As filed with the Securities and Exchange Commission on July 17, 2001

                                                      Registration No. 333-56976
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- --------------------------------------------------------------------------------
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                            Amendment No. 3 to

                                    Form S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                                ---------------
                                  INERGY, L.P.
             (Exact name of registrant as specified in its charter)

                                                           
           Delaware                           5984                         43-1918951
 (State or other jurisdiction     (Primary Standard Industrial          (I.R.S. Employer
      of incorporation or         Classification Code Number)          Identification No.)
         organization)

                            1101 Walnut, Suite 1500
                          Kansas City, Missouri 64106
                                 (816) 842-8181
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                                ---------------
                                John J. Sherman
                            1101 Walnut, Suite 1500
                          Kansas City, Missouri 64106
                                 (816) 842-8181
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                ---------------
                                   Copies to:

                                                           
        David P. Oelman                Paul E. McLaughlin                Joshua Davidson
    Catherine S. Gallagher        Stinson, Mag & Fizzell, P.C.         Baker Botts L.L.P.
    Vinson & Elkins L.L.P.          1201 Walnut, Suite 2800              One Shell Plaza
    1001 Fannin, Suite 2300       Kansas City, Missouri 64106             910 Louisiana
   Houston, Texas 77002-6760             (816) 842-8600               Houston, Texas 77002
        (713) 758-2222                                                   (713) 229-1234

                                ---------------
   APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
   If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
   If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                                ---------------
                        CALCULATION OF REGISTRATION FEE
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                                         Proposed
                                     Maximum Aggregate
       Title of Each Class of            Offering           Amount of
    Securities to be Registered         Price(1)(2)    Registration Fee(3) ---
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Common units representing limited
 partnership interests..............    $41,400,000          $10,350
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(1)Includes 240,000 common units issuable upon exercise of the underwriters'
   over-allotment option.
(2)Estimated solely for the purpose of calculating the registration fee
   pursuant to Rule 457(o).

(3)The registrant has previously paid $10,120 of the registration fee in
   respect of the securities registered hereby.

   The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. We may +
+not sell these securities until the Registration Statement filed with the     +
+Securities and Exchange Commission is effective. This Prospectus is not an    +
+offer to sell these securities, and we are not soliciting an offer to buy     +
+these securities in any state where the offer or sale is not permitted.       +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                Subject to completion, dated July 17, 2001

PROSPECTUS

                             1,600,000 Common Units

                     Representing Limited Partner Interests

                                  -----------

  We are offering 1,600,000 common units representing limited partner
interests. This is the initial public offering of our common units. We expect
the initial public offering price to be between $20.50 and $22.50 per unit.
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. Our subordinated units also represent limited
partner interests in us. The common units will have priority over the
subordinated units until the subordination period expires. Our common units
have been approved for listing on the Nasdaq National Market under the symbol
"NRGY."

                                  -----------

                 Investing in our common units involves risks.
                    See "Risk Factors" beginning on page 11.

                                  -----------

                          PRICE $     PER COMMON UNIT

                                  -----------

                                                               Per
                                                           Common Unit  Total
                                                           ----------- --------
                                                                 
Initial public offering price............................. $           $
Underwriting discount..................................... $           $
Proceeds, before expenses, to Inergy, L.P................. $           $

  We have granted the underwriters a 30-day option to purchase up to an
additional 240,000 common units to cover over-allotments. The underwriters
expect to deliver the common units to purchasers on or about     , 2001.

  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.
                    First Union Securities, Inc.
                                                                   Raymond James

                         Prospectus dated        , 2001

               [PHOTOGRAPHS AND MAP 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.........    3
  Partnership Structure and Management....................................    3
  The Offering............................................................    5
  Summary Historical and Pro Forma Financial and Operating Data...........    8

RISK FACTORS..............................................................   11
  Risks Inherent in our Business..........................................   11
  Risks Inherent in an Investment in Inergy, L.P..........................   14
  Tax Risks To Common Unitholders.........................................   18

USE OF PROCEEDS...........................................................   20

CAPITALIZATION............................................................   21

DILUTION..................................................................   22

CASH DISTRIBUTION POLICY..................................................   23
  Distributions of Available Cash.........................................   23
  Operating Surplus and Capital Surplus...................................   23
  Subordination Period....................................................   24
  Distributions of Available Cash from Operating Surplus During the
   Subordination Period...................................................   26
  Distributions of Available Cash from Operating Surplus After the
   Subordination Period...................................................   26
  Incentive Distribution Rights--Hypothetical Annualized Yield............   26
  Distributions from Capital Surplus......................................   27
  Adjustment to the Minimum Quarterly Distribution and Target Distribution
   Levels.................................................................   28
  Distributions of Cash Upon Liquidation..................................   28

CASH AVAILABLE FOR DISTRIBUTION...........................................   31

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.....................   33

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA..........................   42

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS...............................................................   46
  General.................................................................   46
  Inergy Partners, LLC....................................................   48
  Hoosier Propane Group...................................................   51
  Country Gas Company, Inc................................................   54
  Liquidity and Capital Resources.........................................   55
  Description of Credit Facility..........................................   57
  Environmental Matters...................................................   59
  Recent Accounting Pronouncements........................................   59
  Quantitative and Qualitative Disclosure about Market Risk...............   59
  Propane Price Risk......................................................   59

BUSINESS..................................................................   61
  General.................................................................   61
  Industry Background and Competition.....................................   62
  Competitive Strengths...................................................   63

                                       i

                                                                         
  Retail Operations........................................................  65
  Wholesale Supply, Marketing and Distribution Operations..................  67
  Transportation Assets, Truck Fabrication and Maintenance.................  67
  Supply...................................................................  67
  Pricing Policy...........................................................  68
  Billing and Collection Procedures........................................  68
  Properties...............................................................  68
  Trademark and Tradenames.................................................  69
  Employees................................................................  69
  Government Regulation....................................................  69
  Litigation...............................................................  70

MANAGEMENT.................................................................  71
  Our Managing General Partner Manages Inergy, L.P.........................  71
  Directors, Executive Officers and Other Key Employees of Inergy GP, LLC..  71
  Reimbursement of Expenses of the Managing General Partner................  73
  Compensation of Directors................................................  74
  Employment Agreements....................................................  74
  Long-Term Incentive Plan.................................................  75
  Unit Purchase Plan.......................................................  77

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............  78

ORGANIZATION OF INERGY, L.P. PRIOR TO AND IMMEDIATELY FOLLOWING THE
 OFFERING..................................................................  80

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................  83
  Related Party Transactions...............................................  83
  Distributions and Payments to the Managing General Partner and the Non-
   managing General Partner................................................  84
  Rights of our Managing General Partner and our Non-managing General
   Partner.................................................................  85
  Contribution Agreement...................................................  85

CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES.......................  86
  Conflicts of Interest....................................................  86

DESCRIPTION OF THE COMMON UNITS............................................  90
  The Units................................................................  90
  Transfer Agent and Registrar.............................................  90

DESCRIPTION OF THE SUBORDINATED UNITS......................................  92
  Limited Voting Rights....................................................  92
  Distributions Upon Liquidation...........................................  92

THE PARTNERSHIP AGREEMENT..................................................  93
  Organization.............................................................  93
  Purpose..................................................................  93
  Power of Attorney........................................................  93
  Capital Contributions....................................................  93
  Limited Liability........................................................  94
  Issuance of Additional Securities........................................  94
  Amendment of the Partnership Agreement...................................  95
  Merger, Sale or Other Disposition of Assets..............................  97
  Termination and Dissolution..............................................  98
  Liquidation and Distribution of Proceeds.................................  98
  Withdrawal or Removal of the General Partners............................  98

                                       ii

                                                               
  Transfer of General Partner Interests........................   100
  Transfer of Incentive Distribution Rights....................   100
  Transfer of Ownership Interests in General Partners..........   100
  Change of Management Provisions..............................   100
  Limited Call Right...........................................   101
  Meetings; Voting.............................................   101
  Status as Limited Partner or Assignee........................   102
  Non-Citizen Assignees; Redemption............................   102
  Indemnification..............................................   103
  Books and Reports............................................   103
  Right to Inspect our Books and Records.......................   103
  Registration Rights..........................................   104

UNITS ELIGIBLE FOR FUTURE SALE.................................   105

TAX CONSIDERATIONS.............................................   106
  Partnership Status...........................................   106
  Limited Partner Status.......................................   107
  Tax Consequences of Unit Ownership...........................   108
  Tax Treatment of Operations..................................   113
  Disposition of Common Units..................................   113
  Uniformity of Units..........................................   115
  Tax-Exempt Organizations and Other Investors.................   116
  Administrative Matters.......................................   117
  State, Local and Other Tax Considerations....................   119

INVESTMENT IN INERGY, L.P. BY EMPLOYEE BENEFIT PLANS...........   120

UNDERWRITING...................................................   121

VALIDITY OF THE COMMON UNITS...................................   123

EXPERTS........................................................   123

WHERE YOU CAN FIND MORE INFORMATION............................   124

FORWARD-LOOKING STATEMENTS.....................................   124

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

Appendix A--
 Form of Amended and Restated Agreement of Limited Partnership..  A-1

Appendix B--Application For Transfer of Common Units...........   B-1

Appendix C--Glossary of Terms..................................   C-1

Appendix D--Pro Forma Available Cash From Operating Surplus....   D-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 is currently conducting the business
        that will be transferred to us at the closing of the offering.
        Inergy, L.P. was formed as a Delaware limited partnership on March
        7, 2001 and will have no operations until closing. Our predecessor
        commenced operations in November 1996. The discussion of our
        business throughout this prospectus relates to the business
        operations of Inergy Partners, LLC. To better understand the
        transactions pursuant to which we will assume the assets and
        operations of Inergy Partners, LLC, please read "Organization of
        Inergy, L.P. Prior to and Immediately Following the Offering."

  . 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 will not receive a management fee,
    but it will be 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 C.

  . Unless otherwise specified, the information in this prospectus assumes a
    public offering price of $21.50 per common unit and 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 11 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 eleven propane companies for an aggregate purchase price of
approximately $120 million. For the fiscal year ended September 30, 2000, on a
pro forma combined basis we sold approximately 50 million gallons of propane to
retail customers and approximately 215 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 under four regional brand names and serve
approximately 71,000 retail customers in Georgia, Illinois, Indiana, Michigan,
North Carolina, Ohio, Tennessee, Virginia and Wisconsin from 30 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.

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
    eleven 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. Our Southeastern operations, which
    accounted for approximately 33% of our pro forma retail volumes for the
    fiscal year ended September 30, 2000, 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.

  . 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, 2000, sales to
    residential customers represented approximately 70% of our retail propane
    gallons sold and approximately 77% of our retail propane gross profits,
    on a pro forma combined basis.

                                       1

  . Strong Wholesale Supply, Marketing and Distribution Business. Our
    wholesale business provides us with a growing income stream 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 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. At closing, we will have a $70.0 million
    acquisition facility, approximately $45.0 million of which will be drawn,
    and a $30.0 million 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.

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 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 11.2 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.

Summary of Risk Factors

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

                                       2

        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 will be conducted through, and our operating assets will be
owned by, our subsidiaries. We will own our interests in our subsidiaries
through our operating company, Inergy Propane, LLC. Upon consummation of this
offering and related transactions:

  . We will 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, will have 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
    will not receive a management fee, but it will be reimbursed for expenses
    incurred on our behalf.

  . Inergy Partners, LLC, our non-managing general partner, will own 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 will
    have 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 will own 100% of our managing general partner and
    substantially all of our non-managing general partner. Inergy Holdings
    will also own 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.

  . New Inergy Propane, LLC, a wholly-owned subsidiary of our non-managing
    general partner, will own 1,260,249 senior subordinated units and 572,542
    junior subordinated units, representing an aggregate limited partner
    interest in us of approximately 33%.

   Our principal executive offices are located at 1101 Walnut, Suite 1500,
Kansas City, Missouri 64106, and our phone number is (816) 842-8181.

   The chart on the following page depicts the organization and ownership of us
and our operating company, after giving effect to the offering and the related
transactions.

                                       3

                                    [CHART]

                                       4

                                  THE OFFERING

Common units offered......    1,600,000 common units.

                              1,840,000 common units if the underwriters
                              exercise their over-allotment option in full.

Units outstanding after
this offering.............
                              1,600,000 common units, representing a 28.6%
                              limited partner interest in Inergy, L.P.;
                              3,313,367 senior subordinated units, representing
                              a 59.2% limited partner interest in Inergy, L.P.;
                              and 572,542 junior subordinated units,
                              representing a 10.2% 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 Appendix C. The amount of available
                              cash may be greater than or less than the minimum
                              quarterly distribution.

                              Our pro forma available cash from operating
                              surplus for the twelve months ended March 31,
                              2001 would have been sufficient to allow us to
                              pay the minimum quarterly distribution on all of
                              the common units, all of the senior subordinated
                              units and all of the junior subordinated units.
                              Our pro forma available cash from operating
                              surplus for the fiscal year ended September 30,
                              2000 would have been sufficient to allow us to
                              pay the minimum quarterly

                                       5

                              distribution on all of our common units and
                              approximately 29% of the minimum quarterly
                              distribution on the senior subordinated units and
                              no distribution on the junior subordinated units.
                              Please read "Cash Available for Distribution."

Subordination periods.....    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 sold in this
                              offering 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        In general, while any senior subordinated units
units.....................    remain outstanding, we may not issue more than
                              800,000 additional common units, or 50% of the
                              common units outstanding immediately after this
                              offering, without obtaining unitholder approval.
                              We may, however, issue an unlimited number of
                              common units for 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."

                                       6

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 June 30, 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 have been approved for listing
                              on the Nasdaq National Market under the symbol
                              "NRGY."

                                       7

                   SUMMARY HISTORICAL AND PRO FORMA FINANCIAL
                               AND OPERATING DATA

   The following table shows selected historical financial data for our
predecessor, Inergy Partners, LLC, and pro forma financial and operating data
of Inergy, L.P., in each case for the periods and as of the dates indicated.
The selected historical financial data for the years ended September 30, 1998,
1999 and 2000 are derived from the audited financial statements of Inergy
Partners, LLC. The selected historical financial data for the six months ended
March 31, 2000 and 2001 are derived from the unaudited financial statements of
Inergy Partners, LLC. The historical financial and other data of Inergy
Partners, LLC include the results of operations of Country Gas Company, Inc.
from June 1, 2000, the date of acquisition, and the results of operations of
the Hoosier Propane Group from January 1, 2001, the effective date of the
acquisition.

   The summary pro forma financial and operating data of Inergy, L.P. reflect
the consolidated historical operating results of Inergy Partners, LLC., Country
Gas Company, Inc. and the Hoosier Propane Group as adjusted for the offering
and the related transactions. The summary pro forma financial data are derived
from the unaudited pro forma financial statements. The pro forma balance sheet
assumes that the offering and related transactions occurred on March 31, 2001.
The pro forma statements of operations assume that the Country Gas acquisition,
the Hoosier Propane Group acquisition and the offering and related transactions
occurred on October 1, 1999. For a description of all of the assumptions used
in preparing the summary pro forma 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 the future results that we will have after the offering.

   We define EBITDA as shown in the table on page 9 and elsewhere in this
prospectus as income before income taxes, plus interest, 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 be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

                                       8

                              Inergy Partners, LLC--Historical                 Inergy, L.P Pro Forma
                         -----------------------------------------------  --------------------------------
                                                      Six Months Ended                  Six Months Ended
                         Years Ended September 30,        March 31,        Year Ended       March 31,
                         ---------------------------  ------------------  September 30, ------------------
                          1998      1999      2000      2000      2001        2000        2000      2001
                         -------  --------  --------  --------  --------  ------------- --------  --------
                                            (in thousands, except per unit data)
                                                                          
Statement of Operations
 Data:
Revenues................ $ 7,507  $ 19,211  $ 93,595  $ 50,457  $170,439    $167,031    $102,847  $201,980
Cost of product sold....   4,215    13,754    81,636    42,054   141,425     134,534      79,167   166,597
                         -------  --------  --------  --------  --------    --------    --------  --------
Gross profit............   3,292     5,457    11,959     8,403    29,014      32,497      23,680    35,383
Expenses:
 Operating and
  administrative(a).....   2,424     4,119     8,990     4,093    11,464      20,155      10,365    13,905
 Depreciation and
  amortization..........     394       690     2,286       887     2,748       7,806       3,827     3,979
                         -------  --------  --------  --------  --------    --------    --------  --------
Operating income........     474       648       683     3,423    14,802       4,536       9,488    17,499
Other income (expense):
 Interest expense.......    (569)     (962)   (2,740)   (1,157)   (2,860)     (5,564)     (2,729)   (2,620)
 Interest income........     --        --        --        --        --          239          48        57
 Gain on sale of
  property, plant and
  equipment.............     --        101       --        --        --           72          92        10
 Finance charges........      59        79       176        70       158         261         164       170
 Other..................       1         5        59        25        87         191         129       165
                         -------  --------  --------  --------  --------    --------    --------  --------
Income (loss) before
 income taxes...........     (35)     (129)   (1,822)    2,361    12,187        (265)      7,192    15,281
Provision for income
 taxes..................     --         56         7       --        --            7         --        --
                         -------  --------  --------  --------  --------    --------    --------  --------
Net income (loss)....... $   (35) $   (185) $ (1,829) $  2,361  $ 12,187    $   (272)   $  7,192  $ 15,281
                         =======  ========  ========  ========  ========    ========    ========  ========
Pro forma non-managing
 general partner's
 interest in net income
 (loss).................                                                    $     (5)   $    144  $    306
                                                                            ========    ========  ========
Pro forma limited
 partners' interest in
 net income (loss)......                                                    $   (267)   $  7,048  $ 14,975
                                                                            ========    ========  ========
Pro forma net income
 (loss) per limited
 partner unit--basic and
 diluted................                                                    $  (0.05)   $   1.31  $   2.73
                                                                            ========    ========  ========
Pro forma weighted
 average limited
 partners' units
 outstanding............                                                       5,434       5,381     5,486
                                                                            ========    ========  ========

Balance Sheet Data (end
 of period):
Current assets.......... $ 2,119  $ 11,390  $ 22,199  $ 12,653  $ 31,306                          $ 29,806
Total assets............  10,230    38,896    68,924    41,900   150,373                           148,873
Long-term debt,
 including current
 portion................   5,694    22,337    34,927    24,413    84,398                            54,998
Redeemable preferred
 members' interest......     --        --     10,896     1,896    34,313                               --
Members'
 equity/partners'
 capital................   2,611     5,269     2,972     7,495    14,453                            77,608

Other Financial Data:
EBITDA (unaudited)...... $   928  $  1,523  $  3,204  $  4,405  $ 17,795    $ 12,866    $ 13,700  $ 21,823
Net cash provided by
 (used in) operating
 activities.............     362      (847)     (309)     (839)    2,594
Net cash used in
 investing activities...    (727)  (13,057)  (12,377)   (2,756)  (60,179)
Net cash provided by
 financing activities...     336    14,056    13,907     3,796    59,740
Maintenance capital
 expenditures(b)
 (unaudited)............      61       156       283       126       591       1,234         780       748
Net income (loss)....... $   (35) $   (185) $ (1,829) $  2,361  $ 12,187    $   (272)   $  7,192  $ 15,281
Plus:
 Income taxes...........      --        56         7        --        --           7          --        --
 Interest expense.......     569       962     2,740     1,157     2,860       5,564       2,729     2,620
 Depreciation and
  amortization expense..     394       690     2,286       887     2,748       7,806       3,827     3,979
                         -------  --------  --------  --------  --------    --------    --------  --------
                             928     1,523     3,204     4,405    17,795      13,105      13,748    21,880
Less:
 Interest income........      --        --        --        --        --         239          48        57
                         -------  --------  --------  --------  --------    --------    --------  --------
EBITDA.................. $   928  $  1,523  $  3,204  $  4,405  $ 17,795    $ 12,866    $ 13,700  $ 21,823
                         =======  ========  ========  ========  ========    ========    ========  ========

Other Operating Data
 (Unaudited):
Retail propane gallons
 sold...................   5,612     8,006    18,112    12,176    34,031      49,184      39,731    42,616
Wholesale propane
 gallons sold...........     N/A    24,735   146,644    82,064   161,768     215,445     129,652   185,454

Reconciliation of Net Income to EBITDA:

                                       9

- --------
(a) The historical financial statements include non-cash charges related to
    amortization of deferred compensation of $78,000 and $79,000 for the years
    ended September 30, 1999 and 2000, respectively, and $39,000 for each of
    the six month periods ended March 31, 2000 and 2001.
(b) 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.

                                       10

                                 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.

   The amount of cash needed to pay the minimum quarterly distribution for
four quarters on the common units, the subordinated units and the general
partner interest to be outstanding immediately after the offering is
approximately $13.4 million. If we had completed the transactions contemplated
in this prospectus on October 1, 1999, pro forma available cash from operating
surplus generated during the fiscal year ended September 30, 2000 would have
been approximately $6.3 million. This amount would have been sufficient to
allow us to pay the minimum quarterly distribution on all of the common units
and approximately 29% of the minimum quarterly distribution on the senior
subordinated units, but would have been insufficient to allow us to pay any
distribution on the junior subordinated units. For a calculation of our
ability to make distributions to you based on our pro forma results for the
fiscal year ended September 30, 2000 and for the twelve months ended March 31,
2001, please read "Cash Available for Distribution" and Appendix D. The terms
"available cash" and "operating surplus" are technical terms which are
precisely defined in our partnership agreement. We have included these
definitions in our glossary. "Available cash" generally means cash on hand at
the end of the quarter, including any working capital borrowings, less
appropriate reserves. "Operating surplus" generally means cash received from
our operations, as opposed to long-term borrowings or major asset sales, less
our operating expenses.

 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, 2000, approximately 72% 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

                                      11

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. We believe the EBITDA we generated during
fiscal 1999 and 2000 was adversely affected primarily due to this abnormally
warm weather.

 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.

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

   During the fiscal year ended September 30, 2000, BP Amoco p.l.c. accounted
for approximately 24% of our volume of propane purchases on a pro forma
combined basis. Substantially all 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. In the event that we are unable to purchase
propane from this supplier, 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.

 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.

 If we do not 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
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 make acquisitions at
attractive prices. We cannot assure you that we will be able 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:

  . This offering will not provide us with any cash for acquisitions and we
    expect we will use our cash from operations primarily for reinvestment in
    our business and distributions to unitholders.

                                      12

   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, any debt incurred to finance acquisitions may
   affect our ability to make distributions to the unitholders.

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

   Moreover, any acquisition involves 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.

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

   As of June 30, 2001, our total long-term indebtedness was approximately
$77.6 million. Upon completion of the offering, we expect our total outstanding
long-term indebtedness to be approximately $50.0 million, including
approximately $45.0 million under our acquisition facility, $4.0 million under
our working capital facility and $1.0 million of other indebtedness. Our
payment of principal and interest on the indebtedness will reduce the cash
available for distribution on the units. We will be prohibited by our credit
facility from making cash distributions during an event of default under any of
our indebtedness. Furthermore, our leverage and various limitations in the
credit facility may reduce our ability to incur additional indebtedness, to
engage in some transactions and to capitalize on acquisition or other business
opportunities. 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.

                                       13

 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.

 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 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.

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

                                       14

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 our executive officers and directors will control approximately
42% of all the units, the managing general partner currently cannot be removed
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.

   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 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.

                                      15

 You will experience immediate and substantial dilution in net tangible book
 value of $16.50 per common unit.

   The assumed initial public offering price of $21.50 per unit exceeds pro
forma net tangible book value of $5.00 per unit. Based on the assumed offering
price, you will incur immediate and substantial dilution of $16.50 per common
unit. This dilution is caused by two principal factors. The first factor
causing dilution is related to the fact that our general partners, their
affiliates and other existing investors acquired interests in our predecessor
at equivalent per unit prices less than the public offering price. These
parties will receive subordinated units in exchange for their interests in our
predecessor. Although these units are subordinate to the common units,
dilution to new investors is calculated based on total units to be outstanding
after the offering. The second factor is related to the significant base of
intangible assets we have acquired in recent years. As these assets are
excluded from net tangible book value, upon which the dilution calculation is
based, the difference between the offering price and net tangible book value
per common unit is significant.

 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,

  . 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.

                                      16

   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 will indirectly own an aggregate
limited partner interest of approximately 33% 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.

  . 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.

 Unitholders may have limited liquidity for their units, a trading market may
 not develop for the units and you may not be able to resell your units at the
 initial public offering price.

   Prior to the offering, there has been no public market for the common
units. After the offering, there will be only 1,600,000 publicly-traded common
units. We do not know the extent to which investor interest will

                                      17

lead to the development of a trading market or how liquid that market might be.
You may not be able to resell your common units at or above the initial public
offering price. Additionally, the lack of liquidity may result in wide bid-ask
spreads, contribute to significant fluctuations in the market price of the
common units and limit the number of investors who are able to buy the common
units.

Tax Risks To Common Unitholders

   You should 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 federal income tax treatment of an investment in our common 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%. 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. As a result, if we are treated as a corporation there
would be a material reduction in the after-tax return to the unitholders,
likely causing substantial reduction in the value of our common units.

   Current law may change so as to 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 decreased to reflect that impact on us.

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

   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 bear the costs of any contest with the IRS, principally
legal, accounting and related fees, either directly or indirectly.

 You may be required to pay taxes even if you do not receive any cash
 distributions.

   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

                                       18

common unit, even if the price you receive is less than your original cost. A
substantial portion of the amount you realize, whether or not representing
gain, may 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, 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 organizations
exempt from federal income tax, including individual retirement accounts and
other retirement plans, will 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 marginal tax rate applicable to
individuals, and non-U.S. persons will be required to file federal income tax
returns and pay tax on their share of our taxable income.

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

   We intend to register with the IRS as a "tax shelter." We will advise you of
our tax shelter registration number once that number has been assigned. The IRS
requires that some types of entities, including some partnerships, register as
"tax shelters" in response to the perception that they claim tax benefits that
the IRS may believe to 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.

 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 reduce 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 and in which you do not
reside. You may be required to file state and local income tax returns and pay
state and local income taxes in many or all of the jurisdictions in which we do
business. 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: Georgia, Illinois, Indiana,
Michigan, Missouri, North Carolina, Ohio, Tennessee and Wisconsin. Each of
these states 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 United States 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.

                                       19

                                USE OF PROCEEDS

   Assuming a public offering price of $21.50 per unit, we expect to receive
net proceeds of approximately $29.4 million (or $34.2 million if the
underwriters exercise their over-allotment option) from the sale of
the 1,600,000 common units offered by this prospectus, after deducting
underwriting discounts and estimated offering expenses. We intend to use $5.0
million of the net proceeds of this offering to repay our subordinated debt in
full and $24.4 million to repay a portion of our borrowings under our bank
credit facility. We will use any net proceeds from the exercise of the over-
allotment option to further repay borrowings under our bank credit faciltiy.

   Our subordinated debt bears interest at 9% per annum and matures on January
12, 2004. As of June 30, 2001, total borrowings under our credit facility were
approximately $71.5 million and had a weighted average interest rate of 7.14%.
The credit facility has a maturity date of January 10, 2004. We incurred all of
our debt to fund our acquisitions and for working capital purposes.

                                       20

                                 CAPITALIZATION

   The following table shows (1) our historical capitalization as of March 31,
2001 on an actual basis, and (2) our pro forma capitalization as of March 31,
2001, as adjusted to reflect the offering of the common units and the
application of the net proceeds we receive in the offering as described under
"Use of Proceeds." 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, 2001
                                            -----------------------------------
                                                      Offering       Pro Forma
                                             Actual  Adjustments    as Adjusted
                                            -------- -----------    -----------
                                                     (in thousands)
                                                           
Cash and cash equivalents.................. $  3,528  $ (1,500)(a)   $  2,028
                                            ========  ========       ========
Debt:
  Current portion of long-term debt........ $  5,631  $    --        $  5,631
  Long-term debt, less current portion.....   73,767   (24,400)(b)     49,367
  Subordinated debt........................    5,000    (5,000)(c)        --
                                            --------  --------       --------
    Total debt.............................   84,398   (29,400)        54,998(e)
                                            --------  --------       --------
Redeemable preferred members' interest.....   34,313   (34,313)(d)        --
Members' equity/partners' capital:
  Members' equity..........................   14,453      (558)(a)        --
                                                       (13,895)(d)
  Common unitholders.......................      --     20,800 (d)     20,800
  Senior subordinated unitholders..........      --     51,400 (d)     51,400
  Junior subordinated unitholders..........      --      3,856 (d)      3,856
  Non-managing general partner.............      --      1,552 (d)      1,552
                                            --------  --------       --------
    Total members' equity/partners'
     capital...............................   14,453    63,155         77,608
                                            --------  --------       --------
      Total capitalization................. $133,164  $   (558)      $132,606
                                            ========  ========       ========

- --------
(a) Reflects the $558,000 reduction in members' equity related to $1,500,000 of
    cash and the $942,000 deferred tax liabilities of Inergy Partners, LLC not
    transferred to Inergy, L.P. in connection with the offering.
(b)  Reflects the repayment of a portion of the borrowings under our bank
     credit facility.
(c)  Reflects the repayment in full of our subordinated debt.
(d)  For an explanation of the allocation of the members' equity accounts to
     partners' capital accounts, please read the footnotes to the unaudited pro
     forma consolidated balance sheet. Upon the closing of this offering, there
     will be issued and outstanding 1,600,000 common units, 3,313,367 senior
     subordinated units, 572,542 junior subordinated units and the 2% general
     partner interest (which has a dilutive effect equivalent to 111,957
     units).
(e)  Upon consummation of this offering, we expect to have total indebtedness
     of approximately $50.0 million.

