain Beneficial Owners and Management...........  89
Selling Unitholders......................................................  92
Certain Relationships and Related Transactions...........................  93
Conflicts of Interest and Fiduciary Responsibilities.....................  96
Description of the Common Units.......................................... 100
Description of the Subordinated Units.................................... 102
The Partnership Agreement................................................ 103
Units Eligible for Future Sale........................................... 115
Tax Considerations....................................................... 116
Investment in Inergy, L.P. by Employee Benefit Plans..................... 130
Underwriting............................................................. 131
Validity of the Common Units............................................. 133
Experts.................................................................. 133
Other Matters............................................................ 134
Where You Can Find More Information...................................... 134
Forward-Looking Statements............................................... 135
Index to Financial Statements............................................ F-1
Appendix A--Glossary of Terms............................................ A-1

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                             1,400,000 Common Units

                                 [INERGY LOGO]

                                  Representing
                           Limited Partner Interests

                                ---------------

                                   PROSPECTUS

                                ---------------

                           A.G. Edwards & Sons, Inc.
                                 Raymond James
                                  UBS Warburg
                              Wachovia Securities

                                 June 18, 2002

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