                                       21

                                    DILUTION

   On a pro forma basis as of March 31, 2001 after giving effect to the
offering of common units and the related transactions, our net tangible book
value was $28.0 million, or $5.00 per common unit. Purchasers of common units
in this offering will experience immediate dilution in net tangible book value
per common unit for financial accounting purposes, as illustrated in the
following table:

                                                                   
   Assumed initial public offering price per common unit.......          $21.50
   Pro forma net tangible book value per common unit before the
    offering(a)................................................  $(0.36)
   Increase in net tangible book value per common unit
    attributable to new investors..............................    5.36
                                                                 ------
   Less: Pro forma net tangible book value per common unit
    after the offering(b)......................................            5.00
                                                                         ------
   Immediate dilution in net tangible book value per common
    unit to new investors......................................          $16.50
                                                                         ======

- --------
(a) Determined by dividing the total number of units (3,313,367 senior
    subordinated units, 572,542 junior subordinated units and the 2% general
    partner interest, which has a dilutive effect equivalent to 111,957 units)
    to be issued to Inergy Holdings and its subsidiaries and other investors
    for their contribution of assets and liabilities to Inergy, L.P., into the
    net tangible book value of the contributed assets and liabilities
    (including $34.3 million of redeemable preferred members' interests to be
    exchanged for senior subordinated units, less $558,000 of net assets not
    transferred to Inergy, L.P.).
(b) Determined by dividing the total number of units (1,600,000 common units,
    3,313,367 senior subordinated units, 572,542 junior subordinated units and
    the 2% general partner interest, which has a dilutive effect equivalent to
    111,957 units) to be outstanding after the offering into the pro forma net
    tangible book value of Inergy, L.P., after giving effect to the application
    of the net proceeds of the offering.
   The dilution presented is caused by two principal factors. The first factor
causing dilution is related to the fact that our general partners, their
affiliates and other existing investors acquired interests in our predecessor
at equivalent per unit prices less than the public offering price. These
parties will receive subordinated units in exchange for their interests in our
predecessor. Although these units are subordinate to the common units, dilution
to new investors is calculated based on total units to be outstanding after the
offering. The second factor is related to the significant base of intangible
assets we have acquired in recent years. As these assets are excluded from net
tangible book value, upon which the dilution calculation is based, the
difference between the offering price and net tangible book value per common
unit is significant.

   The following table sets forth the number of units that we will issue and
the total consideration contributed to us by the general partners, their
affiliates and other investors in respect of their units and by the purchasers
of common units in this offering upon consummation of the transactions
contemplated by this prospectus:

                                        Units Acquired
                                       -----------------     Total
                                        Number   Percent Consideration Percent
                                       --------- ------- ------------- -------
                                                           
   General Partners, their affiliates
    and other investors(a)...........  3,997,866   71.4%  $48,208,000    58.4%
   New investors.....................  1,600,000   28.6%   34,400,000    41.6%
                                       ---------  -----   -----------   -----
     Total...........................  5,597,866  100.0%  $82,608,000   100.0%
                                       =========  =====   ===========   =====

- --------

(a) Upon the consummation of the transactions contemplated by this prospectus,
    (i) Inergy Holdings and its subsidiaries will own an aggregate of 1,260,249
    senior subordinated units,  572,542 junior subordinated units and the 2%
    general partner interest, which has a dilutive effect equivalent to 111,957
    units, and (ii) other investors will own an aggregate of 2,053,118 senior
    subordinated units.

                                       22

                            CASH DISTRIBUTION POLICY

Distributions of Available Cash

   General. Within approximately 45 days after the end of each quarter,
beginning with the quarter ending September 30, 2001, we will distribute all of
our available cash to unitholders of record on the applicable record date. We
will adjust the minimum quarterly distribution for the period from the closing
of the offering through September 30, 2001 based on the actual length of the
period.

   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. As reflected below, our definition of operating surplus
contains an $8.5 million basket. This basket does not reflect actual cash on
hand at closing that is available for distribution to our unitholders. Rather,
it 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 on the closing date of this offering,

  . plus $8.5 million (as described above),

  . plus all of our cash receipts since the closing of this 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 closing of this
    offering, including the repayment of working capital borrowings, but not
    the repayment of other borrowings, and including maintenance capital
    expenditures.

                                       23

   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 will 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 all 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.

                                       24

   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.

                                       25

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--
    Hypothetical Annualized Yield" 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--
    Hypothetical Annualized Yield" below.

Incentive Distribution Rights--Hypothetical Annualized Yield

   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"),

  . 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"),

                                       26

  . 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.

   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 and a hypothetical annualized percentage yield to be realized by a
unitholder at each target distribution level. For purposes of the following
table, we calculated the annualized percentage yield on a pretax basis assuming
that (1) the common unit was purchased at an amount equal to $21.50 per common
unit and (2) we distributed each quarter during the first year following the
investment the amount set forth under the column "Total Quarterly Distribution
Target Amount." We also based the calculations on the assumption that the
quarterly distribution amounts shown do not include any common unit arrearages.
The amounts set forth under "Marginal Percentage Interest in Distributions" are
the percentage interests of the 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
                                                                ----------------------------------
                                                                              Non-
                               Total Quarterly     Hypothetical             managing
                             Distribution Target    Annualized              General     Inergy
                                   Amount             Yield     Unitholders Partner  Holdings, LLC
                           ----------------------- ------------ ----------- -------- -------------
                                                                      
  Minimum Quarterly
   Distribution...........          $0.60              11.2%         98%        2%         --
  First Target
   Distribution...........       up to $0.66        up to 12.3%      98%        2%         --
  Second Target
   Distribution........... above $0.66 up to $0.75  up to 14.0%      85%        2%         13%
  Third Target
   Distribution........... above $0.75 up to $0.90  up to 16.7%      75%        2%         23%
  Thereafter..............       above $0.90        above 16.7%      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 this 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 that
    was issued in the offering, 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.

                                       27

   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 this 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 "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 issued in this offering 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 holder 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,

                                       28

  . 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.

                                       29

   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.

                                       30

                        CASH AVAILABLE FOR DISTRIBUTION

   Available cash for any quarter will consist generally of all cash on hand at
the end of that quarter as adjusted for reserves. Operating surplus generally
consists of cash on hand at closing of this offering, plus cash generated from
operations after deducting related expenditures and other items, plus working
capital borrowings after the end of the quarter. Our definition of operating
surplus contains an $8.5 million basket. This basket does not reflect actual
cash on hand at closing that is available for distribution to our unitholders.
Rather, it 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.

   The amount of available cash from operating surplus needed to pay the
minimum quarterly distribution for one quarter and for four quarters on the
common units, the senior subordinated units and junior subordinated units, and
the 2% general partner interest to be outstanding immediately after the
transactions is approximately:

                                                                  One     Four
                                                                Quarter Quarters
                                                                ------- --------
                                                                  
   Common Units................................................ $  960  $ 3,840
     2% General Partner Interest...............................     20       79
   Senior Subordinated Units...................................  1,988    7,952
     2% General Partner Interest...............................     40      162
   Junior Subordinated Units...................................    344    1,374
     2% General Partner Interest...............................      7       28
                                                                ------  -------
       Total................................................... $3,359  $13,435
                                                                ======  =======

   The following table shows the calculation of pro forma available cash from
operating surplus for the year ended September 30, 2000 and the twelve months
ended March 31, 2001, and represents the combined results of operations Inergy
Partners, LLC, the Hoosier Propane Group and Country Gas Company, Inc., as
adjusted for the offering. The amounts of pro forma operating surplus shown do
not include cash on hand at closing or the $8.5 million basket. These results
should be read in conjunction with the Inergy, L.P. Unaudited Pro Forma
Consolidated Statement of Operations, the Inergy Partners, LLC Financial
Statements, the Country Gas Company, Inc. Financial Statements and the Hoosier
Propane Group Financial Statements.

                                                                 Twelve Months
                                                  Year Ended         Ended
                                              September 30, 2000 March 31, 2001
                                              ------------------ --------------
                                                         (unaudited)
                                                       (in thousands)
                                                           
Pro forma income before income taxes.........      $  (265)         $ 7,824
Pro forma depreciation and amortization......        7,806            7,958
Pro forma net changes in working capital
 accounts including liabilities from price
 risk management activities(a)(b)............        3,364           (3,800)
                                                   -------          -------
Pro forma net cash provided by operating
 activities..................................       10,905           11,982
Pro forma cash interest expense..............        5,564            5,455
Pro forma cash interest income...............         (239)            (248)
Pro forma net changes in working capital
 accounts including liabilities from price
 risk management activities(a)(b)............       (3,364)           3,800
                                                   -------          -------
Pro forma EBITDA(c)..........................       12,866           20,989
Less:
  Pro forma cash interest expense............       (5,564)          (5,455)
  Pro forma maintenance capital
   expenditures(d)...........................       (1,234)          (1,202)
Plus:
  Pro forma cash interest income.............          239              248
                                                   -------          -------
Pro forma available cash from operating
 surplus(e)(f)...............................      $ 6,307          $14,580
                                                   =======          =======

                                       31

- --------
(a)   Our working capital is affected by the seasonality of the propane
      business; however, working capital has generally been positive on a
      historical basis. From time to time we utilize our revolving credit
      facility to meet short-term working capital needs such as those
      associated with the timing of accounts receivable collections.
      Substantially all of our remaining investing and financing activities are
      related to the acquisition of retail propane companies and do not affect
      operating cash flows.
(b)   Changes in the assets and liabilities from trading and price risk
      management activities, which are current assets and liabilities, result
      primarily from changes in market prices, newly originated transactions
      and the timing of settlement relative to the receipt of cash for certain
      contracts.
(c) "EBITDA" shown in the table above is defined as income before income taxes,
    plus interest, 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 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 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.
(d) We determined these amounts by combining actual amounts of maintenance
    capital expenditures for Inergy Partners, LLC, Country Gas Company, Inc.
    and the Hoosier Propane Group.
(e) The pro forma adjustments in the pro forma financial statements are based
    upon currently available information and certain estimates and assumptions.
    The pro forma financial statements do not purport to present the financial
    position or results of operations of Inergy, L.P. had the acquisition of
    Country Gas Company, Inc. and the Hoosier Propane Group and the
    transactions to be effected at the closing of this offering actually been
    completed as of the date indicated. Furthermore, the pro forma financial
    statements are based on accrual accounting concepts whereas available cash
    from operating surplus is defined in the partnership agreement on a cash
    accounting basis. As a consequence, the amount of pro forma cash available
    from operating surplus shown above should be viewed as a general indication
    of the amounts of available cash from operating surplus that may in fact
    have been generated by Inergy, L.P. had it been formed in earlier periods.
(f) Upon completion of the offering, we anticipate that we will incur
    incremental general and administrative expenses (e.g. costs associated with
    reports to unitholders, preparation of tax information for unitholders and
    investor relations) at an annual rate of approximately $500,000, which have
    not been included in the pro forma amounts above.

   Our pro forma available cash from operating surplus for the twelve months
ended March 31, 2001 would have been sufficient to allow us to pay the minimum
quarterly distribution on all of the common units, all of the senior
subordinated units and all of the junior subordinated units. Our pro forma
available cash from operating surplus for the fiscal year ended September 30,
2000 would have been sufficient to allow us to pay the minimum quarterly
distribution on all of our common units and approximately 29% of the minimum
quarterly distribution on the senior subordinated units and no distribution on
the junior subordinated units. Please read "Cash Available for Distribution."

                                       32

             UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                   For the Year Ended September 30, 2000 and
           as of and for the Six Months Ended March 31, 2000 and 2001

   The unaudited pro forma consolidated balance sheet of Inergy, L.P. as of
March 31, 2001 was prepared to reflect the effects of the formation of Inergy,
L.P. and related transactions as if the formation had been completed in its
entirety, and the related transactions had been completed, as of March 31,
2001.

   The unaudited pro forma consolidated statements of operations of Inergy,
L.P. for the year ended September 30, 2000 and for the six months ended March
31, 2000 and 2001 were prepared to reflect the effects of the formation of
Inergy, L.P. and related transactions as if the formation had been completed in
its entirety, and the related transactions had been completed, as of October 1,
1999.

   The unaudited pro forma consolidated financial statements of Inergy, L.P.
have been derived from the audited historical statement of operations of Inergy
Partners, LLC for the year ended September 30, 2000, and the unaudited
historical financial statements of Inergy Partners, LLC as of and for the six
months ended March 31, 2000 and 2001, and from the historical statements of
income of the Hoosier Propane Group, Country Gas Company, Inc. and Butane-
Propane Gas Company of Tennessee, Inc. until the date of acquisition, 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, 2001 reflects only three months of pre-acquisition operations of the
Hoosier Propane Group and the unaudited pro forma consolidated statement of
income for the year ended September 30, 2000 reflects only eight months of pre-
acquisition operations of Country Gas Company, Inc. and one month of pre-
acquisition operations of Butane-Propane Company of Tennessee, Inc.

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

  .  the acquisition in purchase business combinations of assets of the
     Hoosier Propane Group in January 2001, Country Gas Company, Inc. in June
     2000 and Butane-Propane Gas Company of Tennessee, Inc. in November 1999.
     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 Country Butane-
                                                         Propane   Gas   Propane
                                                          Group  Company Gas Co.
                                                         ------- ------- -------
                                                              (in millions)
                                                                
    Cash................................................  $56.0   $ 8.4   $1.2
    Assumed liabilities.................................    5.6     1.2     --
    9% redeemable preferred interests...................    7.4     9.0     --
    9% subordinated debentures..........................    5.0      --     --
                                                          -----   -----   ----
                                                          $74.0   $18.6   $1.2
                                                          =====   =====   ====
    Property, plant and equipment.......................  $34.9   $ 8.3   $1.1
    Goodwill............................................   25.2     5.6     --
    Customer accounts...................................   10.5     3.5     --
    Covenant not to compete.............................    0.5     0.1     --
    Current assets......................................    2.9     1.1    0.1
                                                          -----   -----   ----
                                                          $74.0   $18.6   $1.2
                                                          =====   =====   ====

    We determined the fair value of the property and equipment acquired by
    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 book value of current
    assets acquired was generally considered fair value due to their rapid
    turnover.

                                       33

    The 9% redeemable preferred interests issued in the acquisitions of the
    Hoosier Propane Group and Country Gas Company, Inc. will automatically
    convert on a one-for-one basis into 10.4% and 12.6%, respectively, of
    the senior subordinated units to be outstanding following this offering.

  .   the issuance in January 2001 of $14.5 million (net of offering costs of
      $471,000) of 9% Class A preferred interests by Inergy Partners, LLC in
      a private placement completed in conjunction with the acquisition of
      the Hoosier Propane Group (these preferred interests will automatically
      convert into 29.5% of the senior subordinated units to be outstanding
      following this offering),

  .   the issuance in March 2001 of $1.5 million of 9% Class A preferred
      interests by Inergy Partners, LLC in connection with the exercise of a
      warrant issued in conjunction with the January 2001 private placement
      (these preferred interests will automatically convert into 2.9% of the
      senior subordinated units to be outstanding following this offering),
      and

  .  the incurrence of $78.3 million of indebtedness under our bank credit
     facility and related repayment of approximately $36.1 million of
     indebtedness and accrued interest.

   The second set of adjustments reflect the offering and related transactions,
including:

  .  the public offering of 1,600,000 common units of Inergy, L.P. at an
     assumed initial public offering price of $21.50 per common unit,

  .  the issuance to Inergy Partners, LLC of the 2% general partner interest,

  .  the issuance of 1,260,249 senior subordinated units and 572,542 junior
     subordinated units to an affiliate of Inergy Holdings,

  .  the issuance of 2,053,118 senior subordinated units to owners of certain
     acquired businesses and other investors in exchange for Class A
     preferred interests of Inergy Partners, LLC,

  .  the application of the net proceeds of this offering to repay $29.4
     million of indebtedness, and

  .  the payment of approximately $5.0 million of underwriting fees and
     commissions and other fees and expenses associated with this offering.

   Upon completion of the offering, we anticipate that we will incur
incremental general and administrative costs (e.g. costs associated with
reports to unitholders, preparation of tax information for unitholders and
investor relations) at an annual rate of approximately $500,000. The unaudited
pro forma consolidated financial statements do not include these estimated
incremental costs.

   The unaudited pro forma consolidated financial statements do not purport to
present the financial position or 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
of Inergy Partners, LLC and the notes thereto, the audited historical financial
statements of Hoosier Propane Group and the notes thereto, and the audited
historical financial statements of Country Gas Company, Inc. and the notes
thereto, appearing elsewhere in this prospectus.

                                       34

                                  INERGY, L.P.

                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                 March 31, 2001
                                 (in thousands)

                                     Inergy
                                   Partners,     Pro Forma
                          Inergy,   LLC and    Capitalization  Offering    Pro Forma
                           L.P.   Subsidiaries  Adjustments   Adjustments As Adjusted
                          ------- ------------ -------------- ----------- -----------
                                                           
         ASSETS
Current assets:
  Cash..................   $ --     $  3,528      $(1,500)A     $34,400 B  $  2,028
                                                                 (5,000)C
                                                                (29,400)D
  Accounts receivable,
   net..................     --       22,660                                 22,660
  Inventories...........     --        3,617                                  3,617
  Prepaid expenses and
   other current
   assets...............     --        1,068                                  1,068
  Assets from price risk
   management
   activities...........     --          433                                    433
                           -----    --------      -------       -------    --------
Total current assets....     --       31,306       (1,500)                   29,806
Property, plant and
 equipment, at cost:                  73,127                                 73,127
  Less accumulated
   depreciation.........     --       (3,829)                                (3,829)
                           -----    --------      -------       -------    --------
Net property, plant and
 equipment..............     --       69,298                                 69,298
Intangible assets:
  Covenants not to
   compete..............     --        3,763                                  3,763
  Deferred financing
   costs................     --        1,989                                  1,989
  Deferred acquisition
   costs................     --          111                                    111
  Customer accounts.....     --       14,000                                 14,000
  Goodwill..............     --       32,063                                 32,063
                           -----    --------      -------       -------    --------
                                      51,926                                 51,926
  Less accumulated
   amortization.........     --       (2,294)                                (2,294)
                           -----    --------      -------       -------    --------
Net intangible assets...     --       49,632                                 49,632
Other...................     --          137                                    137
                           -----    --------      -------       -------    --------
Total assets............   $ --     $150,373      $(1,500)      $   --     $148,873
                           =====    ========      =======       =======    ========

LIABILITIES AND MEMBERS'
    EQUITY/ PARTNERS'
         CAPITAL
Current liabilities:
  Accounts payable......   $ --     $ 10,797      $             $          $ 10,797
  Accrued expenses......     --        4,616                                  4,616
  Customer deposits.....     --          761                                    761
  Liabilities from price
   risk management
   activities...........     --           93                                     93
  Current portion of
   long-term debt.......     --        5,631                                  5,631
                           -----    --------      -------       -------    --------
Total current
 liabilities............     --       21,898                                 21,898
Deferred income taxes...     --          942         (942)A                     --
Long-term debt, less
 current portion........     --       78,767                    (29,400)D    49,367
Redeemable preferred
 members' interest......     --       34,313      (34,313)E                     --
Members'
 equity/partners'
 capital:
  Class A preferred
   interest.............     --        4,851       (4,851)F                     --
  Common interest.......     --        9,797         (558)A                     --
                                                     (195)G
                                                   (9,044)F
  Deferred
   compensation.........     --         (195)         195 G                     --
  Common unitholders
   (1,600,000 units
   issued and
   outstanding, pro
   forma as adjusted)...     --          --                      34,400 B    20,800
                                                                 (5,000)C
                                                                 (8,600)E
  Senior subordinated
   unitholders
   (3,313,367 units
   issued and
   outstanding, pro
   forma as adjusted)...     --          --        34,313 E       8,600 E    51,400
                                                    9,554 F
                                                   (1,067)H
  Junior subordinated
   unitholders (572,542
   units issued and
   outstanding, pro
   forma as adjusted)...     --          --         4,341 F                   3,856
                                                     (485)H
  Non-managing general
   partner (2% interest
   with dilutive effect
   equivalent to 111,957
   units issued and
   outstanding, pro
   forma as adjusted)...     --          --         1,552 H                   1,552
                           -----    --------      -------       -------    --------
Total members'
 equity/partners'
 capital................     --       14,453       33,755        29,400      77,608
                           -----    --------      -------       -------    --------
Total liabilities and
 members'
 equity/partners'
 capital................   $ --     $150,373      $(1,500)      $   --     $148,873
                           =====    ========      =======       =======    ========

                                       35

                                  INERGY, L.P.

            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                    For the six months ended March 31, 2001
                      (in thousands, except per unit data)

                                                            Hoosier
                                       Inergy Partners, LLC Propane  Acquisition  Offering    Pro Forma
                          Inergy, L.P.   and Subsidiaries    Group   Adjustments Adjustments As Adjusted
                          ------------ -------------------- -------  ----------- ----------- -----------
                                                                           
Revenues.................     $ --           $170,439       $31,541    $           $          $201,980
Cost of product sold.....       --            141,425        25,172                            166,597
                              ----           --------       -------    -------     ------     --------
Gross profit.............       --             29,014         6,369                             35,383
Expenses:
 Operating and
  administrative.........       --             11,464         2,538        (97)I                13,905
 Depreciation and
  amortization...........       --              2,748           373        692 J                 3,979
                                                                           166 K
                              ----           --------       -------    -------     ------     --------
Operating income.........       --             14,802         3,458       (761)                 17,499
Other income (expense):
 Interest expense........       --             (2,860)         (246)       246 L    1,285 N     (2,620)
                                                                        (1,045)M
 Interest income.........       --                 --            57                                 57
 Gain on sale of
  property, plant and
  equipment..............       --                 --            10                                 10
 Finance charges.........       --                158            12                                170
 Other...................       --                 87            78                                165
                              ----           --------       -------    -------     ------     --------
Income (loss) before
 income tax..............       --             12,187         3,369     (1,560)     1,285       15,281
Provision for income
 taxes...................       --                 --            --
                              ----           --------       -------    -------     ------     --------
Net income...............     $ --           $ 12,187       $ 3,369    $(1,560)    $1,285     $ 15,281
                              ====           ========       =======    =======     ======     ========
Non-managing general
 partner's interest in
 net income..............                                                                     $    306 O
                                                                                              ========
Limited partners'
 interest in net income:
 Common unit interest....                                                                     $  4,370
 Senior subordinated unit
  interest...............                                                                        9,046
 Junior subordinated unit
  interest...............                                                                        1,559
                                                                                              --------
  Total limited partners'
   interest in net
   income................                                                                     $ 14,975
                                                                                              ========
Net income per limited
 partner unit--basic and
 diluted.................                                                                     $   2.73
                                                                                              ========
Weighted average limited
 partners' units
 outstanding.............                                                                        5,486
                                                                                              ========

                                       36

                                  INERGY, L.P.

            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                    For the six months ended March 31, 2000
                      (in thousands, except per unit data)

                                     Inergy              Country
                                  Partners, LLC Hoosier    Gas    Butane Propane
                          Inergy,      and      Propane  Company, Gas Company of  Acquisition  Offering    Pro Forma
                           L.P.   Subsidiaries   Group     Inc.   Tennessee, Inc. Adjustments Adjustments As Adjusted
                          ------- ------------- -------  -------- --------------- ----------- ----------- -----------
                                                                                  
Revenues.................  $--       $50,457    $45,750   $6,550        $90         $           $          $102,847
Cost of product sold.....   --        42,054     33,762    3,294         57                                  79,167
                           ----      -------    -------   ------        ---         -------     ------     --------
Gross profit.............   --         8,403     11,988    3,256         33                                  23,680
Expenses:
 Operating and
  administrative.........   --         4,093      5,224    1,341         30            (323)I                10,365
 Depreciation and
  amortization...........   --           887        708      228          2           1,364 J                 3,827
                                                                                        306 P
                                                                                        332 K
                           ----      -------    -------   ------        ---         -------     ------     --------
Operating income.........   --         3,423      6,056    1,687          1          (1,679)                  9,488
Other income (expense):
 Interest expense........   --        (1,157)      (531)     --          --             531 L    1,360 N     (2,729)
                                                                                     (2,932)M
 Interest income.........   --           --          48      --          --                                      48
 Gain on sale of
  property, plant and
  equipment..............   --           --          59       33         --                                      92
 Finance charges.........   --            70         40       54         --                                     164
 Other...................   --            25        104      --          --                                     129
                           ----      -------    -------   ------        ---         -------     ------     --------
Income (loss) before
 income tax..............   --         2,361      5,776    1,774          1          (4,080)     1,360        7,192
Provision for income
 taxes...................   --           --         --       --          --
                           ----      -------    -------   ------        ---         -------     ------     --------
Net income (loss)........  $--       $ 2,361    $ 5,776   $1,774        $ 1         $(4,080)    $1,360     $  7,192
                           ====      =======    =======   ======        ===         =======     ======     ========
Non-managing general
 partner's interest in
 net income..............                                                                                  $    144 O
                                                                                                           ========
Limited partners'
 interest in net income:
 Common unit interest....                                                                                  $  2,057
 Senior subordinated unit
  interest...............                                                                                     4,258
 Junior subordinated unit
  interest...............                                                                                       733
                                                                                                           --------
  Total limited partners'
   interest in net
   income................                                                                                  $  7,048
                                                                                                           ========
Net income per limited
 partner unit--basic and
 diluted.................                                                                                  $   1.31
                                                                                                           ========
Weighted average limited
 partners' units
 outstanding.............                                                                                     5,381
                                                                                                           ========

                                       37

                                  INERGY, L.P.

            UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                     For the year ended September 30, 2000
                      (in thousands, except per unit data)

                                     Inergy              Country
                                  Partners, LLC Hoosier    Gas    Butane-Propane
                          Inergy,      and      Propane  Company, Gas Company of Acquisition  Offering    Pro Forma
                           L.P.   Subsidiaries   Group     Inc.   Tennessee,Inc. Adjustments Adjustments As Adjusted
                          ------- ------------- -------  -------- -------------- ----------- ----------- -----------
                                                                                 
Revenues................  $  --      $93,595    $65,595   $7,751       $90         $           $          $167,031
Cost of product sold....              81,636     49,049    3,792        57                                 134,534
                          ------     -------    -------   ------       ---         -------     ------     --------
Gross profit............     --       11,959     16,546    3,959        33                                  32,497
Expenses:
 Operating and
  administrative........     --        8,990      9,375    2,220        30            (460)I                20,155
 Depreciation and
  amortization..........     --        2,286      1,623      304         2           2,521 J                 7,806
                                                                                       407 P
                                                                                       663 K
                          ------     -------    -------   ------       ---         -------     ------     --------
Operating income........     --          683      5,548    1,435         1          (3,131)                  4,536
Other income (expense):
 Interest expense.......     --       (2,740)    (1,029)     --         --           1,029 L    2,790 N     (5,564)
                                                                                    (5,614)M
 Interest income........     --          --         230        9        --                                     239
 Gain on sale of
  property, plant and
  equipment.............     --          --          51       21        --                                      72
 Finance charges........     --          176         52       33        --                                     261
 Other..................     --           59        132      --         --                                     191
                          ------     -------    -------   ------       ---         -------     ------     --------
Income (loss) before
 income tax.............     --       (1,822)     4,984    1,498         1          (7,716)     2,790         (265)
Provision for income
 taxes..................     --            7        --       --         --                                       7
                          ------     -------    -------   ------       ---         -------     ------     --------
Net income (loss).......  $  --      $(1,829)   $ 4,984   $1,498       $ 1         $(7,716)    $2,790     $   (272)
                          ======     =======    =======   ======       ===         =======     ======     ========
Non-managing general
 partner's interest in
 net loss...............                                                                                  $     (5)O
                                                                                                          ========
Limited partners'
 interest in net loss:
 Common unit interest...                                                                                  $    (78)
 Senior subordinated
  unit interest.........                                                                                      (161)
 Junior subordinated
  unit interest.........                                                                                       (28)
                                                                                                          --------
  Total limited
   partners' interest in
   net loss.............                                                                                  $   (267)
                                                                                                          ========
Net loss per limited
 partner unit--basic and
 diluted................                                                                                  $  (0.05)
                                                                                                          ========
Weighted average limited
 partners' units
 outstanding............                                                                                     5,434
                                                                                                          ========

                                       38

                                  INERGY, L.P.

                          NOTES TO UNAUDITED PRO FORMA
                       CONSOLIDATED FINANCIAL STATEMENTS

                  Six Months Ended March 31, 2000 and 2001 and
                         Year Ended September 30, 2000

(A) Reflects $1.5 million of cash and $942,000 of deferred tax liabilities that
    Inergy Partners, LLC is retaining when it transfers the remainder of its
    assets and liabilities to Inergy, L.P. immediately prior to the
    consummation of the offering.

(B) Reflects the gross proceeds to Inergy, L.P. of $34.4 million from the
    issuance and sale of 1,600,000 common units at an assumed offering price of
    $21.50 per common unit.

(C) Reflects the payment of the underwriters' discounts and commissions and
    offering expenses, estimated to be $5.0 million.

(D) Reflects the partial repayment of the borrowings under our bank credit
    facility and repayment of its subordinated debt with the proceeds from the
    sale of the common units in this offering.

(E) Reflects the conversion of $34.3 million in Inergy Partners, LLC redeemable
    preferred interests held by owners of certain acquired businesses and other
    investors into 2,053,118 senior subordinated units of Inergy, L.P. pursuant
    to Inergy Partners, LLC's limited liability company agreement. The
    preferred interests issued in December 1999 for $2 million in cash and
    those issued in January and March of 2001 for $16.5 million in cash
    contained conversion terms more advantageous than the terms of the other
    preferred interests issued by Inergy Partners, LLC. The conversion terms of
    these preferred interests were established as of the date of issuance and
    all of these preferred interests automatically convert into senior
    subordinated units in connection with the offering. The December 1999
    issuance is convertible into senior subordinated units at a multiple of
    2.25 to 1 and the issuances in January and March of 2001 are convertible at
    a multiple of 1.4 to 1. These terms allow the holders to receive more
    senior subordinated units than if their conversion terms were on a 1 for 1
    basis, similar to other preferred interests. The estimated value of these
    beneficial conversion features, approximately $8.6 million, will be
    recognized upon completion of this offering.

  As reflected in the unaudited pro forma consolidated balance sheet, this
  results in a decrease in common unit capital of $8.6 million with a
  corresponding increase in senior subordinated unit capital. On the initial
  statement of operations of Inergy, L.P. subsequent to the completion of
  this offering, net income available to common unitholders will be decreased
  by $8.6 million since this amount will be attributable to senior
  subordinated unitholders and presented as such after net income on the
  statement of operations. This non-cash beneficial conversion amount is not
  reflected in the accompanying pro forma statements of operations but will
  be included in the initial financial information released by us after the
  offering.

(F) Reflects the allocation of the remainder of the Class A preferred interest
    ($4.9 million) and the common interest ($9.0 million) in Inergy Partners,
    LLC to senior subordinated units and junior subordinated units of Inergy,
    L.P. The dollar amounts assigned are based on the pro rata number of units
    of each class issued (1,260,249 senior subordinated units and 572,542
    junior subordinated units).

(G) Reflects the accelerated vesting of the Class A preferred interests
    recorded as deferred compensation in connection with the offering. In
    connection with the accelerated vesting, the balance of deferred
    compensation ($195,000 as of March 31, 2001) will be recognized as a non-
    cash compensation expense upon completion of the offering. This non-cash
    compensation expense is not reflected in the accompanying pro forma
    statements of operations.

(H) Reflects the issuance by Inergy, L.P. of a 2% general partner interest to
    Inergy Partners, LLC.

(I) Reflects reduction in operating costs resulting from the Hoosier Propane
    Group and Country Gas Company Inc. acquisitions, consisting of eliminated
    salary and benefit expenses of certain former owners of the

                                       39

   acquired businesses whose employment ceased following the acquisitions. No
   employees were hired and no incremental costs were incurred to replace
   these individuals or their respective duties. For the six months ended
   March 31, 2001, the entire amount of this acquisition adjustment relates to
   the Hoosier Program Group. For the year ended September 30, 2000, $393,000
   of this acquisition adjustment relates to the Hoosier Propane Group and
   $67,000 relates to Country Gas Company, Inc. For the six months ended March
   31, 2000, $299,000 of this acquisition adjustment relates to the Hoosier
   Propane Group and $24,000 relates to Country Gas Company, Inc.

(J) 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, as follows:

                                                               Depreciation and
                                                                 Amortization
                                                          ---------------------------
                                                                         Six Months
                                                                         Ended March
                                                           Year Ended        31,
                                                          September 30, -------------
                                Amount     Composite Life     2000       2000   2001
                            -------------- -------------- ------------- ------ ------
                            (in thousands)   (in years)         (in thousands)
                                                                
   Property, plant and
    equipment (excluding
    land)..................    $33,423         19.67(a)      $1,699     $  850 $  850
   Covenants not to
    compete................        465          7.00             66         33     33
   Customer accounts.......     10,500         15.00            700        350    350
   Goodwill................     25,183         15.00          1,679        839    839
                                                             ------     ------ ------
                                                              4,144      2,072  2,072
   Historical depreciation
    and amortization
    expense of the Hoosier
    Propane Group..........                                   1,623        708  1,380
                                                             ------     ------ ------
   Pro forma adjustment to
    depreciation and
    amortization expense...                                  $2,521     $1,364 $  692
                                                             ======     ====== ======

  --------
  (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.

(K) Reflects amortization of the deferred financing fees over the three year
    term of our predecessor's bank credit facility, which was used to fund the
    acquisition of the Hoosier Propane Group and repay certain existing debt.

(L) Reflects the reduction of interest expense related to the Hoosier Propane
    Group debt that was not assumed in the acquisition.

(M) Reflects the adjustment to interest expense resulting from the acquisition
    related transactions described on pages 33 and 34, reconciled as follows:

                                                                Six Months
                                                 Year Ended   Ended March 31,
                                                September 30, ----------------
                                                    2000       2000     2001
                                                ------------- -------  -------
                                                       (in thousands)
                                                              
   Historical interest expense attributable to
    debt refinanced in connection with the
    acquisition of the Hoosier Propane Group,
    interest based on LIBOR plus 2.75% to
    3.5%......................................     $(2,548)   $(1,039) $(2,704)
   Pro forma interest expense attributable to
    the financing of the Hoosier Propane Group
    acquisition and the refinancing of
    existing indebtedness:
     Interest on term loans at weighted
      average rates in effect during the year
      ended September 30, 2000 and the six
      months ended March 31, 2000 and 2001
      ranging from 9.59% to 10.10% for the
      year ended September 30, 2000, 8.69% to
      9.18% for the six months ended March 31,
      2001 and 9.30% to 9.80% for the six
      months ended March 31, 2000, based on
      3-month LIBOR plus 3.0% to 3.5%.........       7,044      3,417    3,198
     Interest on revolving credit facility at
      9.33% for the year ended September 30,
      2000 and 9.10% and 9.19% for the six
      months ended March 31, 2001 and 2000,
      respectively............................         668        329      326
     Interest on subordinated debt at 9.00%
      per annum...............................         450        225      225
                                                   -------    -------  -------
                                                     8,162      3,971    3,749
                                                   -------    -------  -------
       Pro forma adjustment to interest
        expense...............................     $ 5,614    $ 2,932  $ 1,045
                                                   =======    =======  =======

                                      40

  The interest rates used in determining the amount of pro forma interest
  expense were based upon Inergy Partners, LLC's weighted average borrowing
  rate under its bank facility during the periods presented. Assuming a
  change in the interest rate on Inergy Partners, LLC's floating rate debt of
  1/8%, interest expense would have been approximately $98,000 and $49,000
  greater or lesser than the amounts shown above for the fiscal year ended
  September 30, 2000 and the six months ended March 31, 2001, respectively.

(N) Reflects reduction of interest expense resulting from the retirement of
    $5.0 million of our subordinated debt bearing interest at 9% and $24.4
    million of term loans with a weighted average interest rate of 9.59% for
    the year ended September 30, 2000 and 8.69% and 9.30% for the six months
    ended March 31, 2001 and 2000, respectively.

(O)  The non-managing general partner's allocation of net income (loss) is
     based on its 2% general partner interest in Inergy, L.P. The non-managing
     general partner's 2% allocation of net income (loss) has been deducted
     before calculating the net income (loss) per limited partners' unit. The
     computation of net income (loss) per limited partner unit assumes that
     1,600,000 common units, 3,313,367 senior subordinated units and 572,542
     junior subordinated units were outstanding at all times during the periods
     presented except for 209,302 senior subordinated units related to a
     December 1999 issuance of $2 million in redeemable preferred interests,
     which are considered outstanding for only nine months of the year ended
     September 30, 2000. Therefore, the weighted average limited partners'
     units outstanding are 5,433,584 for the year ended September 30, 2000 and
     5,381,258 and 5,485,909 for the six months ended March 31, 2000 and 2001,
     respectively. These weighted average limited partners' unit amounts
     further assume that the redeemable preferred interests, issued during the
     year ended September 30, 2000 in conjunction with the acquisition of
     Country Gas Company, Inc. and those issued in January 2001 in conjunction
     with the acquisition of the Hoosier Propane Group and the equity financing
     related thereto, which are being converted into senior subordinated units,
     and the common units issued in this offering, are outstanding for all
     periods presented.

(P)  Reflects pro forma depreciation and amortization based on the portion of
     the purchase price of Country Gas Company, Inc. allocated to property,
     plant and equipment and intangible assets, as follows:

                                                              Depreciation and
                                                                Amortization
                                                          ------------------------
                                                                        Six Months
                                                           Year Ended     Ended
                                                          September 30, March 31,
                                Amount     Composite Life     2000         2000
                            -------------- -------------- ------------- ----------
                            (in thousands)   (in years)        (in thousands)
                                                            
   Property, plant and
    equipment..............     $8,347         18.55         $  450        $225
   Covenants not to
    compete................        102         10.00             10           5
   Customer accounts.......      3,500         15.00            233         117
   Goodwill................      5,594         15.00            373         187
                                                             ------        ----
                                                              1,066         534
   Historical depreciation
    and amortization
    expense of Country Gas
    Company, Inc. .........                                     659         228
                                                             ------        ----
   Pro forma adjustment to
    depreciation and
    amortization expense...                                  $  407        $306
                                                             ======        ====

                                       41

                SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

   The following table sets forth selected financial data and other operating
data of our predecessor, Inergy Partners, LLC, the Hoosier Propane Group and
Country Gas Company, Inc. Inergy Partners, LLC was formed on November 8, 1996
to acquire the propane and fuel oil operations of McCracken Enterprises, Inc.
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 Partners for
the six months ended March 31, 2000 and 2001 are derived from the unaudited
financial statements of Inergy Partners, LLC. The historical financial data of
Inergy Partners, LLC include the results of operations of Country Gas Company,
Inc. from June 1, 2000, the date of acquisition, and 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 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
and 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 Country Gas Company, Inc. as of and for the years ended May
31, 1998, 1999 and 2000 are derived from the audited financial statements of
Country Gas Company, Inc.

   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, 2001
are not necessarily indicative of the results that can be expected for the
entire year ending September 30, 2001.

   "EBITDA" shown in the table below is defined as income before income taxes,
plus interest, 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.

                                       42

   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
                         ---------------------------------------------------------------
                                                                       Six Months Ended
                         November 8, 1996 Years Ended September 30,       March 31,
                         to September 30, ---------------------------  -----------------
                               1997        1998      1999      2000     2000      2001
                         ---------------- -------  --------  --------  -------  --------
                                               (in thousands)            (unaudited)
                                                              
Statement of Operations
 Data:
Revenues................     $ 6,966      $ 7,507  $ 19,211  $ 93,595  $50,457  $170,439
Costs of product sold...       4,366        4,215    13,754    81,636   42,054   141,425
                             -------      -------  --------  --------  -------  --------
Gross profit............       2,600        3,292     5,457    11,959    8,403    29,014
Expenses:
  Operating and
   administrative(a)....       2,196        2,424     4,119     8,990    4,093    11,464
  Depreciation and
   amortization.........         325          394       690     2,286      887     2,748
                             -------      -------  --------  --------  -------  --------
Operating income........          79          474       648       683    3,423    14,802
Other income (expense):
  Interest expense......        (398)        (569)     (962)   (2,740)  (1,157)   (2,860)
  Gain on sale of
   property, plant and
   equipment............         --           --        101       --       --        --
  Finance charges.......          44           59        79       176       70       158
  Other.................           1            1         5        59       25        87
                             -------      -------  --------  --------  -------  --------
Income (loss) before
 income taxes...........        (274)         (35)     (129)   (1,822)   2,361    12,187
Provision for income
 taxes..................         --           --         56         7      --        --
                             -------      -------  --------  --------  -------  --------
Net income (loss).......     $  (274)     $   (35) $   (185) $ (1,829) $ 2,361  $ 12,187
                             =======      =======  ========  ========  =======  ========

Balance Sheet Data (end
 of period):
Current assets..........     $ 2,282      $ 2,119  $ 11,390  $ 22,199  $12,653  $ 31,306
Total assets............       8,457       10,230    38,896    68,924   41,900   150,373
Long-term debt,
 including current
 portion................       5,382        5,694    22,337    34,927   24,413    84,398
Redeemable preferred
 members' interest......         --           --        --     10,896    1,896    34,313
Members' equity.........       1,209        2,611     5,269     2,972    7,495    14,453

Other Financial Data:
EBITDA (unaudited)......     $   449      $   928  $  1,523  $  3,204  $ 4,405  $ 17,795
Net cash provided by
 (used in) operating
 activities.............         555          362      (847)     (309)    (839)    2,594
Net cash used in
 investing activities...      (6,640)        (727)  (13,057)  (12,377)  (2,756)  (60,179)
Net cash provided by
 financing activities...       6,114          336    14,056    13,907    3,796    59,740
Maintenance capital
 expenditures(b)
 (unaudited)............         -- (c)        61       156       283      126       591

Other Operating Data
 (unaudited):
Retail propane gallons
 sold...................       4,765        5,612     8,006    18,112   12,176    34,031
Wholesale propane
 gallons sold...........         N/A          N/A    24,735   146,644   82,064   161,768

Reconciliation of Net Income to EBITDA:

Net income (loss)................. $(274) $(35) $ (185) $(1,829) $2,361 $12,187
Plus:
  Income taxes....................   --    --       56        7     --      --
  Interest expense................   398   569     962    2,740   1,157   2,860
  Depreciation and amortization
   expense........................   325   394     690    2,286     887   2,748
                                   -----  ----  ------  -------  ------ -------
                                     449   928   1,523    3,204   4,405  17,795
Less:
  Interest income.................   --    --      --       --      --      --
                                   -----  ----  ------  -------  ------ -------
EBITDA............................ $ 449  $928  $1,523  $ 3,204  $4,405 $17,795
                                   =====  ====  ======  =======  ====== =======

- --------
(a) The historical financial statements include non-cash charges related to
    amortization of deferred compensation of $78,000 and $79,000 for the years
    ended September 30, 1999 and 2000, respectively, and $39,000 for each of
    the six month periods ended March 31, 2000 and 2001.
(b) 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.
(c) Maintenance capital expenditures are not available for this period.

                                       43

                                           Hoosier Propane Group
                                ----------------------------------------------
                                      Years Ended          Three Months Ended
                                     September 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
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
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
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
                                =======  =======  =======    =======   =======

Reconciliation of Net Income to EBITDA:
- --------
(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.

                                       44

                                                        Country Gas Company,
                                                                Inc.
                                                        -----------------------
                                                         Years Ended May 31,
                                                        -----------------------
                                                         1998     1999    2000
                                                        -------  ------  ------
                                                           (in thousands)
                                                                
Statement of Income Data:
Revenues............................................... $ 8,167  $8,487  $9,641
Cost of product sold...................................   3,396   3,181   4,672
                                                        -------  ------  ------
Gross profit...........................................   4,771   5,306   4,969
Expenses:
  Operating and administrative.........................   2,755   3,003   3,176
  Depreciation and amortization........................     312     354     342
                                                        -------  ------  ------
Operating income.......................................   1,704   1,949   1,451
Other income:
  Interest income......................................     165     176     145
  Gain on sales of assets..............................      26     304      21
                                                        -------  ------  ------
Net income............................................. $ 1,895  $2,429  $1,617
                                                        =======  ======  ======
Balance Sheet Data (end of period):
Current assets......................................... $ 3,583  $2,784  $2,942
Total assets...........................................   6,455   6,094   6,178
Stockholders' equity...................................   6,241   5,810   5,867
Other Financial Data:
EBITDA (unaudited)..................................... $ 2,042  $2,607  $1,814
Net cash provided by operating activities..............   2,553   2,595   1,529
Net cash used in investing activities..................    (446)   (574)   (201)
Net cash used in financing activities..................  (1,690) (2,860) (1,560)
Maintenance capital expenditures(a) (unaudited)........     230     175     187
Other Operating Data (unaudited):
Retail propane gallons sold............................   8,381  10,421   9,882

Reconciliation of Net Income to EBITDA:
Net income............................................. $ 1,895  $2,429  $1,617
Plus:
  Depreciation expense.................................     312     354     342
                                                        -------  ------  ------
                                                          2,207   2,783   1,959
Less:
  Interest income......................................     165     176     145
                                                        -------  ------  ------
EBITDA................................................. $ 2,042  $2,607  $1,814
                                                        =======  ======  ======

- --------
(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.

                                       45

                    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, 2000, on a pro forma combined
basis we sold approximately 50 million gallons of propane to retail customers
and approximately 215 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.

   Since the inception of our predecessor, Inergy Partners, LLC, in November
1996, we have acquired 11 propane companies for an aggregate purchase price of
approximately $120 million, including 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 the Hoosier Propane Group on January 12, 2001,
    effective January 1, 2001. At the time of the acquisition, the Hoosier
    Propane Group had approximately 26,000 residential customers and 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 approximately 8,000 retail customers
    and annual sales of approximately 9.9 million retail gallons.

   On a pro forma basis in the fiscal year ended September 30, 2000, we sold
approximately 70% of our retail gallons to residential customers, 20% to
industrial and commercial customers and, 10% to agricultural customers. Sales
to residential customers during that period accounted for approximately 77% of
our pro forma 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, 2000, approximately 72% 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.

   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.

                                       46

"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. As expected, in periods of increasing costs, we have experienced
a decline in our gross profit as a percentage of revenues. Our retail propane
operations generated margins averaging $0.44 per retail gallon for the fiscal
year ended September 30, 2000 on a pro forma basis. 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, 2000, on a pro forma combined basis, we sold approximately 215
million gallons of propane on a wholesale basis. Although sales to wholesale
customers would have accounted for approximately 81% of our total volumes on a
pro forma basis, such sales would have accounted for only 12% 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.

   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, 2000, we purchased approximately 24% and 10% of our propane
supplies from two suppliers, respectively, and no other single supplier
provided more than ten percent of our total propane supply.

   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

                                       47

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.

   The preferred interests issued by Inergy Partners, LLC in December 1999 for
$2 million in cash and those issued in January and March of 2001 for $16.5
million in cash contain conversion terms more advantageous than the terms of
the other preferred interests issued by our predecessor. The conversion terms
of these preferred interests were established as of the date of issuance and
all of these preferred interests automatically convert into senior subordinated
units in connection with the offering. The December 1999 issuance is
convertible into senior subordinated units at a multiple of 2.25 to 1 and the
issuances in January and March of 2001 are convertible at a multiple of 1.4 to
1. These terms allow the holders to receive more senior subordinated units than
if their conversion terms were on a 1 for 1 basis, similar to other preferred
interests. The estimated value of these beneficial conversion features, of
approximately $8.6 million, will be recognized upon completion of this
offering.

Inergy Partners, LLC

   The results of operations discussed below are those of our predecessor,
Inergy Partners, LLC. Audited and unaudited financial statements for 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, and the results of operations of the Hoosier
Propane Group beginning on January 1, 2001, the effective date of the
acquisition. For a more detailed description of our predecessor, please read
"Guide to Reading this Prospectus."

 Six Months Ended March 31, 2001 Compared to Six Months Ended March 31, 2000

   Volume. During the six months ended March 31, 2001, Inergy Partners sold
34.0 million retail gallons of propane, an increase of 21.8 million gallons, or
179%, from the 12.2 million retail gallons sold during the same six month
period in 2000. The increase in retail sales volume was principally due to the
acquisitions of Country Gas (7.1 million gallons) and the Hoosier Propane Group
(9.7 million gallons). In addition, internal growth and the fact that the six
months ended March 31, 2001 were approximately 21% colder than the six months
ended March 31, 2000 and approximately 2% colder than normal in our retail
areas of operation resulted in increased sales of approximately 5.0 million
gallons.

   Wholesale gallon sales increased 79.7 million gallons, or 97%, to 161.8
million gallons in the six months ended March 31, 2001 from 82.1 million
gallons in the same six month period in 2000. Approximately 61.5 million
gallons of this increase was attributable to the growth of our wholesale
operations which were initiated in April 1999 and colder weather in our
wholesale areas of operation, with the balance of the increase (approximately
18.2 million gallons) attributable to the acquisition of the Hoosier Propane
Group.

   Revenues. Revenues in the six months ended March 31, 2001 were $170.4
million, an increase of $119.9 million, or 238%, from $50.5 million of revenues
in the same six month period in 2000.

   Revenues from retail propane sales were $48.2 million in the six months
ended March 31, 2001, an increase of $35.8 million, or 290%, from $12.4 million
for the same six month period in 2000. This increase was attributable to the
acquisitions of Country Gas ($9.5 million) and the Hoosier Propane Group ($13.6
million), higher sales prices ($6.0 million) with the remaining increase ($6.7
million) due to volume increases due to growth and colder weather in our retail
areas of operations. Other retail revenues increased approximately $2.6

                                       48

million, or 100%, from $2.6 million in the same six month period in 2000 to
$5.2 million in the six months ended March 31, 2001. These revenues consist of
tank rentals, heating oil sales, appliance sales and service with the increase
attributable to the acquisitions of Country Gas and the Hoosier Propane Group.

   Revenues from wholesale sales were $117.0 million (after elimination of
sales to our retail operations) in the six months ended March 31, 2001, an
increase of $81.5 million, or 230%, from $35.5 million for the same six month
period in 2000. Approximately $15.6 million of this increase was attributable
to the acquisition of the Hoosier Propane Group, approximately $25.7 million
resulted from increased selling prices and the remaining $40.2 million increase
was attributable to the growth of our wholesale operations as described above
and colder weather in our wholesale areas of operations.

   Cost of Product Sold. Cost of product sold in the six months ended March 31,
2001 was $141.4 million, an increase of $99.3 million, or 236%, over cost of
product sold of $42.1 million in the same six month period in 2000. This
increase was primarily attributable to both a significant increase in retail
and wholesale propane volumes (approximately $57.5 million) and a significant
increase in the average cost of propane (approximately $41.3 million).

   Gross Profit. Retail gross profit was $24.3 million in the six months ended
March 31, 2001 compared to $7.7 million in the six months ended March 31, 2000,
an increase of $16.6 million, or 216%. Wholesale gross profit was $4.8 million
(after elimination of gross profit attributable to our retail operations) in
the six months ended March 31, 2001 compared to $0.7 million in the same six
month period in 2000, an increase of $4.1 million. These increases were
attributable to higher retail and wholesale volumes and an increase in margin
per gallon. The increase in margin per gallon was attributable to our ability
to increase retail prices during periods of rising market prices while
effectively controlling product costs. However, as discussed above, gross
profit as a percentage of sales has decreased despite the increase in margin
per gallon.

   Operating and Administrative Expenses. Operating and administrative expenses
increased $7.4 million, or 180%, to $11.5 million in the six month period ended
March 31, 2001 as compared to $4.1 million in the same period in 2000.
Approximately $1.7 million of this increase was attributable to the Country Gas
acquisition and approximately $3.0 million of the increase resulted from the
Hoosier Propane Group acquisition. In addition, approximately $1.8 million of
the increase was related to personnel costs including performance incentives
accrued as a result of the increased profitability of the six months ended
March 31, 2001 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 $1.8
million, or 210%, to $2.7 million in the six months ended March 31, 2001 from
$0.9 million in the same six month period in 2000 primarily as 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.

   Net Income. Net income increased $9.8 million, or 416%, to $12.2 million in
the six months ended March 31, 2001 from $2.4 million in the same six month
period in 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 partially offset by
an increase in interest expense as a result of higher average outstanding
borrowings associated with the acquisitions.

   EBITDA. EBITDA increased $13.4 million, or 304%, to $17.8 million in the six
months ended March 31, 2001 from $4.4 million in the same six month period in
2000. This increase was attributable to increased 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

                                       49

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 in fiscal 1999 to $70.1 million (after elimination of sales to our
retail operations) in fiscal 2000. This increase was a result of our
significant increase in wholesale volumes.

   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 our retail operations) in fiscal 2000 compared to $0.5 million
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.

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

   Volume. During fiscal 1999, Inergy Partners, LLC sold 8.0 million retail
gallons of propane, an increase of 2.4 million gallons, or 43%, from the 5.6
million retail gallons sold in fiscal 1998. This increase was primarily
attributable to the acquisition of six retail propane distributors during
fiscal 1999, partially offset by weather that was 11% warmer in fiscal 1999
than in fiscal 1998. Fiscal 1999 was 16% warmer than normal in our primary
areas of operation.

                                       50

   Inergy Partners, LLC initiated wholesale operations in April 1999 and sold
approximately 24.7 million gallons during the remainder of that fiscal year.

   Revenues. Revenues from retail propane sales increased $2.0 million, or 42%,
from $4.8 million in fiscal 1998 to $6.8 million in fiscal 1999. This increase
was due to acquisitions and higher propane selling prices partially offset by
warmer weather. Other retail revenues increased $0.3 million, or 10%, to $3.0
million in fiscal 1999 from $2.7 million in fiscal 1998. The increase is a
result of the acquisitions during fiscal 1999.

   Wholesale revenues were $9.4 million in fiscal 1999, our initial year of
wholesale operations.

   Cost of Product Sold. Cost of product sold in fiscal 1999 was $13.8 million,
an increase of $9.6 million, or 226%, over fiscal 1998 cost of product sold of
$4.2 million. The increase in cost of product sold was primarily attributable
to increased retail and wholesale volumes, partially offset by a slight
decrease in the cost of propane.

   Gross Profit. Retail gross profit was $4.9 million in fiscal 1999 compared
to $3.3 million in fiscal 1998, an increase of $1.6 million, or 48%. This
increase was attributable to increased retail volumes and margins. Wholesale
gross profit was $0.5 million in fiscal 1999, our initial year of wholesale
operations.

   Operating and Administrative Expenses. Operating and administrative expenses
were $4.1 million in fiscal 1999 as compared to $2.4 million in fiscal 1998, an
increase of $1.7 million, or 70%. This increase was related to acquisitions and
the initiation of our wholesale operations.

   Depreciation and Amortization. Depreciation and amortization increased $0.3
million, or 75%, to $0.7 million in fiscal 2000 from $0.4 million in fiscal
1999. This increase was attributable to the depreciation and amortization of
acquired assets, including intangible assets, and amortization of acquisition
financing costs.

   Net Loss. Net loss was $0.2 million in fiscal 1999 compared to an
approximate break-even level in fiscal 1998. This increase in net loss was
primarily attributable to an increase in acquisition-related interest expense,
partially offset by an increase in operating income.

   EBITDA. EBITDA increased $0.6 million, or 64%, to $1.5 million in fiscal
1999 from $0.9 million in fiscal 1998. The increase in EBITDA was primarily
attributable to increased retail and wholesale volumes, partially offset by
higher operating and administrative expenses.

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.

   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.

                                       51

   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 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.

                                       52

   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 4.1 million gallons of the 5.4 million
gallon increase in retail propane volume. The remaining 1.3 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.

   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.

                                       53

   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.

Country Gas Company, Inc.

   We acquired Country Gas on June 1, 2000. Audited financial statements of
Country Gas are included elsewhere in this prospectus.

 Fiscal Year Ended May 31, 2000 Compared to Fiscal Year Ended May 31, 1999

   Volume. During fiscal 2000, Country Gas sold 9.9 million retail gallons of
propane, a decrease of 0.5 million gallons, or 5%, from the 10.4 million
gallons sold in fiscal 1999. This decrease was principally due to warmer
weather in fiscal 2000 as compared to fiscal 1999. In addition, Country Gas
sold fewer agricultural gallons in fiscal 2000 than in fiscal 1999 due to a
decreased focus on agricultural sales.

   Revenues. Revenues in fiscal 2000 were $9.6 million, an increase of $1.1
million, or 14%, over $8.5 million of revenues in fiscal 1999. Revenues from
propane sales increased $1.3 million, or 16%, from $7.7 million in fiscal 1999
to $9.0 million in fiscal 2000. This increase was attributable to an increase
in the average selling price of propane, and was partially offset by a decrease
in gallons sold in fiscal 2000. Other revenues decreased $0.1 million to $0.7
million in fiscal 2000 from $0.8 million in fiscal 1999.

   Cost of Product Sold. Cost of product sold in fiscal 2000 was $4.7 million,
an increase of $1.5 million, or 47%, over fiscal 1999 cost of product sold of
$3.2 million. This increase in cost of product sold was attributable to
increasing propane costs.

   Gross Profit. Gross profit was $5.0 million in fiscal 2000 compared to $5.3
million in fiscal 1999, a decrease of $0.3 million, or 6%. This decrease was
attributable to a decrease in gross profit from propane sales of $0.2 million
and a decrease in other gross profit of $0.1 million. The decrease in gross
profit from propane sales was due to a 5% decrease in the gallons sold in
fiscal 2000 and to a lower average gross profit per gallon resulting from the
lower percentage of residential retail gallons sold. Other gross profit
decreased $0.1 million in fiscal 2000 as compared to fiscal 1999 as a result of
warmer weather conditions.

   Operating and Administrative Expenses. Operating and administrative expenses
were $3.2 million in fiscal 2000 as compared to $3.0 million in fiscal 1999, an
increase of $0.2 million, or 6%. This increase primarily resulted from
increased vehicle operating costs in fiscal 2000 as compared to fiscal 1999 due
to higher vehicle fuel and maintenance costs.

   Depreciation and Amortization. Depreciation and amortization remained
constant at approximately $0.4 million in fiscal 1999 and fiscal 2000.

   Net Income. Net income decreased $0.8 million, or 33%, to $1.6 million in
fiscal 2000 from $2.4 million in fiscal 1999. This decrease was attributable to
the $0.5 million decline in operating income and the $0.3 million gain on the
sale of product line recognized in fiscal 1999.

                                       54

 Fiscal Year Ended May 31, 1999 Compared to Fiscal Year Ended May 31, 1998

   Volume. During fiscal 1999, Country Gas sold 10.4 million retail gallons of
propane, an increase of 2.0 million gallons, or 24%, from the 8.4 million
gallons sold in fiscal 1998. This increase was principally due to an increase
in lower margin industrial gallons sold in fiscal 1999 over 1998.

   Revenues. Revenues in fiscal 1999 were $8.5 million, an increase of $0.3
million, or 4%, over $8.2 million of revenues in fiscal 1998. Revenues from
propane sales increased $0.2 million, or 4%, from $7.5 million in fiscal 1998
to $7.7 million in fiscal 1999. This increase was attributable to an increase
in gallons sold in fiscal 1999 largely offset by a decrease in the average
selling price of propane. Other revenues increased $0.1 million to $0.8 million
in fiscal 1999 from $0.7 million in fiscal 1998.

   Cost of Product Sold. Cost of product sold in fiscal 1999 was $3.2 million,
a decrease of $0.2 million, or 6%, from fiscal 1998 cost of product sold of
$3.4 million. This decrease in cost of product sold was attributable to
decreasing propane costs.

   Gross Profit. Gross profit was $5.3 million in fiscal 1999 compared to $4.8
million in fiscal 1999, an increase of $0.5 million, or 11%. This increase was
attributable to an increase in gross profit from propane sales of $0.5 million.
The increase in gross profit from propane sales was due to a 24% increase in
the gallons sold in fiscal 1999 partially offset by a lower average gross
profit per gallon resulting from certain lower margin gallons sold.

   Operating and Administrative Expenses. Operating and administrative expenses
were $3.0 million in fiscal 1999 as compared to $2.8 million in fiscal 1998, an
increase of $0.2 million, or 9%. This increase primarily resulted from
increased operating costs in fiscal 1999 as compared to fiscal 1998 as a result
of the increase in gallons sold.

   Depreciation and Amortization. Depreciation and amortization increased
approximately $0.1 million to $0.4 million in fiscal 1999 from $0.3 million in
1998.

   Net Income. Net income increased $0.5 million, or 28%, to $2.4 million in
fiscal 1999 from $1.9 million in fiscal 1998. This increase was attributable to
a $0.3 million gain on the sale of a product line recognized in fiscal 1999 and
an increase in gross profit partially offset by an increase in operating and
administrative expenses.

Liquidity and Capital Resources

 Inergy Partners, LLC Cash Flows and Capital Expenditures

   Cash used in operating activities was $0.3 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. We finance these working capital needs with borrowings
under our revolving credit facilities as discussed below.

   During the six months ended March 31, 2001, operating activities provided
cash of $2.6 million compared to a $0.8 million use of cash in the same fiscal
2000 period. These six month periods include our winter season in which the
majority of our sales occur. Net income increased to $12.2 million for the six
months ended March 31, 2001 from $2.4 million for the same fiscal 2000 period
due to the effects of the acquisitions completed in fiscal 2000 and 2001 and
the colder weather in the 2001 period. Depreciation and amortization increased
to $2.7 million in the six months ended March 31, 2001 from $0.9 million in the
same fiscal 2000 period due to the effects of acquisitions, particularly the
Hoosier Propane Group acquisition completed in January 2001. Increases in net
operating assets, including net liabilities from price risk management
activities,

                                       55

required a use of cash amounting to $13.2 million in the six months ended March
31, 2001 and $4.1 million in the same fiscal 2000 period. The higher use of
cash in the fiscal 2001 period was principally attributable to the $10.9
million increase in accounts receivable associated with the growth of our
business and the colder winter.

   Cash used in investing activities was $12.4 million in 2000 and $13.1
million in 1999. These amounts included the use of $9.6 million in 2000 and
$11.4 million in 1999 for acquisitions in those periods. Additionally, we
expended $2.3 million in 2000 and $1.4 million in 1999, for additions of
property and equipment to accommodate our growing operations. During the six
months ended March 31, 2001, we used $60.2 million in investing activities,
including $56.3 million to acquire the Hoosier Propane Group and one other
retail propane distributorship. The remaining use of cash in investing
activities related to $1.9 million for maintenance and growth capital
expenditures and $2.0 million for deferred financing and acquisition costs
associated with the refinancing of our credit facilities in January 2001. We
have budgeted maintenance capital expenditures of approximately $1.3 million
for the fiscal year ending September 30, 2001. In addition, we expect to incur
growth capital expenditures of $2.5 million over the same period. We expect to
fund these capital expenditures through a combination of cash flows from
operating activities and borrowings under our revolving credit facility.

   Cash provided by financing activities was $13.9 million in fiscal 2000 and
$14.1 million in fiscal 1999. The $13.9 million of cash provided by financing
activities in fiscal 2000 was comprised of net proceeds from long-term debt
used to finance increased working capital, acquisitions and capital
expenditures of approximately $12.6 million and net proceeds from the issuance
of preferred interests of $1.9 million, partially offset by $0.5 million used
for the payment of distributions. In fiscal 1999, approximately $14.2 million
was provided by net proceeds from the issuance of long term debt, partially
offset by distributions of approximately $0.2 million. Cash provided by
financing activities of $59.7 million in the six months ended March 31, 2001
and $3.8 million in the same 1999 period was used to finance acquisitions,
working capital and capital expenditures during these periods.

   At March 31, 2001, Inergy Partners, LLC had goodwill of $32.1 million,
representing approximately 21% of total assets. This goodwill is primarily
attributable to our acquisition of the Hoosier Propane Group and Country Gas.
We expect recovery of the goodwill through future cash flows associated with
these acquisitions.

 Inergy, L.P. Liquidity

   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. At March 31, 2001, we had outstanding
commitments for capital expenditures of approximately $1.2 million. 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. Our predecessor has an obligation to pay quarterly
distributions on its outstanding preferred equity. Unpaid distributions on
preferred equity at March 31, 2001 amounted to approximately $0.9 million and
such distributions were declared and paid in April 2001. Distributions for the
period from April 1, 2001 through closing are expected to be $1.3 million, of
which approximately $1.0 million will be paid prior to closing, reducing the
amount of cash being contributed to us, with the balance of $0.3 million to be
paid after closing.

   At the closing of this offering, we will assume $5.0 million of subordinated
debt from Inergy Partners, LLC and all outstanding indebtedness under Inergy
Partners, LLC's existing bank credit facility. We plan to use the net proceeds
of this offering to repay all $5.0 million of subordinated indebtedness and
$24.4 million of indebtedness under the credit facility. We will refinance the
remaining indebtedness, expected to be approximately $50.0 million, with
borrowings under a new senior secured credit facility.

                                       56

   We expect to enter into a commitment letter for a new senior secured credit
facility, which we expect will permit us to borrow up to an aggregate principal
amount of $100.0 million. This credit facility will consist of an acquisition
facility with a borrowing limit of $70.0 million and a working capital facility
with a borrowing limit of $30.0 million. The acquisition facility will be used
to refinance existing indebtedness and provide financing for future
acquisitions.

   We believe that the proceeds of this offering, anticipated cash from
operations, and borrowings under our amended and restated credit facility 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 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 Credit Facility

   In connection with this offering, our operating company, Inergy Propane,
LLC, has received commitments for, and expects to enter into a $100 million
amended and restated senior secured credit facility with First Union National
Bank and other lenders in conjunction with the closing of this offering. The
credit facility has a term of three years and is guaranteed by us and each
subsidiary of Inergy Propane. We expect that at closing of the offering, Inergy
Propane will borrow approximately $49.0 million (approximately $4.0 million
under the working capital facility and $45.0 million under the acquisition
facility). Inergy Propane will use the net proceeds to repay amounts
outstanding under our predecessor's credit facility. The following is a summary
of the material terms of the credit facility.

   The credit facility consists of a working capital facility in the aggregate
principal amount of up to $30 million and an acquisition facility in the
aggregate principal amount of up to $70 million. The aggregate amount of
borrowings under the working capital facility in excess of $10 million,
including outstanding letters of credit, are subject to a borrowing base
requirement relating to accounts receivables and inventory. Up to $7 million of
the working capital facility may be used for the issuance of letters of credit.
Each of the working capital facility and 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
acquisition facility may be reborrowed.

   Commencing with the 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 will be 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. The credit facility permits Inergy
Propane to generally secure up to $70 million in privately placed indebtedness
with the same collateral on a pari passu basis. Any such indebtedness may not
be secured by any other collateral, must be incurred within the next 12 months
and may not require or permit any principal payments to be made prior to the
maturity of the credit facility. Inergy Propane is required to use 100% of the
net cash proceeds of any such indebtedness to reduce borrowings under the
credit facility.

   Indebtedness under the credit facility will bear 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 $250,000. Any such mandatory
prepayments are applied first to reduce borrowings under the acquisition
facility and then under the working capital facility.

                                       57

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

  .   incur other indebtedness (other than permitted debt, including $70
      million of privately placed debt secured on a pari passu basis);

  .   grant or incur liens;

  .   pay dividends or make distributions if a default or event of default
      has occurred and is continuing;

  .   permit operating lease obligations to exceed $3,000,000;

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

  .   make investments, loans and acquisitions;

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

  .   engage in any sale and leaseback transaction or another type of
      business or create any subsidiary;

  .   engage in transactions with affiliates;

  .   in the case of subsidiaries, to issue any capital stock;

  .   modify in any material respects the rights of holders of capital stock;
      and

  .   modify material contracts.

   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 2.25 to 1.0 during the calendar year ending December 31,
      2001 and 2.5 to 1.0 thereafter.

  .   the ratio of total funded debt (as defined in the credit facility) to
      consolidated EBITDA may not exceed 5.0 to 1.0 prior to June 30, 2002,
      and may not exceed 4.5 to 1.0 thereafter.

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

  .   nonpayment of principal, interest, fees or other amounts;

  .   violation of covenants;

  .   inaccuracy of representations and warranties;

  .   a default under other loan documents for the credit facility;

  .   a default under other material agreements and indebtedness of Inergy
      Propane, its subsidiaries or Inergy, L.P.;

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

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

  .   the actual or asserted invalidity of any loan documentation or security
      interest;

  .   a change of control of Inergy, L.P.;

  .   Inergy, L.P. ceases to own 100% of Inergy Propane;

  .   John Sherman ceases to actively participate in management and a
      replacement for John Sherman acceptable to the administrative agent, in
      its discretion, is not made within 30 days; and

  .   a condition or event occurs that could have a material adverse effect
      in the reasonable judgement of 2/3 of the lenders.

                                       58

Environmental Matters

   Environmental liabilities have not materially impacted our financial
condition, results of operations or liquidity since our inception. In June
2001, one of our transportation vehicles was involved in an accident involving
the release of ammonia. Following this release, we promptly notified the
appropriate regulatory authorities and cooperated with such authorities in
clean-up and remediation efforts. We expect all of the costs associated with
these clean-up and remediation efforts to be covered by insurance. We have not
received notice of any action which might be taken or any penalty or fees which
might be assessed by regulatory authorities relating to this spill. In the
event that any fines or penalties are assessed against us in connection with
this spill, we do not believe that such fines or penalties will have a material
adverse effect on our financial condition, results of operations or liquidity.

Recent Accounting Pronouncements

   In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.

   Adoption of SFAS No. 133 is required for fiscal years beginning after June
15, 2000. We have adopted SFAS No. 133 during the first quarter of fiscal 2001.
We believe that the effect of adopting SFAS 133 is limited to disclosures in
its financial statements since we currently utilize the mark-to-market method
of accounting.

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, 2001, we had floating rate obligations totaling approximately
$78.3 million for amounts borrowed under our revolving line of credit and long-
term debt. We have entered into interest rate hedging agreements in the form of
interest rate swaps that have provided us with a fixed rate of approximately
8.75% on $25.0 million of these obligations at March 31, 2001. We believe the
recorded amount of this fixed rate debt approximates its fair value. The
resulting floating rate obligations of $53.3 million 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, 2001 levels, our combined interest expense would increase by a total
of approximately $44,000 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.

   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

                                       59

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
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 balance
sheet, with the changes in fair value included in earnings.

 Notional Amounts and Terms

   The notional amounts and terms of these financial instruments at September
30, 1999 and 2000 include fixed price payor for 1 million and 1.5 million
barrels, respectively and fixed price receiver for 1.2 million and 1.5 million
barrels, respectively. The notional amounts and terms of these financial
instruments at March 31, 2001 include fixed price payor for 97,000 barrels and
fixed price receiver for 269,000 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, 1999 and 2000 was assets of $582,000 and $3.6
million, respectively and liabilities of $1.8 million and $2.3 million,
respectively related to propane. The fair value of the financial instruments
related to price risk management activities as of March 31, 2001 was assets of
$433,000 and liabilities of $93,000 related to propane. All intercompany
transactions have been appropriately eliminated.

   The income before interest, taxes and certain unallocated expenses arising
from trading and price risk management activities for the years ended September
30, 1999 and 2000 and for the six months ended March 31, 2001 was immaterial.

 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 and periodic monitoring procedures. The
counterparties associated with assets from price risk management activities as
of September 30, 1999 and 2000 and as of March 31, 2001 were energy marketers.

                                       60

                                    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 11 propane companies for an aggregate purchase price of
approximately $120 million, including 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, 2000, on a
pro forma combined basis we sold approximately 50 million gallons of propane to
retail customers and approximately 215 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 four regional brand names: Bradley Propane, Country Gas,
Hoosier Propane, and McCracken. We serve approximately 71,000 retail customers
in Georgia, Illinois, Indiana, Michigan, North Carolina, Ohio, Tennessee,
Virginia and Wisconsin from 30 customer service centers which have an aggregate
of approximately 1.8 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 ten additional
acquisitions in North Carolina, Tennessee, Illinois and Indiana. 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                       Kendalville, IN

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

                                       61

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 70-75% 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 11.2 billion gallons annually. This represents
approximately 5% of household energy consumption in the 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
37% 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.

                                       62

   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.

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 11 propane companies with an aggregate purchase price of
approximately $120 million, including five 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

                                       63

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

   Our Southeastern operations, which represented approximately 33% of our pro
forma retail volumes for the fiscal year ended September 30, 2000, 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,
2000, sales to residential customers represented approximately 70% of our
retail propane gallons sold and approximately 77% 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 90% 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, 2000, on a
pro forma combined basis we sold approximately 215 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 a
growing income stream 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

                                       64

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 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

   At closing, we will have a $70.0 million acquisition facility, approximately
$45.0 million of which will be drawn, and a $30.0 million 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 71,000 retail customers in
eight states from 30 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.

   We market our propane primarily in the Southeast and Midwest regions of the
United States through our customer service centers using four regional brand
names. The following chart shows our customer service centers by location.

   Bradley Propane                      Hoosier Propane
      Chattanooga, TN                      Albion, IN
      Cleveland, TN                        Barryton, MI
      Etowah, TN                           Blakeslee, OH

                                           Cecil, OH
   Country Gas                             Decatur, IN
      Crystal Lake, IL (Chicago area)      Greenfield, IN
      Wasco, IL                            Hillman, MI

                                           Marion, IN
   McCracken                               Mendon, MI
      Creedmoor, NC                        Monrovia, IN
      Fremont, NC                          Pendleton, IN
      Garner, NC                           Roanoke, IN
      Louisburg, NC                        Shipshewana, IN
      Oxford, NC                           South Whitley, IN
      Rolesville, NC                       Stanton, MI
      Spring Hope, NC                      Waterloo, IN
      Wake Forest, NC
      Wilson's Mills, NC

   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 29 satellite facilities that typically contain only large capacity storage
tanks. We have approximately 1.8 million gallons of above-ground propane
storage capacity at our customer service centers and satellite locations.

                                       65

   Retail deliveries of propane are usually made to customers by means of our
fleet of bobtail and rack trucks. At March 31, 2001, we operated 121 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 end users in
larger trucks known as transports, which have an average capacity of
approximately 10,000 gallons. At March 31, 2001 we operated 74 transports.
These customers include industrial customers, large-scale heating accounts and
large agricultural accounts.

   During the fiscal year ended September 30, 2000, on a pro forma basis,
approximately 18% and 82% of our propane sales by volume of gallons sold were
to retail and wholesale customers, respectively. Our retail sales were
comprised of approximately:

  . 70% to residential customers;

  . 20% to industrial and commercial customers; and

  . 10% to agricultural customers.

   Sales to residential customers during the fiscal year ended September 30,
2000, accounted for approximately 77% 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, 2000. No single wholesale customer
accounted for more than 5% of our pro forma revenue for the same period.

   Approximately 50% 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.
More than 90% 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 over 90% 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

                                       66

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 81% of total
volumes and 12% of our pro forma gross profit during the fiscal year ended
September 30, 2000.

   One of our distinguishing strengths is our procurement and distribution
expertise and capabilities. For the fiscal year ended September 30, 2000, on a
pro forma combined basis we sold approximately 215 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.

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 March 31, 2001, we
owned a fleet of 27 tractors, 74 transports, 121 bobtail and rack trucks and
106 other service and pick-up trucks. The average age of our trucks between
five and six 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 50 vendors at approximately 75 locations. During
the fiscal year ended September 30, 2000 on a pro forma basis, BP Amoco p.l.c.
accounted for approximately 24% and Exxon Mobil Corporation accounted for
approximately 10% of our volume of propane purchases. Substantially all 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 volume propane purchases
during the fiscal year ended September 30, 2000 on a pro forma basis. 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.

   We purchased approximately 90% of our propane supplies from domestic
suppliers during the fiscal year ended September 30, 2000 on a pro forma basis.
Our remaining purchases were from suppliers in Canada. During the fiscal year
ended September 30, 2000 on a pro forma basis, we purchased approximately 50%
of our propane supplies pursuant to contracts that have a term of one year; the
balance of our purchases were made on the spot market. The percentage of our
contract purchases varies from year to year. Supply contracts

                                       67

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 49 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. 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 29 of our 60 customer service centers, satellite storage facilities
and administrative offices and lease the balance. Our headquarters in Kansas
City, Missouri are leased. We operate bulk storage facilities at 49 locations
and own 25 of the storage locations. We lease underground storage facilities
with an aggregate capacity of approximately seven million gallons of propane at
six 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 March 31, 2001 we owned the
following:

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

  . approximately 50,000 stationary customer storage tanks with typical
    capacities of 100 to 1,200 gallons, and

  . approximately 30,000 portable propane cylinders with typical capacities
    of up to 35 gallons.

                                       68

   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" and "McCracken." 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 1, 2001, we had 316 full-time employees of which 19 were general
and administrative and 297 were operational employees. We employed 18 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. 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. To date, we have not received any notices in which we are
alleged to have violated or otherwise incurred 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.

                                       69

   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 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 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 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.

                                       70

                                   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 received its management rights in connection with transactions
described under "Organization of Inergy, L.P. Prior to and Immediately
Following the Offering." 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 intends to appoint two or more of its directors
to serve on a conflicts committee to review specific matters which the board of
directors believes may involve conflicts of interest. The conflicts committee
will determine if the resolution of the conflict of interest 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 will also serve on a compensation committee, which will
oversee compensation decisions for the officers of Inergy GP, LLC as well as
the compensation plans described below. In addition, three members of the board
of directors will serve on an audit committee which will review our external
financial reporting, recommend engagement of our independent auditors and
review 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 initial
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. All of our personnel are employees
of our managing general partner or its affiliates.

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

Directors, Executive Officers and Other Key Employees 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. We have also set forth in the table
below information with respect to certain of our key employees who are officers
of our managing general partner or one of its affiliates.

Name                     Age    Position with the Managing General Partner
- ----                     ---    ------------------------------------------
                       
Executive Officers and
 Directors
  John J. Sherman.......  46 President, Chief Executive Officer and Director
  Phillip L. Elbert.....  42 Executive Vice President--Operations and Director
  R. Brooks Sherman
   Jr...................  35 Vice President and Chief Financial Officer
  Carl A. Hughes........  47 Vice President--Business Development
  Michael D. Fox........  43 Vice President--Wholesale Marketing
  William C. Gautreaux..  37 Vice President--Supply
  Richard C. Green,
   Jr...................  46 Director
  Warren H. Gfeller.....  49 Director
  David J. Schulte......  40 Director

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Name                              Age Position with the Managing General Partner
- ----                              --- ------------------------------------------
                                
Key Employees
  Michael L. Hendren.............  45       President--McCracken Propane
  James Pratt....................  51       President--Bradley Propane
  Gary Komosa....................  48       President--Country Gas Co.
  Dan Manson.....................  50       President--Hoosier Propane
  Joseph Donnell.................  40       President--L&L Transportation

 Executive Officers and Directors

   John J. Sherman. Mr. Sherman has been the President, Chief Executive Officer
and a director of our predecessor since 1997. 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 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)
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 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 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 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.

                                       72

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

 Key Employees

   Michael L. Hendren. Mr. Hendren joined our predecessor in connection with
our acquisition of McCracken Propane in November 1996 and presently serves as
President of McCracken Propane. From 1988 until joining our predecessor, he had
overall responsibility for McCracken's retail propane operations.

   James Pratt. Mr. Pratt joined our predecessor in connection with our
acquisition of Bradley Propane in September 1999. He has over 26 years of
experience in the propane industry. From 1975 until joining our predecessor, he
had responsibility for the operations and growth of Bradley Propane and Zero
Butane, its predecessor company.

   Gary Komosa. Mr. Komosa joined our predecessor in connection with our
acquisition of Country Gas Company, Inc. in May 2000. He has over 22 years
experience in the propane industry. From 1979 until joining our predecessor, he
was employed by Country Gas, most recently serving as general manager
responsible for day-to-day operations since 1991.

   Dan Manson. Mr. Manson joined our predecessor in connection with our
acquisition of the Hoosier Propane Group in January 2001. From 1995 until
joining our predecessor, he served as an area manager of Hoosier's retail
operations prior to his promotion to general manager of the Hoosier Propane
Group's retail operations in 1998. Prior to his service with the Hoosier
Propane Group, Mr. Manson held positions of increasing responsibility in
operations management with various companies in the manufacturing segment. Mr.
Manson has over 25 years of management experience.

   Joseph Donnell. Mr. Donnell joined our predecessor in connection with our
acquisition of the Hoosier Propane Group in January 2001. From 1998 until
joining our predecessor, he served as general manager of Hoosier's trucking
operations, L & L Transportation. Prior to joining the Hoosier Propane Group,
Mr. Donnell served as general manager and vice president of finance and audit
for an industrial processing company in Indiana from 1994 to 1998. As a
certified public accountant, he has four years of public accounting experience
with Arthur Andersen and Coopers Lybrand.

Reimbursement of Expenses of the Managing General Partner

   The managing general partner will not receive any management fee or other
compensation for its management of Inergy, L.P. The managing general partner
and its affiliates will be reimbursed for expenses incurred on our behalf.
These expenses include the costs of employee, officer and director compensation
and

                                       73

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 or employees of the managing general partner who also serve as
directors will not receive additional compensation. In connection with this
offering, each non-employee director will receive 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 will receive cash
compensation of $18,000 per year for attending our regularly scheduled
quarterly board meetings. Each non-employee director will receive $1,000 for
each special meeting of the board of directors attended. Non-employee directors
will also receive $500 per compensation or audit committee attended and $1,000
per conflicts committee meeting attended. Each independent director will be
reimbursed for out-of-pocket expenses in connection with attending meetings of
the board of directors or committees. Each director will be fully indemnified
for actions associated with being a director to the extent permitted under
Delaware law.

Employment Agreements

   We expect to enter into employment agreements with the following individuals
prior to the consummation of this offering:

  .   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 summary of these employment agreements does not purport to be
complete and is qualified in its entirety by reference to the employment
agreements, which have been filed as exhibits to the registration statement of
which this prospectus is a part.

   The employment agreements of Mr. John Sherman, Mr. Elbert, Mr. Brooks
Sherman, Mr. Hughes, Mr. Fox and Mr. Gautreaux 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.............. $150,000 (to be increased to $200,000 upon
                                      the closing of this offering)
   .  R. Brooks Sherman Jr........... $125,000 (with an additional $50,000 bonus
                                      upon the closing of this offering)
   .  Carl A. Hughes................. $125,000
   .  Michael D. Fox................. $125,000
   .  William C. Gautreaux........... $125,000

   These employees will be reimbursed for all expenses in accordance with our
policies. They are also eligible for fringe benefits normally provided to other
members of our executive management and any other benefits agreed to by us.
Each of these employees will be eligible to participate in the Inergy Long Term
Incentive Plan.

   Each of these individuals (other than Mr. John Sherman) will be entitled to
performance bonuses ranging from $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.

                                       74

   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.

   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 Inergy Holdings or one of our affiliates
from the date of his employment agreement up to the date for determining
eligibility to receive such amounts.

   Each employment agreement contains confidentiality and noncompetition
provisions. Also, each of the employment agreements 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 us.

   With respect to Mr. John Sherman, Mr. Elbert, Mr. Brooks Sherman, Mr.
Hughes, Mr. Fox and Mr. Gautreaux, in the event that Inergy Holdings terminates
such person's employment without cause, Inergy Holdings 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 7.1%, subject to adjustment.

   Pursuant to the partnership agreement, we will reimburse Inergy Holdings for
all expenses of the employment of these individuals related to our activities.

Long-Term Incentive Plan

   The managing general partner has adopted the Inergy Long-Term Incentive Plan
for employees, consultants and directors of the 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 565,500 common
units (589,000 common units if the over-allotment option is exercised) 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 approximately 30,000 unit options expected to be granted under the
plan to non-executive officers in exchange for option grants in our
predecessor, 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. 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 phantom unit, or in
the discretion of the compensation committee, 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.

                                       75

   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 rights 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 as if the holder owned the
restricted 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.

   Unit Options. The long-term incentive plan currently permits the grant of
options covering common units. The compensation committee may, in the future,
determine to make grants under the plan to employees and directors containing
such terms as the committee shall determine. 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 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,
units options will expire after 10 years.

   At the closing of this offering, Mr. Elbert will receive options under such
plan for 55,500 common units and each of Mr. Brooks Sherman, Mr. Hughes, Mr.
Fox and Mr. Gautreaux will each receive options under such plan for 27,750
common units, respectively, at an exercise price equal to the initial public
offering price, which options are subject to forfeiture in certain cases if
such employee retires or is terminated for cause prior to the expiration of
five years from the date of this offering.

   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.

                                       76

Unit Purchase Plan

   Our managing general partner has adopted a unit purchase plan for employees
of the managing general partner and its affiliates. We have reserved 50,000
units for purchase under the unit purchase plan. 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. Pursuant to the unit purchase plan, the managing general
partner has agreed to pay the brokerage commissions, transfer taxes and other
transaction fees associated with a participant's purchase of common units in
market transactions and will reimburse to each participant an amount up to 10%
of the costs of such units. The maximum amount that a participant may be
reimbursed with respect to unit purchases in any calendar year may not exceed
10% of his or her base salary or wages for the year. Further, if any
participant sells or otherwise disposes of units for which he or she has been
reimbursed under this plan, the participant will thereafter be precluded from
participating in the unit purchase plan. The unit purchase plan is intended to
serve as a means for encouraging participants to invest in our common units.

                                       77

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table shows the beneficial ownership upon completion of this
offering of units of Inergy held by:

  . each person who then will beneficially own 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                Percentage
                                            Senior     of Senior      Junior     of Junior    Percentage
                            Common Units Subordinated Subordinated Subordinated Subordinated   of Total
                               to be     Units to be  Units to be  Units to be  Units to be  Units to be
    Name of Beneficial      Beneficially Beneficially Beneficially Beneficially Beneficially Beneficially
         Owner(1)              Owned        Owned        Owned        Owned        Owned        Owned
    ------------------      ------------ ------------ ------------ ------------ ------------ ------------
                                                                           
Inergy Holdings, LLC(2)...       --       1,260,249       38.0%      572,542        100%         33.4%

Country Partners,
 Inc.(3)..................       --         418,605       12.6%         --           --           7.6%
 4010 Highway 14 Crystal
 Lake, IL 60014

KCEP Ventures II,
 L.P.(4)..................       --         404,651       12.2%         --           --           7.4%
 253 West 47th Street
 Kansas City, MO 64112

Hoosier Propane Group(5)..       --         344,281       10.4%         --           --           6.3%
 P. O. Box 9
 Kendallville, IN 46755

Rocky Mountain Mezzanine
Fund(6)...................       --         247,442        7.5%         --           --           4.5%
 1125 17th Street
 Suite 2260
 Denver, CO 80202

John J. Sherman(7)........       --       1,260,249       38.0%      572,542        100%         33.4%

Phillip L. Elbert(5)......       --           --           --           --           --           --

R. Brooks Sherman Jr......       --           --           --           --           --           --

Carl A. Hughes(8).........       --           --           --           --           --           --

Michael D. Fox(8).........       --           --           --           --           --           --

William C. Gautreaux(8)...       --           --           --           --           --           --

Richard C. Green, Jr.(9)..       --          32,558        1.0%         --           --             *

Warren H. Gfeller(10).....       --           6,512          *          --           --             *

David J. Schulte(4).......       --         404,651       12.2%         --           --           7.4%

All directors and
 executive officers as a
 group (9 persons)........       --       1,703,970       51.4%      572,542        100%         41.5%

- --------
 * less than 1%
(1) Unless otherwise indicated, the address of each person listed above is:
    1101 Walnut, Suite 1500, Kansas City, Missouri 64141. All persons listed
    have sole voting power and investment power with respect to their units
    unless otherwise indicated.
(2) The 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. Owners of certain acquired
    propane businesses own a minority interest in Inergy Partners.
(3) Country Partners, Inc. (formerly Country Gas Company, Inc.) is controlled
    by Leonard Peterson and Arlene Peterson.

(4) KCEP Ventures II, LP ("KCEP II") owns 404,651 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

                                       78

   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 consists of Domex, Inc., Investors, Inc. and L&L
    Leasing, 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 shares 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) Messrs. Hughes, Fox and Gautreaux each hold an ownership interest in Inergy
    Holdings, as indicated in the following table.

(9) 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 32,558 senior subordinated units held by RNG Investments.

(10)   Mr. Gfeller in his capacity as managing member of Clayton-Hamilton, LLC
       may be deemed to beneficially own 6,512 units held by Clayton-Hamilton.

   The following table shows the beneficial ownership upon completion of this
offering 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, substantially all of our non-managing general partner, the
incentive distribution rights and, through a subsidiary, approximately 33% of
our outstanding units.

                                                          Inergy Holdings, LLC
   Name of Beneficial Owner(1)                             Percent of Class(2)
   ---------------------------                            --------------------
                                                       
   John J. Sherman.......................................         61.4%
   Phillip L. Elbert(3)..................................          --
   R. Brooks Sherman Jr..................................          --
   Carl A. Hughes........................................          7.7
   Michael D. Fox........................................          7.7
   William C. Gautreaux..................................          7.7
   Richard C. Green, Jr..................................          --
   Warren H. Gfeller.....................................          --
   David J. Schulte......................................          --
   All directors and executive officers as a group (9
    persons)(3)..........................................         84.3%

  --------
  (1) The address of each person listed above is 1101 Walnut, Suite 1500,
      Kansas City, Missouri 64141.
  (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 7.1% 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.

                                       79

                   ORGANIZATION OF INERGY, L.P. PRIOR TO AND
                       IMMEDIATELY FOLLOWING THE OFFERING

   Following this offering, our propane operations will be conducted through
our operating company, Inergy Propane, LLC, and its subsidiaries. The following
discussion summarizes the material transactions that will occur in connection
with this offering. These and other transactions are described in the
contribution agreement which is filed as an exhibit to the registration
statement of which this prospectus forms a part.

 Formative Transactions

  .  In March 2001, Inergy Holdings formed a Delaware limited liability
     company, Inergy GP, LLC, to serve as our managing general partner.

  .  We were formed in March 2001 by our predecessor and non-managing general
     partner, Inergy Partners, LLC, which contributed cash in exchange for a
     98% limited partner interest and a 2% general partner interest in us,
     and by Inergy GP, which received management rights pursuant to the
     partnership agreement, but did not make any capital contribution in
     connection with our formation.

  .  In May 2001, Inergy Partners, LLC formed a Delaware limited liability
     company, New Inergy Propane, LLC. Inergy Partners contributed cash in
     exchange for all of the interests in New Inergy Propane.

 Transactions to Occur at the Closing of this Offering

  .  Inergy Partners, LLC will transfer substantially all of its operating
     assets to our operating company as a capital contribution.

  .  Inergy Partners, LLC will contribute its interest in our operating
     company to us in exchange for a 2% non-managing general partner interest
     in us, 3,135,831 senior subordinated units, 480,659 junior subordinated
     units, the incentive distribution rights and the assumption by us of all
     liability for funded debt of Inergy Partners, LLC.

  .  Inergy Partners, LLC will contribute 1,082,713 senior subordinated units
     and 480,659 junior subordinated units to New Inergy Propane as an
     additional capital contribution.

  .   The former owners of two propane companies acquired by Inergy Partners,
      LLC will contribute their respective preferred interest in our
      operating company to New Inergy Propane in exchange for a similar
      preferred interest in New Inergy Propane.

  .  New Inergy Propane will contribute its preferred interest in our
     operating company to us in exchange for 177,536 senior subordinated
     units and 91,883 junior subordinated units.

  .  The public will contribute cash to us in exchange for 1,600,000 common
     units.

  .  We will contribute cash from the public and other sources to our
     operating company as a capital contribution.

  .   Our operating company will use cash contributed by us to repay
      indebtedness.

  .  Inergy Partners, LLC will distribute its incentive distribution rights
     to Inergy Holdings in redemption of a partial interest in Inergy
     Partners, LLC.

  .  Inergy Partners, LLC will distribute 2,053,118 senior subordinated units
     in connection with the mandatory exchange of preferred interests held by
     owners of certain acquired businesses and other investors pursuant to
     existing contractual commitments.

   The first chart below illustrates the current organization and ownership of
Inergy, L.P., Inergy Propane, LLC, Inergy Partners, LLC and Inergy GP, LLC. The
second chart illustrates the organization and ownership of Inergy, L.P. and
related entities immediately following this offering.

                                       80

             [INERGY, L.P. CURRENT ORGANIZATION CHART APPEARS HERE]

                                       81

  [INERGY, L.P. ORGANIZATION IMMEDIATELY FOLLOWING THE OFFERING CHART APPEARS
                                     HERE]

                                       82

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Party Transactions

   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 will automatically convert into 209,302 senior subordinated
units. As a result of favorable conversion terms, there is a beneficial
conversion feature associated with the KCEP II 1999 Investment. Please read
"Notes to Unaudited Pro Forma Consolidated Financial Statements." Further,
pursuant to the terms of the KCEP II 1999 Investment, KCEP II will have the
right to elect one member of the board of directors of our 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.

   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 will concurrently with the closing of
this offering exchange its preferred interest for 418,605 senior subordinated
units.

   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 Leonard and Arlene Peterson, the
controlling shareholders of Country Partners (formerly Country Gas). The leases
provide for aggregate monthly payments of $16,000, which are subject to
adjustment based on the consumer price index. During the fiscal year ended
September 30, 2000, we paid Country Enterprises an aggregate of $64,000 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.

   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. After
giving effect to the exercise of options that expire on March 31, 2001,KCEP II
will have 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 this offering, the
preferred interests held by these investors will automatically convert into
195,349, 32,558 and 6,512 senior subordinated units. As a result of favorable
conversion terms, there is a beneficial conversion feature associated with the
investment of the 2001 Investor Group. Please read "Notes to Unaudited Pro
Forma Consolidated Financial Statements."

   As a group, all members of the 2001 Investor Group have the right to elect
one director to our board of directors 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.

                                       83

  . 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.

  . All costs of any registration exclusive of any underwriting discounts or
    commissions will be borne by Company.

   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. It is expected that the subordinated promissory note will be repaid at
the closing of this offering. The preferred interest held by the Hoosier
Propane Group will concurrently with the closing of this offering be exchanged
for 344,281 senior subordinated units.

Distributions and Payments to the Managing General Partner and the Non-managing
General Partner

   The following table summarizes the distributions and payments to be made by
us to our managing general partner and its affiliates in connection with the
formation, ongoing operation and the liquidation of Inergy. These distributions
and payments were determined by and among affiliated entities and are not the
result of arm's length negotiations.

Formation Stage

The consideration received
by Inergy Holdings and its
affiliates for the
transfer of the
affiliates' interests in
the subsidiaries and a
capital contribution.......

                             1,260,249 senior subordinated units and 572,542
                             junior subordinated units; a 2% general partner
                             interest in Inergy; and the incentive
                             distribution rights.

Operational Stage

Distributions of available
cash to our managing
general partner and its
affiliates.................  Cash distributions will generally be made 98% to
                             the unitholders, including affiliates of the
                             managing general partner as holders of common
                             units and senior and junior subordinated units,
                             and 2% to the non-managing general partner. In
                             addition, if distributions exceed the target
                             levels in excess of the minimum quarterly
                             distribution, Inergy Holdings will be entitled to
                             receive increasing percentages of the
                             distributions, up to 48% of the distributions
                             above the highest target level.

                                       84

                             Assuming we have sufficient available cash to pay
                             the full minimum quarterly distribution on all of
                             our outstanding units for four quarters, our non-
                             managing general partner and its affiliates would
                             receive a distribution of approximately $268,697
                             on the 2% general partner interest and a
                             distribution of approximately $4,398,698 on their
                             senior and junior subordinated units.

Payments to our managing
general partner and its      Our managing general partner and its affiliates
affiliates.................  will not receive any management fee or other
                             compensation for the management of Inergy. Our
                             managing general partner and its affiliates will
                             be reimbursed, however, for direct and indirect
                             expenses incurred on our behalf. On a pro forma
                             basis for the fiscal year ended September 30,
                             2000, the expense reimbursement to the managing
                             general partner and its affiliates would have
                             been $20.1 million.

Withdrawal or removal of
our managing general         If our managing general partner withdraws in
partner....................  violation of the partnership agreement or is
                             removed for cause, a successor general partner
                             has the option to buy the general partner
                             interests and incentive distribution rights from
                             our non-managing general partner for a cash price
                             equal to fair market value. If our managing
                             general partner withdraws or is removed under any
                             other circumstances, our non-managing general
                             partner has the option to require the successor
                             general partner to buy its general partner
                             interests and incentive distribution rights for a
                             cash price equal to fair market value.

                             If either of these options is not exercised, the
                             general partner interests and incentive
                             distribution rights will automatically convert
                             into common units equal to the fair market value
                             of those interests. In addition, we will be
                             required to pay the departing general partner for
                             expense reimbursements.

Liquidation Stage

Liquidation................  Upon our liquidation, the partners, including our
                             non-managing general partner, will be entitled to
                             receive liquidating distributions according to
                             their particular capital account balances.

Rights of our Managing General Partner and our Non-managing General Partner

   Following this offering, a subsidiary of our non-managing general partner
will own an approximate 33% limited partner interest in us. Inergy Holdings
owns substantially all of our non-managing general partner and all of our
managing general partner. The managing general partner's ability to manage and
operate Inergy, L.P. coupled with Inergy Holdings' ownership of an aggregate
33% limited partner interest in us effectively gives Inergy Holding the right
to veto some actions of Inergy, L.P. and to control the management of Inergy.

Contribution Agreement

   Inergy, L.P., the managing general partner, the non-managing general partner
and some other parties will enter into a contribution agreement that will
effect the vesting of assets in, and the assumption of liabilities by, the
subsidiaries, and the application of the proceeds of this offering. This
agreement will not be the result of arm's-length negotiations, and we cannot
assure you that it, or that any of the transactions which it provides for, will
be effected on terms at least as favorable to the parties to this agreement as
they could have been obtained from unaffiliated third parties. All of the
transaction expenses incurred in connection with these transactions, including
the expenses associated with vesting assets into our subsidiaries, will be paid
from the proceeds of this offering.

                                       85

              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. A conflicts committee of
the board of directors of the managing general partner will, at the request of
the managing general partner, review 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,

  . issuance of additional units, and

                                       86

  . 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 will reimburse the managing general partner and its affiliates for
 expenses.

   We will 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 will 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 entered into after the sale of the common units
offered in this offering are to be on terms that are fair and reasonable to
Inergy, L.P.

   The managing general partner and its affiliates will 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

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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.

 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 will be
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     Fiduciary duties are generally considered to
standards..................  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

                                       88

                             jurisdictions may permit a limited partner to
                             institute legal action on behalf of himself and
                             all other similarly situated limited 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."

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                        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

   American Stock Transfer & Trust Company will serve 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,

  . grants powers of attorney to officers of our managing general partner and
    any liquidator of us as specified in the partnership agreement, and

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  . 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.

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                     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
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 will be 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 nine 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 managing
general partner in its sole discretion without the approval of any limited
partners. While any senior

                                       94

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 excluding any interests
issued in connection with the exercise of the underwriters' over-allotment
option, 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

                                      95

  . 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,

     (6) any amendment expressly permitted in the partnership agreement to be
  made by the managing general partner acting alone,

                                       96

     (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 treated 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.

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

                                       97

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 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

                                       98

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, a
subsidiary of our non-managing general partner will own approximately 33% 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 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 non-
managing general partners.

                                       99

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 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.

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.

                                      100

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 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

                                      101

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 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.

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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.

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,

                                      103

  . 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."

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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 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 these units
could have an adverse impact on the price of the common units or on any trading
market that may develop. Upon conversion, these units will be entitled to
registration rights as described under "Certain Relationships and Related
Transactions" or 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.

   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 180 days from the date of this prospectus. Please read
"Underwriting" for a description of these lock-up provisions.

                                      105

                               TAX CONSIDERATIONS

   This section is a summary of all 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,
expresses the opinion of Vinson & Elkins L.L.P., special counsel to the general
partners and us, insofar as it relates to matters of United States federal
income tax law and legal conclusions with respect to those matters. 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, we recommend that each prospective unitholder consult, and
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 counsel 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. 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 reduce the market value of the common units. In addition, the costs
of any contest with the IRS will be borne directly or indirectly by the
unitholders and our general partners. Furthermore, the tax treatment of us, or
of an investment in us, may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may or may not be
retroactively applied.

   For the reasons described below, counsel has not rendered an opinion with
respect to the following federal income tax issues:

     (1) 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 to him is in excess of his adjusted basis in his partnership
interest.

                                      106

   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 counsel that, based upon the
Internal Revenue Code, its regulations, published revenue rulings and court
decisions and the representations described below, we will be treated as a
partnership for federal income tax purposes and the operating company will be
disregarded as an entity separate from us for federal income tax purposes.

   In rendering its opinion, counsel 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 we nor the operating company will elect to be treated as a
  corporation, and

     (b) For each taxable year, more than 90% of our gross income will be
  income from sources that our counsel has opined, or will opine, is
  "qualifying income" within the meaning of Section 7704(d) of the Internal
  Revenue Code.

   Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with
respect to publicly-traded partnerships of which 90% or more of the gross
income for every taxable year consists of "qualifying income." 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.

   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 us 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 of the value of the units.

   The discussion below is based on the conclusion that we will be treated as a
partnership for federal income tax purposes.

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:

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     (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 become entitled to
direct the exercise of attendant rights, but who fail to execute and deliver
transfer applications, counsel's opinion does not extend to these persons.
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
should 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, distributions by us 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
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. 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. 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."

   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 to him. 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."

   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.

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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 June 30, 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. We anticipate that after the
taxable year ending June 30, 2004, the ratio of allocable taxable income to
cash distributions to the unitholders will increase. 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, we cannot assure you that these estimates
will prove to be correct. 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, generally based on his share of profits, of our nonrecourse
liabilities. 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 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

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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." The IRS has announced that Treasury
Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the
limitations on the deductibility of investment interest. In addition, the
unitholder's share of our portfolio income will be treated as investment
income. Investment interest expense includes:

  . interest on indebtedness properly allocable to property held for
    investment,

  . 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.

   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.

   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

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affiliates, referred to in this discussion as "Contributed Property." The
effect of these allocations to a unitholder purchasing common units in this
offering will be essentially the same as if the tax basis of our assets were
equal to their fair market value at the time of this offering. In addition,
recapture income will be allocated to the extent possible to the unitholder who
was allocated the deduction giving rise to that 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 rights of all the
unitholders to distributions of capital upon liquidation.

   Counsel 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 in us 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.

   Counsel has not rendered an opinion regarding the treatment of a unitholder
where he loans common units to a short seller to cover a short sale of common
units; therefore, unitholders who want to assure their status as partners in us
for tax purposes and avoid the risk of gain recognition from a loan to a short
seller 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 should consult with
their tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.

   Tax Rates. In general the highest effective United States federal income tax
rate for individuals after July 1, 2001 is 38.6% and the maximum United States
federal income tax rate for net capital gains of an individual for 2001 is 20%
if the asset disposed of was held for more than 12 months at the time of
disposition.

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   Section 754 Election. We will make 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 when he buys units in
the market. 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 will adopt), 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 1.167(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 counsel 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 1.167(c)-1(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
accelerated method than our 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 will 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

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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 will be 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 and its affiliates.
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 our
termination. 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 a syndication cost.

   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 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 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.

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 by
him plus his

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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.

   Our distributions 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 received
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 based upon relative fair market values. Although the
ruling is unclear as to how the holding period of these interests is determined
once they are combined, recently finalized regulations 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, according to the regulations, may designate specific
common units sold for purposes of determining the holding period of units
transferred. 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 should consult his tax advisor as to the possible consequences of
this ruling and application of the final 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 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

                                      114

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, counsel is unable to opine on the validity of this
method of allocating income and deductions between unitholders. If this method
is not allowed, our taxable income or losses might be reallocated among the
unitholders. We are authorized to revise our method of allocation between
unitholders to conform to a permitted method.

   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. Additionally, a transferor and a transferee of a unit will be required
to furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that describe the amount
of the consideration received for the unit that is allocated to our goodwill or
going concern value. Failure to satisfy these reporting obligations 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 our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted 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 1.167(c)-1(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 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 that property, or treat
that portion as nonamortizable, to the extent attributable to property the
common basis of which is not amortizable, consistent with the regulations under
Section 743, even though that position may be inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6) which is not expected to directly apply to
a material portion of our assets. Please read "--Tax Consequences of Unit
Ownership--

                                      115

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 will 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 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. And, 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 or applicable substitute form
in order to obtain credit for these withholding taxes.

   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 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

                                      116

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-1, 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 his 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, regulations or administrative interpretations of
the IRS. Neither we nor counsel 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 his 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 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,

     (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,

                                      117

     (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 will register 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.

   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.

   We will supply our tax shelter registration number to you when one has been
assigned to us. 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 each failure.
Any penalties discussed are not deductible for federal income tax purposes.

   Accuracy-related Penalties. An additional tax equal to 20% of the amount of
any portion of an underpayment of tax 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.

   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.

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   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 or in which you are a
resident. Although an analysis of those various taxes is not presented here,
each prospective unitholder should 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: Georgia, Illinois, Indiana,
Michigan, Missouri, North Carolina, Ohio, Tennessee and Wisconsin. Each of
these states currently imposes a personal income tax. Although you may not be
required to file a return and pay taxes in some of those states because your
income from that state falls below the filing and payment requirement, you will
be required to file state income tax returns and to pay state income taxes in
many of these states in which we do business or own property and may be subject
to penalties for failure to comply with those requirements. In some states, tax
losses may not produce a tax benefit in the year incurred 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 United States federal tax returns, that may be required
of him. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in us.

                                      119

              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 prohibits
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 fiduciaries 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.

                                      120

                                  UNDERWRITING

   Subject to the terms and conditions of the underwriting agreement between us
and the underwriters, the underwriters have agreed severally to purchase from
us 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......................................
     First Union Securities, Inc...................................
     Raymond James & Associates, Inc...............................
                                                                     ---------
       Total.......................................................  1,600,000
                                                                     =========

   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 $      per unit. The underwriters may allow, and such dealers may re-allow,
a concession not in excess of $      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 240,000 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, the underwriters 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 180 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 180-day
period. 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.

   Prior to this offering, there has been no public market for the common
units. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price will include the following:

  . the information set forth in this prospectus and otherwise available to
    the underwriters,

  . market conditions for initial public offerings,

  . the history and the prospects for the industry in which we compete,

                                      121

  . the ability of our management,

  . our prospects for future earnings,

  . the present state of our development and our current financial condition,

  . the general condition of the securities markets at the time of this
    offering, and

  . the recent market prices of, and the demand for, publicly traded common
    units of generally comparable entities.

   The following table summarizes the discounts that Inergy, L.P. will pay to
the underwriters in the 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...........................................    $            $
   Total..............................................    $            $

   We expect to incur expenses of approximately $2,600,000 in connection with
this offering.

   We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.

   Until the distribution of the common units is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the common units. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize,
maintain or otherwise affect the price of the common units.

   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 an naked short
    position. In a covered short position, the number of units over-alloted
    by the underwriters is not greater than the number of units they 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 representatives 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
markert price of the common units or preventing or retarding a

                                      122

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.

   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.

   At the request of Inergy, L.P., the underwriters are reserving up to 80,000
common units for sale at the initial public offering price to directors,
officers, employees and friends through a directed share program. The number of
common units available for sale to the general public in the public offering
will be reduced to the extent these persons purchase these reserved units. Any
common units not so purchased will be offered by the underwriters to the
general public on the same basis as the other common units offered by this
prospectus.

   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.

   No sales to accounts of which the underwriter exercises discretionary
authority may be made without the prior written approval of the customer.

   A.G. Edwards & Sons, Inc. has provided financial advisory services to Inergy
Partners, L.L.C. for which it will receive customary compensation.

                          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 Partners, LLC at September 30, 1999 and 2000,
and for each of the two years in the period ended September 30, 2000, 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,
the financial statements of Country Gas Company, Inc. at May 31, 1999 and 2000,
and for each of the three years in the period ended May 31, 2000, the balance
sheet of Inergy, L.P. at March 7, 2001 and the balance sheet of Inergy GP, LLC
at March 2, 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.

   Batchelor, Tillery & Roberts, LLP, independent auditors, have audited our
consolidated financial statements for the year ended September 30, 1998, as set
forth in their report. We have included these financial statements in the
prospectus and elsewhere in the registration statement in reliance on
Batchelor, Tillery & Roberts, LLP's report, given on their authority as experts
in accounting and auditing.

                                      123

                      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, and at
the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. 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 1-800-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 intend to furnish our unitholders 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 of our fiscal years.

                           FORWARD-LOOKING STATEMENTS

   Some of the information in this prospectus may contain 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. The risk factors and other factors
noted throughout this prospectus could cause our actual results to differ
materially from those contained in any forward-looking statement.

                                      124

                         INDEX TO FINANCIAL STATEMENTS

                                                                           Page
                                                                           ----
                                                                        
Inergy Partners, LLC Consolidated Financial Statements:
  Report of Independent Auditors..........................................  F-2
  Report of Independent Auditors..........................................  F-3
  Consolidated Balance Sheets as of September 30, 1999 and 2000 and March
   31, 2001 (unaudited)...................................................  F-4
  Consolidated Statements of Operations for the years ended September 30,
   1998, 1999 and 2000 and the six months ended March 31, 2000 and 2001
   (unaudited)............................................................  F-5
  Consolidated Statements of Redeemable Preferred Members' Interest and
   Members' Equity for the years ended September 30, 1998, 1999 and 2000
   and the six months ended March 31, 2001 (unaudited)....................  F-6
  Consolidated Statements of Cash Flows for the years ended September 30,
   1998, 1999 and 2000 and the six months ended March 31, 2000 and 2001
   (unaudited)............................................................  F-7
  Notes to Consolidated Financial Statements..............................  F-9

Hoosier Propane Group Combined Financial Statements:
  Report of Independent Auditors.......................................... F-22
  Combined Balance Sheets as of September 30, 1999 and 2000 and December
   31, 2000............................................................... F-23
  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-24
  Combined Statements of Stockholders' Equity for the years ended
   September 30, 1998, 1999 and 2000 and the three months ended December
   31, 2000............................................................... F-25
  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-26
  Notes to Combined Financial Statements.................................. F-27

Country Gas Company, Inc. Financial Statements:
  Report of Independent Auditors.......................................... F-34
  Balance Sheets as of May 31, 1999 and 2000.............................. F-35
  Statements of Income for the years ended May 31, 1998, 1999 and 2000.... F-36
  Statements of Stockholders' Equity for the years ended May 31, 1998,
   1999 and 2000.......................................................... F-37
  Statements of Cash Flows for the years ended May 31, 1998, 1999 and
   2000................................................................... F-38
  Notes to Financial Statements........................................... F-39

Inergy, L.P. Financial Statements:
  Report of Independent Auditors.......................................... F-42
  Balance Sheet as of March 7, 2001....................................... F-43
  Note to Balance Sheet................................................... F-44

Inergy GP, LLC Financial Statements:
  Report of Independent Auditors.......................................... F-45
  Balance Sheet as of March 2, 2001....................................... F-46
  Note to Balance Sheet................................................... F-47

                                      F-1

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Members
Inergy Partners, LLC and Subsidiaries

   We have audited the accompanying consolidated balance sheets of Inergy
Partners, LLC (a subsidiary of Inergy Holdings, LLC) and subsidiaries (the
"Company") as of September 30, 1999 and 2000, and the related consolidated
statements of operations, redeemable preferred members' interest and members'
equity, and cash flows for the years then ended. 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 consolidated financial position of Inergy
Partners, LLC and subsidiaries at September 30, 1999 and 2000, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
December 6, 2000, except for
 Notes 4 and 12, as to which
 the date is January 12, 2001,
 and Note 13, as to which the
 date is March 7, 2001

                                      F-2

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Members
Inergy Partners, LLC and Subsidiary

   We have audited the accompanying consolidated statements of operations,
redeemable preferred members' interest and members' equity and cash flows of
Inergy Partners, LLC and subsidiary (the "Company") for the year ended
September 30, 1998. 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 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 financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of its operations, changes
in its members' equity and its cash flows for the year ended September 30, 1998
in conformity with accounting principles generally accepted in the United
States.

                                          /s/ Batchelor, Tillery & Roberts,
                                           LLP

Raleigh, North Carolina
November 20, 1998

                                      F-3

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                                   September 30,
                                                  ----------------   March 31,
                                                   1999     2000       2001
                                                  -------  -------  -----------
                                                                    (Unaudited)
                                                           
                 ASSETS (Note 4)
Current assets:
  Cash........................................... $   152  $ 1,373   $  3,528
  Accounts receivable, less allowance for
   doubtful accounts of $86 and $225 at September
   30, 1999 and 2000, respectively and $988 at
   March 31, 2001................................   5,075   12,602     22,660
  Inventories....................................   5,025    3,630      3,617
  Prepaid expenses and other current assets......     556    1,014      1,068
  Assets from price risk management activities...     582    3,580        433
                                                  -------  -------   --------
Total current assets.............................  11,390   22,199     31,306
Property, plant and equipment, at cost:
  Land and buildings.............................     562      740      4,487
  Office furniture and equipment.................     546      808        938
  Vehicles.......................................   2,131    4,138     10,086
  Tanks and plant equipment......................  20,959   30,283     57,616
                                                  -------  -------   --------
                                                   24,198   35,969     73,127
  Less accumulated depreciation..................  (1,092)  (2,533)    (3,829)
                                                  -------  -------   --------
Net property, plant and equipment................  23,106   33,436     69,298
Intangible assets (Note 2):
  Organization costs.............................      70      --         --
  Covenants not to compete.......................   3,110    3,228      3,763
  Deferred financing costs.......................     308      333      1,989
  Deferred acquisition costs.....................     --       460        111
  Customer accounts..............................     --     3,500     14,000
  Goodwill.......................................   1,286    6,880     32,063
                                                  -------  -------   --------
                                                    4,774   14,401     51,926
  Less accumulated amortization..................    (387)  (1,246)    (2,294)
                                                  -------  -------   --------
Net intangible assets............................   4,387   13,155     49,632
Other............................................      13      134        137
                                                  -------  -------   --------
Total assets..................................... $38,896  $68,924   $150,373
                                                  =======  =======   ========

         LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
  Accounts payable............................... $ 5,562  $11,502   $ 10,797
  Accrued expenses...............................   1,666    3,715      4,616
  Customer deposits..............................   1,332    1,676        761
  Liabilities from price risk management
   activities....................................   1,788    2,294         93
  Current portion of long-term debt (Note 4).....     732      605      5,631
                                                  -------  -------   --------
Total current liabilities........................  11,080   19,792     21,898
Deferred income taxes (Note 6)...................     942      942        942
Long-term debt, less current portion (Note 4)....  21,605   34,322     78,767
Redeemable preferred members' interest (Notes 2
 and 7)..........................................     --    10,896     34,313
Members' equity (Notes 2, 4 and 7):
  Class A preferred interest.....................   4,893    4,892      4,851
  Common interest................................     690   (1,686)     9,797
  Deferred compensation..........................    (314)    (234)      (195)
                                                  -------  -------   --------
Total members' equity............................   5,269    2,972     14,453
                                                  -------  -------   --------
Total liabilities and members' equity............ $38,896  $68,924   $150,373
                                                  =======  =======   ========

                            See accompanying notes.

                                      F-4

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)

                                    Year Ended September     Six Months Ended
                                            30,                 March 31,
                                   ------------------------  -----------------
                                    1998    1999     2000     2000      2001
                                   ------  -------  -------  -------  --------
                                                               (Unaudited)
                                                       
Revenue:
  Propane......................... $4,794  $16,227  $89,042  $47,857  $165,209
  Other...........................  2,713    2,984    4,553    2,600     5,230
                                   ------  -------  -------  -------  --------
                                    7,507   19,211   93,595   50,457   170,439
Cost of product sold..............  4,215   13,754   81,636   42,054   141,425
                                   ------  -------  -------  -------  --------
Gross profit......................  3,292    5,457   11,959    8,403    29,014
Operating and administrative
 expenses.........................  2,424    4,119    8,990    4,093    11,464
Depreciation and amortization.....    394      690    2,286      887     2,748
                                   ------  -------  -------  -------  --------
Operating income..................    474      648      683    3,423    14,802
Other income (expense):
  Interest expense................   (569)    (962)  (2,740)  (1,157)   (2,860)
  Gain on sale of property, plant
   and equipment..................    --       101      --       --        --
  Finance charges.................     59       79      176       70       158
  Other...........................      1        5       59       25        87
                                   ------  -------  -------  -------  --------
Income (loss) before income
 taxes............................    (35)    (129)  (1,822)   2,361    12,187
Provision for income taxes........    --        56        7      --        --
                                   ------  -------  -------  -------  --------
Net income (loss)................. $  (35) $  (185) $(1,829) $ 2,361  $ 12,187
                                   ======  =======  =======  =======  ========

                            See accompanying notes.

                                      F-5

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

            CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED MEMBERS'
                          INTEREST AND MEMBERS' EQUITY
                                 (In thousands)

                                                    Members' Equity
                                        -----------------------------------------
                             Redeemable
                             Preferred   Class A                          Total
                              Members'  Preferred  Common     Deferred   Members'
                              Interest  Interest  Interest  Compensation  Equity
                             ---------- --------- --------  ------------ --------
                                                          
Balance at September 30,
 1997......................       --     $  --    $ 1,209      $ --      $ 1,209
  Members' contributions...       --        --        220        --          220
  Members' distributions...       --        --       (196)       --         (196)
  Capital restructuring....       --      2,345      (540)      (392)      1,413
  Net loss.................       --        --        (35)       --          (35)
                              -------    ------   -------      -----     -------
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 (Note 7)..     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
  Redeemable preferred
   interests issued in
   acquisition
   (unaudited).............     7,402       --        --         --          --
  Redeemable preferred
   interests issued for
   cash, net of offering
   costs of $485
   (unaudited).............    16,015       --        --         --          --
  Redemption of preferred
   interest (unaudited)....       --        (41)        8        --          (33)
  Amortization of deferred
   compensation
   (unaudited).............       --        --        --          39          39
  Members' distributions
   (unaudited).............       --        --       (712)       --         (712)
  Net income (unaudited)...       --        --     12,187        --       12,187
                              -------    ------   -------      -----     -------
Balance at March 31, 2001..   $34,313    $4,851   $ 9,797      $(195)    $14,453
                              =======    ======   =======      =====     =======

                            See accompanying notes.

                                      F-6

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                   Year Ended September        Six months
                                            30,              ended March 31,
                                  -------------------------  ----------------
                                  1998     1999      2000     2000     2001
                                  -----  --------  --------  -------  -------
                                                               (Unaudited)
                                                       
Operating activities
Net income (loss)................ $ (35) $   (185) $ (1,829) $ 2,361  $12,187
Adjustments to reconcile net
 income (loss) to net cash
 provided by (used in) operating
 activities:
  Provision for doubtful
   accounts......................    28        77       139      --       812
  Depreciation...................   322       440     1,427      585    1,368
  Amortization...................    72       250       859      302    1,380
  Gain on disposal of property,
   plant and equipment...........   --       (101)      --       --       --
  Deferred income taxes..........   --          8       --       --       --
  Net liabilities from price risk
   management activities.........   --      1,206    (2,492)  (1,549)     946
  Deferred compensation..........   --         78        79       39       39
  Changes in operating assets and
   liabilities, net of effects
   from acquisition of retail
   propane companies:
    Accounts receivable..........    40    (3,451)   (5,842)  (2,434) (10,869)
    Inventories..................  (166)   (3,812)    1,660    2,064    2,922
    Prepaid expenses and other
     current assets..............    43       (86)     (388)      30       22
    Other assets.................   --        (13)     (121)      (1)      (3)
    Accounts payable.............  (246)    2,642     3,836     (436)  (3,596)
    Accrued expenses.............   194       913     2,049     (856)     807
    Customer deposits............   110     1,187       314     (944)  (3,421)
                                  -----  --------  --------  -------  -------
Net cash provided by (used in)
 operating activities............   362      (847)     (309)    (839)   2,594

Investing activities
Acquisition of retail propane
 companies.......................   --    (11,430)   (9,600)  (1,170) (56,263)
Purchases of property, plant and
 equipment.......................  (750)   (1,354)   (2,275)  (1,517)  (1,861)
Deferred financing and
 acquisition costs incurred......   (21)     (400)     (486)     (69)  (1,989)
Proceeds from the sale of
 property, plant and equipment...    44       127       --       --       --
Other............................   --        --        (16)     --       (66)
                                  -----  --------  --------  -------  -------
Net cash used in investing
 activities......................  (727)  (13,057)  (12,377)  (2,756) (60,179)

                                      F-7

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                 (In thousands)

                                                             Six Months Ended
                                Year Ended September 30,         March 31,
                                ---------------------------  ------------------
                                 1998      1999      2000      2000      2001
                                -------  --------  --------  --------  --------
                                                                (Unaudited)
                                                        
Financing activities
Proceeds from issuance of
 long-term debt...............  $ 1,374  $ 25,373  $ 35,787  $ 16,161  $106,675
Principal payments on long-
 term debt and noncompete
 obligations..................   (1,062)  (11,137)  (23,229)  (14,086)  (62,205)
Net proceeds from issuance of
 redeemable preferred members'
 interest.....................      --        --      1,896     1,896    16,015
Net proceeds from issuance of
 common interest..............      220       --        --        --        --
Distributions to members......     (196)     (180)     (547)     (175)     (745)
                                -------  --------  --------  --------  --------
Net cash provided by financing
 activities...................      336    14,056    13,907     3,796    59,740
                                -------  --------  --------  --------  --------
Net increase (decrease) in
 cash.........................      (29)      152     1,221       201     2,155
Cash at beginning of period...       29       --        152       152     1,373
                                -------  --------  --------  --------  --------
Cash at end of period.........  $   --   $    152  $  1,373  $    353  $  3,528
                                =======  ========  ========  ========  ========
Supplemental disclosure of
 cash flow information
Cash paid during the period
 for interest.................  $   584  $    823  $  2,538  $  1,029  $  1,929
                                =======  ========  ========  ========  ========
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 and
 preferred interests..........  $   --   $  2,945  $  9,000  $    --   $  7,402
                                =======  ========  ========  ========  ========
Acquisitions of retail propane
 companies through the
 issuance of subordinated
 debt.........................  $   --   $    --   $    --   $    --   $  5,000
                                =======  ========  ========  ========  ========

                            See accompanying notes.

                                      F-8

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Information pertaining to the six months ended
                     March 31, 2000 and 2001 is unaudited)
                                 (In thousands)

1. Accounting Policies

 Principles of Consolidation

   The consolidated financial statements include the accounts of Inergy
Partners, LLC (the "Company") and its wholly-owned subsidiaries, Inergy Propane
Company, LLC ("Inergy Propane"), Wilson Oil Company of Johnston County, Inc.
("Wilson") and Rolesville Gas & Oil Company, Inc. ("Rolesville"). All
significant intercompany accounts and transactions have been eliminated. The
Company is a 98.5%-owned subsidiary of Inergy Holdings, LLC (Holdings), and all
operations of Holdings are conducted through the Company and its subsidiaries.

 Nature of Operations

   The Company was organized as a Delaware limited liability company on
November 8, 1996. The Company terminates December 31, 2026 unless extended by
agreement of its members. The Company 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.

   The business and affairs of the Company are conducted by the voting members
of the Company holding the majority of the common member interests. Under the
terms of the operating agreement, neither the members nor the managers of the
Company are liable for any debt, obligations or liabilities of the Company,
other than certain guarantees described in Note 4. In addition, the liability
of each member to third parties is limited to the amount of the member's
capital contribution. The Company has two classes of members' interests--common
and Class A preferred.

 Capital Restructuring

   Effective September 30, 1998, the Company, Holdings and Inergy Propane (then
known as McCracken Oil & Propane Company) completed a capital restructuring.
This transaction involved the simultaneous purchase of the employee-owned
minority nonvoting interest in McCracken and the purchase of the controlling
member's voting interest in the Company (then known as Mid-Atlantic Energy,
LLC) through an issuance of predominantly Class A 9% preferred member
interests, and to a lesser extent, common interests in the Company and
Holdings.

   The purchase of the non-voting, employee-owned minority interest in
McCracken through the issuance of a 1.5% non-voting common interest in Mid-
Atlantic Energy, LLC (Mid-Atlantic) and a $784,000 (33.37%) preferred interest
(paying a 9% dividend) in Mid-Atlantic, was accounted for using the purchase
method of accounting. Pursuant to the terms this portion of the restructuring,
50% of the preferred interests issued in this purchase of minority interest
vested over the employees' next five years of employment. As such, $392,000 was
recorded as deferred compensation in the accompanying consolidated balance
sheet and is being amortized to compensation expense over the five-year vesting
period.

   The purchase of the controlling member's voting interest in Mid-Atlantic
occurred in two immediately consecutive transactions. First, the controlling
member exchanged approximately 80% of his voting interest in Mid-Atlantic for a
$1,565,000 (66.63%) preferred interest (paying a 9% dividend) and an 8% common
interest in Mid-Atlantic. This purchase by Mid-Atlantic of a member's interest
was accounted for similar to a treasury stock purchase.

                                      F-9

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   Upon completion of the above transactions, Holdings, then known as
Integrated Energy Holdings, immediately purchased the remaining 8% common
interest in Mid-Atlantic discussed above through the issuance of an 8% common
interest in Holdings. This transaction was accounted for as a purchase of a
minority interest in Mid-Atlantic by Holdings, whereby purchase accounting was
applied.

   These transactions resulted in Holdings owning 98.5% of the common interest
(and 100% of the voting interest) of the Company, which owned 100% of
McCracken. The basis of Holding's investment in Mid-Atlantic was then pushed
down to its 98.5% owned subsidiary, Mid-Atlantic. The result of the above
transactions was an excess of the fair value of consideration issued over
historical cost of Mid-Atlantic's net assets, amounting to $1,413. This amount,
which is reflected as a capital restructuring line in the consolidated
statements of members' equity for the year ended September 30, 1998, was
principally allocated to tanks and plant equipment, the primary operating
assets of the Company.

 Credit Concentrations

   The Company is both a retail and wholesale supplier of propane gas. The
Company 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 the Company's consolidated financial statements and
have consistently been within management's expectations.

 Unaudited Financial Information

   The financial information as of March 31, 2001 and for the six-month periods
ended March 31, 2000 and 2001 contained herein is unaudited. The Company
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 Company 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, 2001 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 $1,052 and $39 at September 30,
1999 and 2000, respectively, and $(73) and $(68) at March 31, 2000 and 2001,
respectively.

 Accounting for Price Risk Management

   The Company, through its wholesale operations, offers price risk management
services to its customers and, in addition, trades for its own account.
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,

                                      F-10

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                    (a subsidiary of Inergy Holdings, LLC)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 as cost of sales. 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 the Company'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 statement of cash flows. See
Note 3 for further discussion of the Company's price risk management
activities.

 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.

 Shipping and Handling Costs

   Shipping and handling costs are recorded as part of cost of product sold at
the time product is shipped or delivered to the customer.

 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................................................... 15-18
      Goodwill............................................................    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

                                     F-11

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

acquisitions by the Company and are discussed in Note 2. In accordance with
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
the Company expensed $58 of unamortized organization costs during the year
ended September 30, 2000.

   Deferred acquisition costs represent costs incurred to date on acquisitions
that the Company is actively pursuing, most of which relate to the acquisition
completed subsequent to year end, as discussed in Note 12.

   The Company 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.

 Income Taxes

   The members of the Company report their respective member interest in the
Company's income and deductions on their personal income tax returns;
therefore, federal and state income taxes have not been provided for in the
Company's consolidated financial statements.

   Two of the Company's subsidiaries, Wilson and Rolesville, are C corporations
and account for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." The liability method provides that deferred tax assets and
liabilities are recorded based on the differences between financial reporting
and tax bases of assets and liabilities as measured by the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.

 Customer Deposits

   Customer deposits primarily represent cash received by the Company 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 the Company for long-term debt with similar terms and maturities,
as evidenced by the refinancing completed in January 2001, as discussed in Note
4, the aggregate fair value of the Company's long-term debt approximates the
aggregate carrying amount as of September 30, 1999 and 2000 and March 31, 2001.

 Recently Issued Accounting Pronouncements

   In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.

   Adoption of SFAS No. 133 is required for fiscal years beginning after June
15, 2000. The Company will be required to adopt SFAS No. 133 during the first
quarter of fiscal 2001. The Company believes that the effect of adopting SFAS
133 will be limited to disclosures in its financial statements since the
Company utilizes the mark-to-market method of accounting.

                                      F-12

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 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
resource 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.

2. Acquisitions

   During fiscal 1999, Inergy Propane acquired substantially all of the assets
of Ernie Lee Oil & LP Gas, LLC (December 1998), Langston Gas & Oil Company,
Inc. (May 1999), Castleberry's, Inc. (July 1999) and Bradley Propane, Inc.
(September 1999). In addition, the Company acquired 100% of the outstanding
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. The preferred interests issued in these
acquisitions represent 16.03% of the Company's total preferred members'
interest as of September 30, 2000. 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 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 the Company's consolidated results of operations
from the dates of acquisition.

   During fiscal 2000, Inergy Propane acquired substantially all of the assets
of Butane-Propane Gas Company of Tenn., Inc. of Tennessee (November 1999), and
the Company acquired 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 fiscal 2000 acquisitions consisted of cash
payments of $9,600 funded by the issuance of long-term debt, redeemable Class A
preferred interest 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 the Company's consolidated results of
operations from the dates of acquisition.

                                      F-13

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   During November 2000, the Company acquired substantially all the assets of
Bear-Man Propane for $520 in cash.

   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 1998, the beginning of the 2000 and 1999 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 1998 or that will be obtained
in the future. The pro forma data do not give effect to acquisitions completed
subsequent to September 30, 2000.

                                                                  Year Ended
                                                                September 30,
                                                               ----------------
                                                                1999     2000
                                                               ------- --------
                                                                 
      Sales................................................... $39,906 $101,436
      Net income (loss).......................................   1,727     (935)

3. Price Risk Management and Financial Instruments

   The Company 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
balance sheet, with the changes in fair value included in earnings.

 Trading Activities

   The Company, 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, the Company manages its own trading portfolio using forward
physical and futures contracts. The Company 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, 1999 and 2000 include fixed price payor for 1,032 and 1,526 barrels,
respectively and fixed price receiver for 1,185 and 1,479 barrels,
respectively. The notional amounts and terms of these financial instruments at
March 31, 2001 include fixed price payor for 97 barrels and fixed price
receiver for 269 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 the Company's exposure
to market or credit risks.

                                      F-14

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Fair Value

   The fair value of the financial instruments related to price risk management
activities as of September 30, 1999 and 2000 was assets of $582 and $3,580,
respectively and liabilities of $1,788 and $2,294, respectively related to
propane. The fair value of the financial instruments related to price risk
management activities as of March 31, 2001 was assets of $433 and liabilities
of $93 related to propane. All intercompany transactions have been
appropriately eliminated.

   The income before interest, taxes and certain unallocated expenses arising
from trading and price risk management activities for the years ended September
30, 1999 and 2000 was immaterial.

 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. The Company
takes an active role in managing and controlling market and credit risk and has
established control procedures, which are reviewed on an ongoing basis. The
Company monitors market risk through a variety of techniques, including daily
reporting of the portfolio's value to senior management. The Company attempts
to minimize credit risk exposure through credit policies and periodic
monitoring procedures. The counterparties associated with assets from price
risk management activities as of September 30, 1999 and 2000 are energy
marketers.

4. Long-Term Debt

   Long-term debt consisted of the following:

                                                     September 30,
                                                    ---------------  March 31,
                                                     1999    2000      2001
                                                    ------- ------- -----------
                                                                    (Unaudited)
                                                           
   Credit agreement...............................  $20,099 $33,250   $78,250
   Obligations under noncompetition agreements....    2,238   1,625     1,148
   Subordinated debt issued to sellers of acquired
    business......................................      --      --      5,000
   Other..........................................      --       52       --
                                                    ------- -------   -------
                                                     22,337  34,927    84,398
   Less current portion...........................      732     605     5,631
                                                    ------- -------   -------
                                                    $21,605 $34,322   $78,767
                                                    ======= =======   =======

   During fiscal 1999, the Company entered into and later amended a credit
agreement with a financial institution providing the Company with the capacity
to borrow up to $27,000 ($5,000 under long-term working capital lines of credit
and $22,000 under a long-term acquisition line of credit). At September 30,
1999, borrowings under the long-term working capital lines of credit and the
long-term acquisition line of credit, due June 22, 2001, were $2,160 and
$17,939, respectively. Interest only payments during the term of the agreement
were based on "prime rate" and/or LIBOR plus the applicable spread. The
applicable spread for each rate is based on the Company's ratio of total
liabilities to tangible net worth. The prime rate and LIBOR plus the applicable
spreads were 8.75% and 6.75% to 7.75%, respectively, at September 30, 1999.

                                      F-15

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   During fiscal 2000, the Company amended the credit agreement with the
financial institution providing the Company 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.

   The agreement contains several covenants which, among other things, require
the maintenance of various financial performance ratios, restrict the payment
of dividends and require financial reports to be submitted periodically to the
financial institution. Unused borrowings under the credit agreement amounted to
$7,750 at September 30, 2000.

   Noninterest-bearing obligations due under noncompetition agreements consist
of agreements between the Company and the sellers of retail propane companies
acquired during fiscal 1999 and 2000 with payments due through 2009 with
imputed interest at 8.5% to 9.0%. Noninterest-bearing obligations consist of
$2,808 and $2,130 in total payments due under noncompetition agreements, less
unamortized discount based on imputed interest of $570 and $505 at September
30, 1999 and 2000, respectively.

   On January 12, 2001, the Company and its lenders again amended the credit
agreement under which $33,250 was outstanding as of September 30, 2000. The
amended credit agreement extended the maturity date of borrowings under the
facilities from June 22, 2001 to January 10, 2004. In addition, the credit
agreement provides for total available borrowings of $96,000 under three
separate credit facilities. Borrowings under the revolving credit facility are
ultimately due on January 10, 2004 with interest payments thereon due quarterly
beginning March 31, 2001. The other two credit facilities, which were
principally used to finance the Hoosier Propane Group acquisition discussed in
Note 12 require quarterly principal and interest payments beginning March 31,
2001. As the terms of the facility in place at September 30, 2000 have been
modified subsequent to year end, the balance sheet presentation and footnote
disclosure herein reflect the revised terms. The Company also issued a $5,000
subordinated note payable to the former owners of the Hoosier Propane Group in
connection with this acquisition. See Note 12.

   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 amended credit facilities discussed above, are as follows:

   Year Ending September 30,
   -------------------------
                                                                     
   2001................................................................ $   605
   2002................................................................     409
   2003................................................................      75
   2004................................................................  33,330
   2005................................................................      87
   Thereafter..........................................................     421
                                                                        -------
                                                                        $34,927
                                                                        =======

                                      F-16

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Leases

   The Company has several noncancelable operating leases mainly for office
space which expire at various times over the next nine years. The Company
leases certain office space from the former owners of Country Gas Company, Inc.
Total payments under these leases amounted to $64 during 2000.

   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,
   -------------------------
                                                                      
   2001................................................................. $  513
   2002.................................................................    501
   2003.................................................................    407
   2004.................................................................    369
   2005.................................................................    277
   Thereafter...........................................................    110
                                                                         ------
   Total minimum lease payments......................................... $2,177
                                                                         ======

   Rent expense for all operating leases during 1998, 1999 and 2000 amounted to
$117, $196 and $424, respectively, and $158 and $265 for the six months ended
March 31, 2000 and 2001, 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, 1999 and 2000
and March 31, 2001 are a noncurrent deferred tax liability of $942 related to
book/tax basis differences.

   The provision for income taxes for the years ended September 30, 1998, 1999
and 2000 consists of the following:

                                                                 September 30,
                                                                ----------------
                                                                1998  1999 2000
                                                                ----- ---- -----
                                                                  
   Current:
     Federal..................................................  $ --  $41  $ --
     State....................................................    --    7      7
                                                                ----- ---  -----
   Total current..............................................    --   48      7
   Deferred:
     Federal..................................................    --    7    --
     State....................................................    --    1    --
                                                                ----- ---  -----
   Total deferred.............................................    --    8    --
                                                                ----- ---  -----
                                                                $ --  $56  $   7
                                                                ===== ===  =====

   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.

   Wilson and Rolesville have federal net operating loss carryforwards of
approximately $50 at September 30, 2000. Wilson has net operating loss
carryforwards in the state of North Carolina of $220 at September 30, 2000.

                                      F-17

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Redeemable Preferred Interests and Members' Equity

   On September 30, 1998, the Company's members approved an amendment to its
limited liability company agreement authorizing a Class A preferred interest.
In connection with this amendment, certain investors contributed their interest
in McCracken to the Company in exchange for Class A preferred interest.

   During December 1999, the Company issued redeemable Class A preferred
interests to a new member for total proceeds of $2,000 less offering costs of
$104. During June 2000, the Company 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. The December
1999 and June 2000 issuances represent 12.58% and 56.63%, respectively, of the
Company's total preferred members' interest as of September 30, 2000. These
preferred interests are automatically convertible into senior subordinated
units of a master limited partnership (MLP) in the event of an initial public
offering of the MLP (MLP Offering). The conversion rates were determined as of
the issuance date based on negotiations between the Company and the unrelated
third parties and are 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
ultimate unit price in any MLP Offering. The beneficial conversion feature
present in the December 1999 issuance, valued at $2 million, will be recognized
upon completion of the MLP Offering. At such time, the Company would decrease
common unit capital of the MLP by $2 million with a corresponding increase in
senior subordinated unit capital. In addition, net income available to the
common unit holders would be decreased by the $2 million while net income
attributable to senior subordinated unitholders would be increased by the same
amount.

   The Class A preferred interest earns cumulative dividends of 8% to 10% per
annum, depending on the date and amount of the preferred interest issued. Class
A preferred members are not entitled to any voting rights. In the event of a
public offering, the Company will 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 are entitled to an aggregate
preference distribution of the unpaid dividends prior to any liabilities.
Additionally, Class A preferred members are also entitled to preference over
common interests subsequent to the payment of the Company's liabilities.
Distributions totaling $180 and $547 were paid to Class A preferred members in
1999 and 2000, respectively. Unpaid distributions on preferred interests as of
September 30, 2000 amounted to $0.4 million and were declared and paid in
October 2000. See Note 13.

   The redeemable preferred interests issued in December 1999 and June 2000
provide the holders the option to require the Company to redeem the preferred
interests, as provided in the agreement, but generally no earlier than the
fifth anniversary of the issuance. The preferred interest issued in December
1999 is redeemable in an amount between one and two times face value at
issuance, depending on the Company's operating performance, as defined in the
agreement. The preferred interest issued in June 2000 is redeemable in amount
equal to face value at issuance plus any unpaid dividends. No amounts are
required to be redeemed during the next five years. In certain situations, as
provided for in the agreement, 25% of the June 2000 issuance may be redeemed by
the holder on or after the third anniversary of the issuance and another 25%
may be redeemed on or after the fourth anniversary of the issuance. In
accordance with the terms of the agreements, the Company also has the right to
repurchase the redeemable preferred interests at any time prior to an MLP
Offering.

   During fiscal 1999, the Company granted to four employees options to
purchase an aggregate of 1.7025% of the common interest of the Company for an
aggregate exercise price of $150,000. The exercise price of the options
approximated the fair market value of the common interests at the date of
grant. The options become exercisable five years from the date of grant except
upon a change of control, as defined in the option agreement, and expire on the
earlier of the employee's termination of service or ten years from the date of

                                      F-18

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

grant. Pro forma net income (loss), assuming the Company had applied the fair-
value method of SFAS No. 123, "Accounting for Stock Based Compensation" in
measuring the compensation costs associated with these options would not be
materially different from reported net income (loss).

8. Employee Benefit Plans

   The Company'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 the Company. Matching company
contributions were $21, $21 and $52 in 1998, 1999 and 2000, respectively.

9. Commitments

   The Company periodically enters into agreements to purchase fixed quantities
of liquid propane at fixed prices with suppliers. At September 30, 2000, the
total of these firm purchase commitments was approximately $26,149.

10. Joint Venture

   On October 29, 1999, the Company entered into a joint venture with Volunteer
First Services, Inc. to form Volunteer Energy, LLC to provide propane and
related services to private residences, businesses and governmental entities in
certain geographic areas of Tennessee. The Company accounts for its 50%
investment in Volunteer Energy, LLC under the equity method as it does not have
the ability to control the joint venture operations. As of September 30, 2000,
the investment in Volunteer Energy, LLC was $109 and is included in other
assets in the accompanying consolidated balance sheet. As part of the
transaction, the Company contributed certain fixed assets to Volunteer Energy,
LLC. Bradley earns a management fee of $2 per month and is reimbursed for other
operating services based on rates stated in the agreement. The impact of this
joint venture on the Company's operations is immaterial.

11. Segments

   The Company's financial statements reflect two reportable segments: retail
sales operations and wholesale sales operations. The Company'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 the Company's retail
operations. The Company'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 from the wholesale segment
to the retail segment 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 statements of cash flows,
substantially all relate to the retail sales segment. The Company does not
report property, plant and equipment, intangible assets, and depreciation and
amortization by segment to the CODM.

                                      F-19

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   Revenues, gross profit and identifiable assets for each of the Company's
reportable segments are presented below.

                                           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

                                           Six Months Ended March 31, 2000
                                      ------------------------------------------
                                        Retail   Wholesale
                                        Sales      Sales    Intersegment
                                      Operations Operations Eliminations  Total
                                      ---------- ---------- ------------ -------
                                                             
   Revenues..........................  $14,986    $40,841     $(5,370)   $50,457
   Gross profit......................    7,663      1,309        (569)     8,403
   Identifiable assets...............    4,926     11,642      (6,043)    10,525

                                            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..........................   $9,784    $10,276      $(925)    $19,135
   Gross profit......................    4,870        511        --        5,381
   Identifiable assets...............    2,993      8,032       (925)     10,100

12. Subsequent Events

   During January 2001, the Company 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 the Company's credit facilities described in Note 4 on a long-
term basis and complete the acquisition discussed below. Further, as discussed
in Note 4, the Company negotiated an amended credit facility in January 2001.

   In connection with this issuance of redeemable Class A preferred interests,
the Company issued a warrant to one of the investors (a current member) to
acquire an additional $2,000 of Class A preferred interests at the same
valuation used in the related January 2001 issuance of Class A preferred
interests discussed above. The warrant is exercisable immediately and expires
on March 31, 2001 if unexercised. The Company must approve the exercise of
greater than $1,500 of the warrant and has the ability to require the exercise
of the warrant. In March 2001, the investor exercised the warrant for $1,500
(unaudited).

                                      F-20

                     INERGY PARTNERS, LLC AND SUBSIDIARIES
                     (a subsidiary of Inergy Holdings, LLC)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

   These preferred interests are automatically convertible into senior
subordinated units of an MLP in the event of an MLP Offering. The conversion
rates were determined as of the issuance date based on negotiations between the
Company and the third party investors and are 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 ultimate unit price in any MLP Offering.
The beneficial conversion feature present in these preferred interest issuances
in January and March of 2001, valued at $6.6 million, will be recognized upon
completion of the MLP Offering in a manner consistent with that described in
Note 7.

   On January 12, 2001, the Company 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 was effective
January 1, 2001 and the Company's results of operations for the six month
period ended March 31, 2001 include the Hoosier Propane Group operating results
from the effective date. 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 the
redeemable Class A preferred interests discussed above, 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. This acquisition will be
accounted for using the purchase method of accounting.

   The redeemable preferred interests discussed above provide the holders the
option to require the Company 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 is redeemable in an amount
between one and two times face value at issuance, depending on the Company's
operating performance, as defined in the agreement. The preferred interest
issued to certain former owners of the Hoosier Propane Group is redeemable in
amount equal to face value at issuance plus any unpaid dividends. No amounts
are required to be redeemed during the next five years. As provided for in the
agreement, 25% of the issuance to certain former owners of the Hoosier Propane
Group may be redeemed by the holders on or after the fifth anniversary of the
issuance and another 25% may be redeemed on or after the sixth anniversary of
the issuance, with the balance being redeemable on or after the seventh
anniversary of the issuance. The Company also has the right to repurchase the
redeemable preferred interests at any time prior to an MLP Offering.

13. Initial Public Offering of Common Units

   Inergy, L.P. (the "Partnership") was formed March 7, 2001, as a Delaware
limited partnership. The Partnership was formed to acquire, own and operate the
propane business and substantially all of the assets of the Company. 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 will be conducted through a subsidiary operating company, Inergy
Propane, LLC (the "Operating Company").

   The Partnership intends to offer 1,600,000 common units, representing
limited partner interests in the Partnership, to the public and to concurrently
issue subordinated units representing additional limited partner interests in
the Partnership to an affiliate of Holdings and to Class A preferred interest
holders of the Company, and a 2% general partner interest in the Partnership
and the Operating Company, on a combined basis, to an affiliate of Holdings.

                                      F-21

                         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-22

                             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-23

                             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-24

                             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-25

                             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-26

                             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-27

                             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-28

                             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-29

                             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-30

                             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-31

                             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-32

                             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-33

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Country Gas Company, Inc.

   We have audited the accompanying balance sheets of Country Gas Company, Inc.
("Country Gas") as of May 31, 1999 and 2000, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended May 31, 2000. These financial statements are the responsibility of
Country Gas'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 Country Gas Company, Inc.
at May 31, 1999 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 2000, in conformity
with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
January 26, 2001

                                      F-34

                           COUNTRY GAS COMPANY, INC.

                                 BALANCE SHEETS
                       (In thousands, except share data)

                                                                  May 31,
                                                              ----------------
                                                               1999     2000
                                                              -------  -------
                                                                 
                           ASSETS
Current assets:
  Cash and cash equivalents.................................. $ 2,029  $ 1,797
  Accounts receivable, less allowance for uncollectible
   accounts of $0 in 1999 and $20 in 2000....................     637      972
  Inventories................................................      28       55
  Prepaid expenses and other current assets..................      10       38
  Current portion of note receivable from related party (Note
   2)........................................................      80       80
                                                              -------  -------
Total current assets.........................................   2,784    2,942
Property, plant and equipment, at cost:
  Office furniture and equipment.............................     239      249
  Vehicles...................................................   1,672    1,758
  Tanks and plant equipment..................................   3,373    3,486
  Leasehold improvements.....................................      88      160
                                                              -------  -------
                                                                5,372    5,653
  Less accumulated depreciation..............................  (2,807)  (3,127)
                                                              -------  -------
Net property, plant and equipment............................   2,565    2,526
Note receivable, less current portion from related party
 (Note 2)....................................................     300      220
Federal tax deposit..........................................     445      490
                                                              -------  -------
Total assets................................................. $ 6,094  $ 6,178
                                                              =======  =======

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable........................................... $   --   $   108
  Accrued salaries and wages.................................     217       78
  State income taxes payable.................................      33       27
  Other accrued expenses.....................................       8        1
  Customer deposits..........................................      26       97
                                                              -------  -------
Total current liabilities....................................     284      311

Stockholders' equity:
  Common stock, no par value:
    Authorized shares--100,000
    Issued shares--2,000.....................................     262      262
  Retained earnings..........................................   5,564    5,621
  Less 700 shares of treasury stock, at cost.................     (16)     (16)
                                                              -------  -------
Total stockholders' equity...................................   5,810    5,867
                                                              -------  -------
Total liabilities and stockholders' equity................... $ 6,094  $ 6,178
                                                              =======  =======

                            See accompanying notes.

                                      F-35

                           COUNTRY GAS COMPANY, INC.

                              STATEMENTS OF INCOME
                                 (In thousands)

                                                            Year Ended May 31,
                                                           --------------------
                                                            1998   1999   2000
                                                           ------ ------ ------
                                                                
Revenues:
  Propane................................................. $7,458 $7,724 $8,982
  Other...................................................    709    763    659
                                                           ------ ------ ------
                                                            8,167  8,487  9,641
Cost of product sold......................................  3,396  3,181  4,672
                                                           ------ ------ ------
Gross profit..............................................  4,771  5,306  4,969
Operating and administrative expenses.....................  2,755  3,003  3,176
Depreciation..............................................    312    354    342
                                                           ------ ------ ------
Operating income..........................................  1,704  1,949  1,451
Other income (expense):
  Interest income.........................................    165    176    145
  Gain on sale of product line (Note 5)...................    --     260    --
  Gain on sale of property, plant and equipment...........     26     44     21
                                                           ------ ------ ------
Net income................................................ $1,895 $2,429 $1,617
                                                           ====== ====== ======

                            See accompanying notes.

                                      F-36

                           COUNTRY GAS COMPANY, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                     (In thousands, except per share data)

                                                                       Total
                                         Common Retained  Treasury Stockholders'
                                         Stock  Earnings   Stock      Equity
                                         ------ --------  -------- -------------
                                                       
Balance at May 31, 1997.................  $262  $ 5,790     $(16)     $ 6,036
  Net income............................   --     1,895      --         1,895
  Dividends ($1,300 per share)..........   --    (1,690)     --        (1,690)
                                          ----  -------     ----      -------
Balance at May 31, 1998.................   262    5,995      (16)       6,241
  Net income............................   --     2,429      --         2,429
  Dividends ($1,430 per share)..........   --    (2,860)     --        (2,860)
                                          ----  -------     ----      -------
Balance at May 31, 1999.................   262    5,564      (16)       5,810
  Net income............................   --     1,617      --         1,617
  Dividends ($780 per share)............   --    (1,560)     --        (1,560)
                                          ----  -------     ----      -------
Balance at May 31, 2000.................  $262  $ 5,621     $(16)     $ 5,867
                                          ====  =======     ====      =======

                            See accompanying notes.

                                      F-37

                           COUNTRY GAS COMPANY, INC.

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                       Year Ended May 31,
                                                     -------------------------
                                                      1998     1999     2000
                                                     -------  -------  -------
                                                              
Operating activities
Net income.........................................  $ 1,895  $ 2,429  $ 1,617
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation.....................................      312      354      342
  Provision for uncollectible accounts.............       44       46       73
  Gain on sale of property, plant and equipment....      (26)     (44)     (21)
  Gain on sale of product line.....................      --      (260)     --
  Changes in operating assets and liabilities:
    Accounts receivable............................      194       13     (409)
    Inventories....................................       17       (9)     (27)
    Prepaid expenses and other current assets......      125      (10)     (28)
    Other noncurrent assets........................      --         6      (45)
    Accounts payable...............................      (22)      (4)     108
    Accrued expenses...............................       18      131     (146)
    State income taxes payable.....................       (2)       5       (6)
    Customer deposits..............................       (2)     (62)      71
                                                     -------  -------  -------
Net cash provided by operating activities..........    2,553    2,595    1,529
Investing activities
Purchases of property, plant and equipment.........     (524)    (498)    (331)
Proceeds from sale of property, plant and
 equipment.........................................       78       44       50
Proceeds from the sale of product line.............      --       260      --
Loan to related party..............................      --      (400)     --
Collections on note receivable from related party..      --        20       80
                                                     -------  -------  -------
Net cash used in investing activities..............     (446)    (574)    (201)
Financing activities
Dividends paid.....................................   (1,690)  (2,860)  (1,560)
                                                     -------  -------  -------
Net increase (decrease) in cash....................      417     (839)    (232)
Cash and cash equivalents at beginning of year.....    2,451    2,868    2,029
                                                     -------  -------  -------
Cash and cash equivalents at end of year...........  $ 2,868  $ 2,029  $ 1,797
                                                     =======  =======  =======

                            See accompanying notes.

                                      F-38

                           COUNTRY GAS COMPANY, INC.

                         NOTES TO FINANCIAL STATEMENTS
                                  May 31, 2000
                        (In thousands except share data)

1. Summary of Significant Accounting Policies

 Nature of Operations

   Country Gas Company, Inc. ("Country Gas") is an S corporation that sells and
distributes propane gas to industrial and domestic users. Country Gas serves
the northern part of Illinois, including the Chicago area, and has been in
business since 1963. Country Gas sells to households that use propane for
heating, industrial customers that use propane to power machinery and
commercial customers that use propane as a temporary heating source during
building construction.

 Concentration of Credit Risk

   Credit is generally extended to retail customers in connection with the
delivery of propane into customer owned gas storage tanks. Provisions for
uncollectible accounts are reflected in the financial statements and have
consistently been within management's expectations.

 Use of Estimates

   The preparation of 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 financial
statements and accompanying notes. Actual results could differ from those
estimates.

 Revenue Recognition

   Sales of propane are recognized at the time the 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.

 Cash Equivalents

   Cash equivalents are defined as short-term, highly liquid investments with a
maturity of three months or less when purchased and are stated at cost, which
approximates market.

 Inventories

   Inventories, which mainly consist of liquid propane, are stated at the lower
of cost, determined using the first-in, first-out method, or market.

 Property, Plant and Equipment

   Property, plant and equipment are recorded at cost. Depreciation is computed
using the straight-line methodover the assets' estimated useful lives, as
follows:

                                                                           Years
                                                                           -----
                                                                        
   Office furniture and equipment.........................................   4-8
   Vehicles...............................................................   5-7
   Tanks and plant equipment..............................................  5-30
   Leasehold improvements................................................. 10-15

                                      F-39

                           COUNTRY GAS COMPANY, INC.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

 Income Taxes

   The stockholders have elected to have Country Gas treated as an S
corporation for federal income tax purposes under the Internal Revenue Code, as
well as for purposes of state income taxes. Accordingly, Country Gas does not
pay corporate tax on its income for federal purposes, nor in states in which
the Company operates as an S corporation. Country Gas's stockholders include
their pro rata share of Country Gas's taxable income in their individual income
tax returns for such jurisdictions, and Country Gas pays dividends to its
stockholders in amounts sufficient to cover the taxes resulting from such
taxable income being included in the stockholders' individual income tax
returns. State income taxes are payable, based on a fixed percentage of taxable
income, to the state of Illinois.

   Because Country Gas has elected to maintain a fiscal year end of May 31,
Country Gas must maintain a tax deposit with the IRS based on prior year
earnings. The deposit is reported as a noncurrent asset on the accompanying
balance sheets.

 Customer Deposits

   Customer deposits primarily represent cash received by Country Gas from
advance payments from certain propane customers.

 Advertising Costs

   Country Gas expenses advertising costs as incurred. Advertising expenses
amounted to $38, $32 and $45 for the years ended May 31, 1998, 1999 and 2000,
respectively, and are included in selling, general and administrative expenses
in the accompanying statements of income.

2. Related Party Transactions

   During fiscal year 1999, Country Gas loaned $400 to a partnership owned by
Country Gas's stockholders. The funds were used to purchase land adjacent to
Country Gas's existing facilities. The unsecured note receivable matures on
March 15, 2004 and provides for quarterly principal payments, totaling $80 per
year, plus interest at 7%. For the years ended May 31, 1999 and 2000, Country
Gas recorded interest income of $7 and $10, respectively, in connection with
the unsecured note receivable. Leases with a related party are described in
Note 3.

3. Leases

   Country Gas has entered into noncancelable operating lease agreements with a
stockholder for the lease of two facilities.

   Future minimum lease payments under these operating leases for the next five
years ending May 31 are as follows:

   Year Ending May 31,
   -------------------
                                                                         
   2001.................................................................... $192
   2002....................................................................  192
   2003....................................................................  192
   2004....................................................................  176
   2005....................................................................  --
                                                                            ----
                                                                            $752
                                                                            ====

   Total rent expense during the years ended May 31, 1998, 1999 and 2000 was
$190, $197 and $192, respectively.

                                      F-40

                           COUNTRY GAS COMPANY, INC.

                   NOTES TO FINANCIAL STATEMENTS (Continued)

4. Employee Benefit Plan
   Country Gas has a discretionary profit-sharing plan covering substantially
all of its employees. During the fiscal years ended May 31, 1998, 1999 and
2000, Country Gas made contributions to the plan of $115, $140 and $105,
respectively.

5. Sale of Product Line

   In fiscal 1999, Country Gas's "Turftreet" product line, which provided the
application of liquid fertilizers and chemicals to lawns, was sold for
approximately $260, yielding a gain of the same amount. This product line
generated annual sales of approximately $260 with a gross margin of
approximately 82%.

6. Subsequent Event

   During November 1999, Country Gas signed a letter of intent whereby it
agreed to sell substantially all of its assets to Inergy Partners, LLC for
approximately $17,400 plus the value of the accounts receivable and inventory
at the closing date. The sale closed effective June 1, 2000.

                                      F-41

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Inergy Partners, LLC

   We have audited the accompanying balance sheet of Inergy, L.P. as of March
7, 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, L.P. at March 7, 2001, in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
March 7, 2001

                                      F-42

                                  INERGY, L.P.

                                 BALANCE SHEET

                                                                    
                                                                       March 7,
                                ASSETS                                   2001
                                                                       --------
Current assets:
  Cash................................................................   $1,000
                                                                       --------
    Total assets......................................................   $1,000
                                                                       ========
                           PARTNERS' EQUITY
Limited partner's equity.............................................. $    990
Non-Managing general partner's equity.................................       10
                                                                       --------
    Total partners' equity............................................ $  1,000
                                                                       ========

                             See accompanying note.

                                      F-43

                                  INERGY, L.P.

                             NOTE TO BALANCE SHEET

1. Nature of Operations

   Inergy, L.P. is a Delaware limited partnership formed on March 7, 2001 to
ultimately acquire, own and operate the propane business and substantially all
of the assets of Inergy Partners, LLC. In order to simplify Inergy, L.P.'s
obligations under the laws of selected jurisdictions in which Inergy, L.P. will
conduct business, Inergy, L.P.'s activities will be conducted through a 100%-
owned operating company.

   Inergy, L.P. intends to offer 1,600,000 common units, representing limited
partner interests, pursuant to a public offering and to concurrently issue (i)
incentive distribution rights to Inergy Holdings, LLC and (ii) a 2% non-
managing general partner interest in Inergy, L.P. to Inergy Partners, LLC,
(iii) 1,260,249 senior subordinated units and 572,542 junior subordinated units
to New Inergy Propane, LLC and (iv) 2,053,118 senior subordinated units to an
investor group and former owners of acquired businesses.

   Inergy Partners, LLC contributed $10 as the non-managing general partner and
$990 as the limited partner on March 7, 2001. There have been no other
transactions involving Inergy, L.P. as of March 7, 2001.

                                      F-44

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Inergy Partners, LLC

   We have audited the accompanying balance sheet of Inergy GP, LLC as of March
2, 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 March 2, 2001,
in conformity with accounting principles generally accepted in the United
States.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
March 2, 2001

                                      F-45

                                 INERGY GP, LLC

                                 BALANCE SHEET

                                                                     
                                                                        March 2,
                                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-46

                                 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 March 2, 2001.

                                      F-47

                                                                      APPENDIX A

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                                  INERGY, L.P.

                               TABLE OF CONTENTS

                                                                           Page
                                                                           ----

                                   ARTICLE I
                                  Definitions

 Section 1.1.  Definitions..............................................     1
 Section 1.2.  Construction.............................................    15

                                   ARTICLE II
                                  Organization

 Section 2.1.  Formation................................................    15
 Section 2.2.  Name.....................................................    15
 Section 2.3.  Registered Office; Registered Agent; Principal Office;
                Other Offices...........................................    16
 Section 2.4.  Purpose and Business.....................................    16
 Section 2.5.  Powers...................................................    16
 Section 2.6.  Power of Attorney........................................    16
 Section 2.7.  Term.....................................................    18
 Section 2.8.  Title to Partnership Assets..............................    18

                                  ARTICLE III
                           Rights of Limited Partners

 Section 3.1.  Limitation of Liability..................................    18
 Section 3.2.  Management of Business...................................    18
 Section 3.3.  Outside Activities of the Limited Partners...............    18
 Section 3.4.  Rights of Limited Partners...............................    19

                                   ARTICLE IV
        Certificates; Record Holders; Transfer of Partnership Interests;
                      Redemption of Partnership Interests

 Section 4.1.  Certificates.............................................    19
 Section 4.2.  Mutilated, Destroyed, Lost or Stolen Certificates........    20
 Section 4.3.  Record Holders...........................................    20
 Section 4.4.  Transfer Generally.......................................    21
 Section 4.5.  Registration and Transfer of Limited Partner Interests...    21
 Section 4.6.  Transfer of the General Partners' General Partner
                Interests...............................................    22
 Section 4.7.  Transfer of Incentive Distribution Rights................    22
 Section 4.8.  Restrictions on Transfers................................    23
 Section 4.9.  Citizenship Certificates; Non-citizen Assignees..........    23
 Section 4.10. Redemption of Partnership Interests of Non-citizen
                Assignees...............................................    24

                                   ARTICLE V
          Capital Contributions and Issuance of Partnership Interests

 Section 5.1.  Organizational Contributions.............................    25
 Section 5.2.  Contributions by the Non-Managing General Partner and its
                Affiliates..............................................    25
 Section 5.3.  Contributions by Initial Limited Partners................    25
 Section 5.4.  Interest and Withdrawal..................................    26
 Section 5.5.  Capital Accounts.........................................    26
 Section 5.6.  Issuances of Additional Partnership Securities...........    28

                                      A-i

                                                                            Page
                                                                            ----
                                                                      
 Section 5.7.  Limitations on Issuance of Additional Partnership
                Securities................................................   29
 Section 5.8.  Conversion of Subordinated Units...........................   30
 Section 5.9.  Limited Preemptive Right...................................   33
 Section 5.10. Splits and Combination.....................................   33
 Section 5.11. Fully Paid and Non-Assessable Nature of Limited Partner
                Interests.................................................   34

                                   ARTICLE VI
                         Allocations and Distributions

 Section 6.1.  Allocations for Capital Account Purposes...................   34
 Section 6.2.  Allocations for Tax Purposes...............................   40
 Section 6.3.  Requirement and Characterization of Distributions;
                Distributions to Record Holders...........................   42
 Section 6.4.  Distributions of Available Cash from Operating Surplus.....   42
 Section 6.5.  Distributions of Available Cash from Capital Surplus.......   44
 Section 6.6.  Adjustment of Minimum Quarterly Distribution and Target
                Distribution Levels.......................................   44
 Section 6.7.  Special Provisions Relating to the Holders of Senior
                Subordinated Units and Junior Subordinated Units..........   44
 Section 6.8.  Special Provisions Relating to the Holders of Incentive
                Distribution Rights.......................................   45
 Section 6.9.  Entity-Level Taxation......................................   45

                                  ARTICLE VII
                      Management and Operation of Business

 Section 7.1.  Management.................................................   45
 Section 7.2.  Certificate of Limited Partnership.........................   47
 Section 7.3.  Restrictions on General Partners' Authority................   47
 Section 7.4.  Reimbursement of the General Partners......................   48
 Section 7.5.  Outside Activities.........................................   49
 Section 7.6.  Loans from the General Partners; Loans or Contributions
                from the Partnership; Contracts with Affiliates; Certain
                Restrictions on the General Partners......................   50
 Section 7.7.  Indemnification............................................   51
 Section 7.8.  Liability of Indemnitees...................................   52
 Section 7.9.  Resolution of Conflicts of Interest........................   53
 Section 7.10. Other Matters Concerning the General Partners..............   54
 Section 7.11. Purchase or Sale of Partnership Securities.................   54
 Section 7.12. Registration Rights of the General Partners and their
                Affiliates................................................   55
 Section 7.13. Reliance by Third Parties..................................   56

                                  ARTICLE VIII
                     Books, Records, Accounting and Reports

 Section 8.1.  Records and Accounting.....................................   57
 Section 8.2.  Fiscal Year................................................   57
 Section 8.3.  Reports....................................................   57

                                   ARTICLE IX
                                  Tax Matters

 Section 9.1.  Tax Returns and Information................................   57
 Section 9.2.  Tax Elections..............................................   58
 Section 9.3.  Tax Controversies..........................................   58
 Section 9.4.  Withholding................................................   58

                                      A-ii

                                                                            Page
                                                                            ----

                                   ARTICLE X
                             Admission of Partners

 Section 10.1.  Admission of Initial Limited Partners.....................   58
 Section 10.2.  Admission of Substituted Limited Partner..................   59
 Section 10.3.  Admission of Successor General Partners...................   59
 Section 10.4.  Admission of Additional Limited Partners..................   59
 Section 10.5.  Amendment of Agreement and Certificate of Limited
                 Partnership..............................................   60

                                   ARTICLE XI
                       Withdrawal or Removal of Partners

 Section 11.1.  Withdrawal of the Managing General Partner................   60
 Section 11.2.  Removal of the Managing General Partner...................   61
 Section 11.3.  Interest of Departing Partner and Successor General
                 Partners.................................................   62
 Section 11.4.  Withdrawal or Removal of Non-Managing General Partner.....   63
 Section 11.5.  Termination of Subordination Period, Conversion of Senior
                 Subordinated Units and Junior Subordinated Units and
                 Extinguishment of Cumulative Common Unit Arrearages......   64
 Section 11.6.  Withdrawal of Limited Partners............................   64

                                  ARTICLE XII
                          Dissolution and Liquidation

 Section 12.1.  Dissolution...............................................   64
 Section 12.2.  Continuation of the Business of the Partnership After
                 Dissolution..............................................   65
 Section 12.3.  Liquidator................................................   65
 Section 12.4.  Liquidation...............................................   66
 Section 12.5.  Cancellation of Certificate of Limited Partnership........   66
 Section 12.6.  Return of Contributions...................................   66
 Section 12.7.  Waiver of Partition.......................................   67
 Section 12.8.  Capital Account Restoration...............................   67

                                  ARTICLE XIII
           Amendment of Partnership Agreement; Meetings; Record Date

 Section 13.1.  Amendment to be Adopted Solely by the Managing General
                 Partner..................................................   67
 Section 13.2.  Amendment Procedures......................................   68
 Section 13.3.  Amendment Requirements....................................   68
 Section 13.4.  Special Meetings..........................................   69
 Section 13.5.  Notice of a Meeting.......................................   69
 Section 13.6.  Record Date...............................................   69
 Section 13.7.  Adjournment...............................................   70
 Section 13.8.  Waiver of Notice; Approval of Meeting; Approval of
                 Minutes..................................................   70
 Section 13.9.  Quorum....................................................   70
 Section 13.10. Conduct of a Meeting......................................   70
 Section 13.11. Action Without a Meeting..................................   71
 Section 13.12. Voting and Other Rights...................................   71

                                     A-iii

                                                                            Page
                                                                            ----

                                  ARTICLE XIV
                                     Merger

 Section 14.1.  Authority................................................    72
 Section 14.2.  Procedure for Merger or Consolidation....................    72
 Section 14.3.  Approval by Limited Partners of Merger or Consolidation..    73
 Section 14.4.  Certificate of Merger....................................    73
 Section 14.5.  Effect of Merger.........................................    73

                                   ARTICLE XV
                   Right to Acquire Limited Partner Interests

 Section 15.1.  Right to Acquire Limited Partner Interests...............    74

                                  ARTICLE XVI
                               General Provisions

 Section 16.1.  Addresses and Notices....................................    75
 Section 16.2.  Further Action...........................................    76
 Section 16.3.  Binding Effect...........................................    76
 Section 16.4.  Integration..............................................    76
 Section 16.5.  Creditors................................................    76
 Section 16.6.  Waiver...................................................    76
 Section 16.7.  Counterparts.............................................    76
 Section 16.8.  Applicable Law...........................................    76
 Section 16.9.  Invalidity of Provisions.................................    76
 Section 16.10. Consent of Partners......................................    77

                                      A-iv

             AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                                  INERGY, L.P.

   THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF INERGY, L.P.
dated as of             , 2001, is entered into by and among Inergy GP LLC, a
Delaware limited liability company, as the Managing General Partner, Inergy
Partners, LLC, a Delaware limited liability company, as the Non-Managing
General Partner and as the Organizational Limited Partner, New Inergy Propane,
LLC, a Delaware limited liability company, Inergy Holdings, LLC, a Delaware
limited liability company, together with any other Persons who become Partners
in the Partnership or parties hereto as provided herein. In consideration of
the covenants, conditions and agreements contained herein, the parties hereto
hereby agree as follows:

                                   ARTICLE I

                                  Definitions

Section 1.1. Definitions.

   The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

   "Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of
the Partnership Group existing immediately prior to such transaction.

   "Additional Book Basis" means the portion of any remaining Carrying Value of
an Adjusted Property that is attributable to positive adjustments made to such
Carrying Value as a result of Book-Up Events. For purposes of determining the
extent that Carrying Value constitutes Additional Book Basis:

  (i)  Any negative adjustment made to the Carrying Value of an Adjusted
       Property as a result of either a Book-Down Event or a Book-Up Event
       shall first be deemed to offset or decrease that portion of the
       Carrying Value of such Adjusted Property that is attributable to any
       prior positive adjustments made thereto pursuant to a Book-Up Event or
       Book-Down Event.

  (ii)  If Carrying Value that constitutes Additional Book Basis is reduced
        as a result of a Book-Down Event and the Carrying Value of other
        property is increased as a result of such Book-Down Event, an
        allocable portion of any such increase in Carrying Value shall be
        treated as Additional Book Basis; provided that the amount treated as
        Additional Book Basis pursuant hereto as a result of such Book-Down
        Event shall not exceed the amount by which the Aggregate Remaining
        Net Positive Adjustments after such Book-Down Event exceeds the
        remaining Additional Book Basis attributable to all of the
        Partnership's Adjusted Property after such Book-Down Event
        (determined without regard to the application of this clause (ii) to
        such Book-Down Event).

   "Additional Book Basis Derivative Items" means any Book Basis Derivative
Items that are computed with reference to Additional Book Basis. To the extent
that the Additional Book Basis attributable to all of the Partnership's
Adjusted Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning of such period
(the "Excess Additional Book Basis"), the Additional Book Basis Derivative
Items for such period shall be reduced by the amount that bears the same ratio
to the amount of Additional Book Basis Derivative Items determined without
regard to this sentence as the Excess Additional Book Basis bears to the
Additional Book Basis as of the beginning of such period.

                                      A-1

   "Additional Limited Partner" means a Person admitted to the Partnership as a
Limited Partner pursuant to Section 10.4 and who is shown as such on the books
and records of the Partnership.

   "Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased by
any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and deductions that, as of the
end of such fiscal year, are reasonably expected to be allocated to such
Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such fiscal year, are reasonably expected
to be made to such Partner in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting increases to
such Partner's Capital Account that are reasonably expected to occur during (or
prior to) the year in which such distributions are reasonably expected to be
made (other than increases as a result of a minimum gain chargeback pursuant to
Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
The "Adjusted Capital Account" of a Partner in respect of a General Partner
Interest, a Common Unit, a Senior Subordinated Unit, a Junior Subordinated Unit
or an Incentive Distribution Right or any other specified interest in the
Partnership shall be the amount which such Adjusted Capital Account would be if
such General Partner Interest, Common Unit, Senior Subordinated Unit, Junior
Subordinated Unit, Incentive Distribution Right or other interest in the
Partnership were the only interest in the Partnership held by a Partner from
and after the date on which such General Partner Interest, Common Unit, Senior
Subordinated Unit, Junior Subordinated Unit, Incentive Distribution Right or
other interest was first issued.

   "Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in Working
Capital Borrowings with respect to such period and (ii) any net reduction in
cash reserves for Operating Expenditures with respect to such period not
relating to an Operating Expenditure made with respect to such period, and (b)
plus (i) any net decrease in Working Capital Borrowings with respect to such
period and (ii) any net increase in cash reserves for Operating Expenditures
with respect to such 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)(i) of the definition
of Operating Surplus.

   "Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).

   "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.

   "Aggregate Remaining Net Positive Adjustments" means, as of the end of any
taxable period, the sum of the Remaining Net Positive Adjustments of all the
Partners.

   "Agreed Allocation" means any allocation, other than a Required Allocation,
of an item of income, gain, loss or deduction pursuant to the provisions of
Section 6.1, including, without limitation, a Curative Allocation (if
appropriate to the context in which the term "Agreed Allocation" is used).

   "Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the Managing General Partner using such reasonable method of valuation as it
may adopt. The Managing General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate Agreed
Value of Contributed Properties contributed to the Partnership in a single or
integrated transaction among each separate property on a basis proportional to
the fair market value of each Contributed Property.

                                      A-2

   "Agreement" means this Amended and Restated Agreement of Limited Partnership
of Inergy, L.P., as it may be amended, supplemented or restated from time to
time.

   "Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under
this Agreement and who has executed and delivered a Transfer Application as
required by this Agreement, but who has not been admitted as a Substituted
Limited Partner.

   "Associate" means, when used to indicate a relationship with any Person, (a)
any corporation or organization of which such Person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more of any class of
voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.

   "Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,

       (a)  the sum of (i) all cash and cash equivalents of the Partnership
  Group on hand at the end of such Quarter, and (ii) all additional cash and
  cash equivalents of the Partnership Group on hand on the date of
  determination of Available Cash with respect to such Quarter resulting from
  Working Capital Borrowings made subsequent to the end of such Quarter, less

       (b)  the amount of any cash reserves that is necessary or appropriate
  in the reasonable discretion of the Managing General Partner to (i) provide
  for the proper conduct of the business of the Partnership Group (including
  reserves for future capital expenditures and for anticipated future credit
  needs of the Partnership Group) subsequent to such Quarter, (ii) comply
  with applicable law or any loan agreement, security agreement, mortgage,
  debt instrument or other agreement or obligation to which any Group Member
  is a party or by which it is bound or its assets are subject or (iii)
  provide funds for distributions under Section 6.4 or 6.5 in respect of any
  one or more of the next four Quarters; provided, however, that the Managing
  General Partner may not establish cash reserves pursuant to (iii) above if
  the effect of such reserves would be that the Partnership is unable to
  distribute the Minimum Quarterly Distribution on all Common Units, plus any
  Cumulative Common Unit Arrearage on all Common Units, with respect to such
  Quarter; and, provided further, that disbursements made by a Group Member
  or cash reserves established, increased or reduced after the end of such
  Quarter but on or before the date of determination of Available Cash with
  respect to such Quarter shall be deemed to have been made, established,
  increased or reduced, for purposes of determining Available Cash, within
  such Quarter if the Managing General Partner so determines.

     Notwithstanding the foregoing, "Available Cash" with respect to the
  Quarter in which the Liquidation Date occurs and any subsequent Quarter
  shall equal zero.

   "Book Basis Derivative Items" means any item of income, deduction, gain or
loss included in the determination of Net Income or Net Loss that is computed
with reference to the Carrying Value of an Adjusted Property (e.g.,
depreciation, depletion, or gain or loss with respect to an Adjusted Property).

   "Book-Down Event" means an event which triggers a negative adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).

   "Book-Tax Disparity" means with respect to any item of Contributed Property
or Adjusted Property, as of the date of any determination, the difference
between the Carrying Value of such Contributed Property or Adjusted Property
and the adjusted basis thereof for federal income tax purposes as of such date.
A Partner's share of the Partnership's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Partner's Capital Account balance as maintained pursuant to
Section 5.5 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal
income tax accounting principles.

                                      A-3

   "Book-Up Event" means an event which triggers a positive adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).

   "Business Day" means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States of America or
the states of New York or Oklahoma shall not be regarded as a Business Day.

   "Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest, a Common Unit, a Senior Subordinated Unit, a Junior
Subordinated Unit, an Incentive Distribution Right or any other Partnership
Interest shall be the amount which such Capital Account would be if such
General Partner Interest, Common Unit, Senior Subordinated Unit, Junior
Subordinated Unit, Incentive Distribution Right or other Partnership Interest
were the only interest in the Partnership held by a Partner from and after the
date on which such General Partner Interest, Common Unit, Senior Subordinated
Unit, Junior Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.

   "Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to this Agreement or the Contribution and Conveyance Agreement.

   "Capital Improvement" means any (a) addition or improvement to the capital
assets owned by any Group Member or (b) acquisition of existing, or the
construction of new capital assets (including, without limitation, retail
distribution centers, propane tanks, pipeline systems, storage facilities and
related assets), in each case made to increase the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of
the Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.

   "Capital Surplus" has the meaning assigned to such term in Section 6.3(a).

   "Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property, and (b)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the Managing
General Partner.

   "Cause" means a court of competent jurisdiction has entered a final, non-
appealable judgment finding a General Partner liable for actual fraud, gross
negligence or willful or wanton misconduct in its capacity as a general partner
of the Partnership.

   "Certificate" means a certificate (i) substantially in the form of Exhibit A
to this Agreement, (ii) issued in global form in accordance with the rules and
regulations of the Depositary or (iii) in such other form as may be adopted by
the Managing General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more Common Units or a certificate, in such form
as may be adopted by the Managing General Partner in its discretion, issued by
the Partnership evidencing ownership of one or more other Partnership
Securities.

   "Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the State
of Delaware as referenced in Section 2.1, as such Certificate of Limited
Partnership may be amended, supplemented or restated from time to time.

   "Citizenship Certification" means a properly completed certificate in such
form as may be specified by the Managing General Partner by which an Assignee
or a Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.

                                      A-4

   "Claim" has the meaning assigned to such term in Section 7.12(c).

   "Closing Date" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the Underwriting
Agreement.

   "Closing Price" has the meaning assigned to such term in Section 15.1(a).

   "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of
the Code shall be deemed to include a reference to any corresponding provision
of successor law.

   "Combined Interest" has the meaning assigned to such term in Section
11.3(a).

   "Commission" means the United States Securities and Exchange Commission.

   "Common Unit" means a Partnership Security representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees and having the
rights and obligations specified with respect to Common Units in this
Agreement. The term "Common Unit" does not refer to a Senior Subordinated Unit
or a Junior Subordinated Unit prior to its conversion into a Common Unit
pursuant to the terms hereof.

   "Common Unit Arrearage" means, with respect to any Common Unit, whenever
issued, as to any Quarter within the Subordination Period, the excess, if any,
of (a) the Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available Cash distributed with
respect to a Common Unit in respect of such Quarter pursuant to Section
6.4(a)(i).

   "Conflicts Committee" means a committee of the Board of Directors of the
Managing General Partner composed entirely of two or more directors who are not
(a) security holders, officers or employees of the Managing General Partner,
(b) officers, directors or employees of any Affiliate of the Managing General
Partner or (c) holders of any ownership interest in the Partnership Group other
than Common Units and who also meet the independence standards required to
serve on an audit committee of a board of directors by the National Securities
Exchange on which the Common Units are listed for trading.

   "Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.

   "Contribution and Conveyance Agreement" means that certain Contribution,
Conveyance and Assignment Agreement, dated as of the Closing Date, among the
Managing General Partner, the Non-Managing General Partner, the Partnership,
the Operating Company and certain other parties, together with the additional
conveyance documents and instruments contemplated or referenced thereunder.

   "Cumulative Common Unit Arrearage" means, with respect to any Common Unit,
whenever issued, and as of the end of any Quarter, the excess, if any, of (a)
the sum resulting from adding together the Common Unit Arrearage as to an
Initial Common Unit for each of the Quarters within the Subordination Period
ending on or before the last day of such Quarter over (b) the sum of any
distributions theretofore made pursuant to Section 6.4(a)(ii) and the second
sentence of Section 6.5 with respect to an Initial Common Unit (including any
distributions to be made in respect of the last of such Quarters).

   "Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).

   "Current Market Price" has the meaning assigned to such term in Section
15.1(a).

   "Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, 6
Del C. (S) 17-101, et seq., as amended, supplemented or restated from time to
time, and any successor to such statute.

                                      A-5

   "Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1, 11.2 or 11.4.

   "Depositary" means, with respect to any Units issued in global form, The
Depository Trust Company and its successors and permitted assigns.

   "Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).

   "Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or proposes
to do business from time to time, and whose status as a Limited Partner or
Assignee does not or would not subject such Group Member to a significant risk
of cancellation or forfeiture of any of its properties or any interest therein.

   "Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).

   "Final Subordinated Units" has the meaning assigned to such term in Section
6.1(d)(x).

   "First Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(E).

   "First Target Distribution" means $0.66 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
2001, it means the product of $0.66 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the denominator is
91), subject to adjustment in accordance with Sections 6.6 and 6.9.

   "General Partners" means the Managing General Partner and the Non-Managing
General Partner and their successors and permitted assigns as managing general
partner and non-managing general partner, respectively, of the Partnership.

   "General Partner Interest" means the ownership interest of a General Partner
in the Partnership (in its capacity as a general partner without reference to
any Limited Partner Interest held by it) which may be evidenced by Partnership
Securities or a combination thereof or interest therein, and includes any and
all benefits to which a General Partner is entitled as provided in this
Agreement, together with all obligations of a General Partner to comply with
the terms and provisions of this Agreement.

   "Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation
made to 10 or more Persons) or disposing of any Partnership Securities with any
other Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, Partnership Securities.

   "Group Member" means a member of the Partnership Group.

   "Holder" as used in Section 7.12, has the meaning assigned to such term in
Section 7.12(a).

   "Incentive Distribution Right" means a non-voting Limited Partner Interest
issued to Inergy Holdings, LLC pursuant to Section 5.2, which Partnership
Interest will confer upon the holder thereof only the rights and obligations
specifically provided in this Agreement with respect to Incentive Distribution
Rights (and no other rights otherwise available to or other obligations of a
holder of a Partnership Interest). Notwithstanding anything in this Agreement
to the contrary, the holder of an Incentive Distribution Right shall not be
entitled to vote such Incentive Distribution Right on any Partnership matter
except as may otherwise be required by law.

   "Incentive Distributions" means any amount of cash distributed to the
holders of the Incentive Distribution Rights pursuant to Sections 6.4(a)(vi),
(vii) and (viii) and 6.4(b)(iii), (iv) and (v).

   "Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).

                                      A-6

   "Indemnitee" means (a) each General Partner, (b) any Departing Partner, (c)
any Person who is or was an Affiliate of a General Partner or any Departing
Partner, (d) any Person who is or was a member, partner, officer, director,
employee, agent or trustee of any Group Member, a General Partner or any
Departing Partner or any Affiliate of any Group Member, a General Partner or
any Departing Partner, and (e) any Person who is or was serving at the request
of a General Partner or any Departing Partner or any Affiliate of a General
Partner or any Departing Partner as an officer, director, employee, member,
partner, agent, fiduciary or trustee of another Person; provided, that a Person
shall not be an Indemnitee by reason of providing, on a fee-for-services basis,
trustee, fiduciary or custodial services.

   "Initial Common Units" means the Common Units sold in the Initial Offering.

   "Initial Limited Partners" means Inergy Holdings, LLC (with respect to the
Incentive Distribution Rights received by it pursuant to Section 5.2), Inergy
Partners, LLC, New Inergy Propane, LLC, and the Underwriters, in each case upon
being admitted to the Partnership in accordance with Section 10.1.

   "Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.

   "Initial Unit Price" means (a) with respect to the Common Units, the Senior
Subordinated Units and the Junior Subordinated Units, the initial public
offering price per Common Unit at which the Underwriters offered the Common
Units to the public for sale as set forth on the cover page of the prospectus
included as part of the Registration Statement and first issued at or after the
time the Registration Statement first became effective or (b) with respect to
any other class or series of Units, the price per Unit at which such class or
series of Units is initially sold by the Partnership, as determined by the
Managing General Partner, in each case adjusted as the Managing General Partner
determines to be appropriate to give effect to any distribution, subdivision or
combination of Units.

   "Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings
of indebtedness and sales of debt securities (other than Working Capital
Borrowings and other than for items purchased on open account in the ordinary
course of business) by any Group Member; (b) sales of equity interests by any
Group Member (including the Common Units sold to the Underwriters pursuant to
the exercise of their over-allotment option); and (c) sales or other voluntary
or involuntary dispositions of any assets of any Group Member other than (i)
sales or other dispositions of inventory, accounts receivable and other assets
in the ordinary course of business, and (ii) sales or other dispositions of
assets as part of normal retirements or replacements.

   "Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.

   "Junior Subordinated Units" means a Unit representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights), and having the rights and
obligations specified with respect to Junior Subordinated Units in this
Agreement.

   "Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner prior to its withdrawal from the Partnership,
each Initial Limited Partner, each Substituted Limited Partner, each Additional
Limited Partner and any Departing Partner upon the change of its status from
General Partner to Limited Partner pursuant to Section 11.3 or (b) solely for
purposes of Articles V, VI, VII and IX, each Assignee; provided, however, that
when the term "Limited Partner" is used herein in the context of any vote or
other approval, including without limitation Articles XIII and XIV, such term
shall not, solely for such purpose, include any holder of an Incentive
Distribution Right except as may otherwise be required by law.

                                      A-7

   "Limited Partner Interest" means the ownership interest of a Limited Partner
or Assignee in the Partnership, which may be evidenced by Common Units, Senior
Subordinated Units, Junior Subordinated Units, Incentive Distribution Rights or
other Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which such Limited Partner or Assignee is
entitled as provided in this Agreement, together with all obligations of such
Limited Partner or Assignee to comply with the terms and provisions of this
Agreement; provided, however, that when the term "Limited Partner Interest" is
used herein in the context of any vote or other approval, including without
limitation Articles XIII and XIV, such term shall not, solely for such purpose,
include any holder of an Incentive Distribution Right except as may otherwise
be required by law.

   "Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time
period during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made, and (b) in the case of any other event giving rise to
the dissolution of the Partnership, the date on which such event occurs.

   "Liquidator" means one or more Persons selected by the Managing General
Partner to perform the functions described in Section 12.3 as liquidating
trustee of the Partnership within the meaning of the Delaware Act.

   "Managing General Partner" means Inergy GP, LLC and its successors and
permitted assigns as managing general partner of the Partnership.

   "Merger Agreement" has the meaning assigned to such term in Section 14.1.

   "Minimum Quarterly Distribution" means $0.60 per Unit per Quarter (or with
respect to the period commencing on the Closing Date and ending on June 30,
2001, it means the product of $0.60 multiplied by a fraction of which the
numerator is the number of days in such period and of which the denominator is
91), subject to adjustment in accordance with Sections 6.6 and 6.9.

   "National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq National Market or any successor thereto.

   "Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the
time of distribution, in either case, as determined under Section 752 of the
Code.

   "Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other
than those items taken into account in the computation of Net Termination Gain
or Net Termination Loss) for such taxable year. The items included in the
calculation of Net Income shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under Section 6.1(d);
provided that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.

   "Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those

                                      A-8

items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Loss shall be determined in accordance with Section 5.5(b) and shall not
include any items specially allocated under Section 6.1(d); provided that the
determination of the items that have been specially allocated under Section
6.1(d) shall be made as if Section 6.1(d)(xii) were not in this Agreement.

   "Net Positive Adjustments" means, with respect to any Partner, the excess,
if any, of the total positive adjustments over the total negative adjustments
made to the Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.

   "Net Termination Gain" means, for any taxable year, the sum, if positive, of
all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).

   "Net Termination Loss" means, for any taxable year, the sum, if negative, of
all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).

   "Non-citizen Assignee" means a Person whom the Managing General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Partnership Interest the Managing General Partner has become the
Substituted Limited Partner, pursuant to Section 4.9.

   "Non-Managing General Partner" means Inergy Partners, LLC and its successors
and permitted assigns as non-managing general partner of the Partnership.

   "Nonrecourse Built-in Gain" means with respect to any Contributed Properties
or Adjusted Properties that are subject to a mortgage or pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated
to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other consideration.

   "Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (including, without limitation, any expenditures described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse
Liability.

   "Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).

   "Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b).

   "Operating Company" means Inergy Propane, LLC, a Delaware limited liability
company, and any successors thereto.

   "Operating Company Agreement" means the Limited Liability Company Agreement
of the Operating Company, as it may be amended, supplemented or restated from
time to time.

   "Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the Managing General
Partner, repayment of Working Capital Borrowings, debt service payments, and
capital expenditures, subject to the following:

       (a)  Payments (including prepayments) of principal of and premium on
  indebtedness other than Working Capital Borrowings shall not constitute
  Operating Expenditures.

       (b)  Operating Expenditures shall not include (i) capital expenditures
  made for Acquisitions or for Capital Improvements, (ii) payment of
  transaction expenses relating to Interim Capital Transactions or
  (iii) distributions to Partners. Where capital expenditures are made in
  part for Acquisitions or for Capital Improvements and in part for other
  purposes, the Managing General Partner's good faith allocation between the
  amounts paid for each shall be conclusive.

                                      A-9

   "Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,

       (a)  the sum of (i) $8.5 million plus all cash and cash equivalents of
  the Partnership Group on hand as of the close of business on the Closing
  Date, (ii) all cash receipts of the Partnership Group for the period
  beginning on the Closing Date and ending with the last day of such period,
  other than cash receipts from Interim Capital Transactions (except to the
  extent specified in Section 6.5) and (iii) all cash receipts of the
  Partnership Group after the end of such period but on or before the date of
  determination of Operating Surplus with respect to such period resulting
  from Working Capital Borrowings, less

       (b)  the sum of (i) Operating Expenditures for the period beginning on
  the Closing Date and ending with the last day of such period and (ii) the
  amount of cash reserves that is necessary or advisable in the reasonable
  discretion of the Managing General Partner to provide funds for future
  Operating Expenditures; provided, however, that disbursements made
  (including contributions to a Group Member or disbursements on behalf of a
  Group Member) or cash reserves established, increased or reduced after the
  end of such period but on or before the date of determination of Available
  Cash with respect to such period shall be deemed to have been made,
  established, increased or reduced, for purposes of determining Operating
  Surplus, within such period if the Managing General Partner so determines.

   Notwithstanding the foregoing, "Operating Surplus" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.

   "Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or either of the General Partners or any of their
Affiliates) acceptable to the Managing General Partner in its reasonable
discretion.

   "Option Closing Date" means the date or dates on which any Common Units are
sold by the Partnership to the Underwriters upon exercise of the Over-Allotment
Option.

   "Organizational Limited Partner" means Inergy Partners, LLC in its capacity
as the organizational limited partner of the Partnership pursuant to this
Agreement.

   "Outstanding" means, with respect to Partnership Securities, all Partnership
Securities that are issued by the Partnership and reflected as outstanding on
the Partnership's books and records as of the date of determination; provided,
however, that if at any time any Person or Group (other than the General
Partners or their Affiliates) beneficially owns 20% or more of any Outstanding
Partnership Securities of any class then Outstanding, all Partnership
Securities owned by such Person or Group shall not be voted on any matter and
shall not be considered to be Outstanding when sending notices of a meeting, of
Limited Partners to vote on any matter (unless otherwise required by law),
calculating required votes, determining the presence of a quorum or for other
similar purposes under this Agreement, except that Common Units so owned shall
be considered to be Outstanding for purposes of Section 11.1(b)(iv) (such
Common Units shall not, however, be treated as a separate class of Partnership
Securities for purposes of this Agreement); provided, further, that the
foregoing limitation shall not apply (i) to any Person or Group who acquired
20% or more of any Outstanding Partnership Securities of any class then
Outstanding directly from the General Partners or their Affiliates or (ii) to
any Person or Group who acquired 20% or more of any Outstanding Partnership
Securities of any class then Outstanding directly or indirectly from a Person
or Group described in clause (i) provided that the General Partners shall have
notified such Person or Group in writing that such limitation shall not apply.

   "Over-Allotment Option" means the over-allotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.

   "Parity Units" means Common Units and all other Units of any other class or
series that have the right to participate (i) in distributions of Available
Cash from Operating Surplus pursuant to each of subclauses (a)(i) and (a)(ii)
of Section 6.4 in the same order of priority with respect to the participation
of Common Units in

                                      A-10

such distributions or (ii) to participate in allocations of Net Termination
Gain pursuant to Section 6.1(c)(i)(B) in the same order of priority with the
Common Units. Units whose participation in such (i) distributions of Available
Cash from Operating Surplus and (ii) allocations of Net Termination Gain are
subordinate in order of priority to such distributions and allocations on
Common Units shall not constitute Parity Units even if such Units are
convertible under certain circumstances into Common Units or Parity Units.

   "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).

   "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).

   "Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.

   "Partners" means the General Partners and the Limited Partners.

   "Partnership" means Inergy, L.P., a Delaware limited partnership, and any
successors thereto.

   "Partnership Group" means the Partnership, the Operating Company and any
Subsidiary of any such entity, treated as a single consolidated entity.

   "Partnership Interest" means an interest in the Partnership, which shall
include the General Partner Interests and Limited Partner Interests.

   "Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).

   "Partnership Security" means any class or series of equity interest in the
Partnership (but excluding any options, rights, warrants and appreciation
rights relating to an equity interest in the Partnership), including without
limitation, Common Units, Senior Subordinated Units, Junior Subordinated Units
and Incentive Distribution Rights.

   "Percentage Interest" means as of any date of determination (a) as to the
Non-Managing General Partner (with respect to its General Partner Interest),
2.0%, (b) as to any Unitholder or Assignee holding Units, the product obtained
by multiplying (i) 98% less the percentage applicable to paragraph (c) by (ii)
the quotient obtained by dividing (A) the number of Units held by such
Unitholder or Assignee by (B) the total number of all Outstanding Units, and
(c) as to the holders of additional Partnership Securities issued by the
Partnership in accordance with Section 5.6, the percentage established as a
part of such issuance. The Percentage Interest with respect to the Managing
General Partner's General Partner Interest shall be zero. The Percentage
Interest with respect to an Incentive Distribution Right shall at all times be
zero.

   "Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.

   "Per Unit Capital Amount" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Person other than the General Partners or any Affiliate of either of the
General Partners who holds Units.

   "Pro Rata" means (a) when modifying Units or any class thereof, apportioned
equally among all designated Units in accordance with their relative Percentage
Interests, (b) when modifying Partners and Assignees, apportioned among all
Partners and Assignees in accordance with their relative Percentage Interests
and (c) when modifying holders of Incentive Distribution Rights, apportioned
equally among all holders of Incentive Distribution Rights in accordance with
the relative number of Incentive Distribution Rights held by each such holder.

                                      A-11

   "Purchase Date" means the date determined by the Managing General Partner as
the date for purchase of all Outstanding Units of a certain class (other than
Units owned by the General Partners and their Affiliates) pursuant to Article
XV.

   "Quarter" means, unless the context requires otherwise, a fiscal quarter, or
with respect to the first fiscal quarter after the Closing Date the portion of
such fiscal quarter after the Closing Date, of the Partnership.

   "Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.

   "Record Date" means the date established by the Managing General Partner for
determining (a) the identity of the Record Holders entitled to notice of, or to
vote at, any meeting of Limited Partners or entitled to vote by ballot or give
approval of Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited Partners or (b) the
identity of Record Holders entitled to receive any report or distribution or to
participate in any offer.

   "Record Holder" means the Person in whose name a Common Unit is registered
on the books of the Transfer Agent as of the opening of business on a
particular Business Day, or with respect to other Partnership Securities, the
Person in whose name any such other Partnership Security is registered on the
books which the Managing General Partner has caused to be kept as of the
opening of business on such Business Day.

   "Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.10.

   "Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-56976) as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the Commission
under the Securities Act to register the offering and sale of the Common Units
in the Initial Offering.

   "Remaining Net Positive Adjustments" means as of the end of any taxable
period, (i) with respect to the Unitholders holding Common Units, Senior
Subordinated Units or Junior Subordinated Units, the excess of (a) the Net
Positive Adjustments of the Unitholders holding Common Units, Senior
Subordinated Units or Junior Subordinated Units as of the end of such period
over (b) the sum of those Partners' Share of Additional Book Basis Derivative
Items for each prior taxable period, (ii) with respect to the Non-Managing
General Partner (as holder of the Non-Managing Partner's General Partner
Interest), the excess of (a) the Net Positive Adjustments of the Non-Managing
General Partner as of the end of such period over (b) the sum of the Non-
Managing General Partner's Share of Additional Book Basis Derivative Items with
respect to its General Partner Interest for each prior taxable period, and
(iii) with respect to the holders of Incentive Distribution Rights, the excess
of (a) the Net Positive Adjustments of the holders of Incentive Distribution
Rights as of the end of such period over (b) the sum of the Share of Additional
Book Basis Derivative Items of the holders of the Incentive Distribution Rights
for each prior taxable period.

   "Required Allocations" means (a) any limitation imposed on any allocation of
Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and (b)
any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).

   "Residual Gain" or "Residual Loss" means any item of gain or loss; as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.

   "Second Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(F).

                                      A-12

   "Second Target Distribution" means $0.75 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
2001, it means the product of $0.75 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 91), subject to adjustment in accordance with Sections 6.6 and
6.9.

   "Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.

   "Senior Subordinated Units" means a Unit representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights), and having the rights and
obligations specified with respect to Senior Subordinated Units in this
Agreement.

   "Share of Additional Book Basis Derivative Items" means in connection with
any allocation of Additional Book Basis Derivative Items for any taxable
period, (i) with respect to the Unitholders holding Common Units, Senior
Subordinated Units or Subordinated Units, the amount that bears the same ratio
to such Additional Book Basis Derivative Items as the Unitholders' Remaining
Net Positive Adjustments as of the end of such period bears to the Aggregate
Remaining Net Positive Adjustments as of that time, (ii) with respect to the
Non-Managing General Partner (as holder of the Non-Managing Partner's General
Partner Interest), the amount that bears the same ratio to such additional Book
Basis Derivative Items as the Non-Managing General Partner's Remaining Net
Positive Adjustments as of the end of such period bears to the Aggregate
Remaining Net Positive Adjustment as of that time, and (iii) with respect to
the Partners holding Incentive Distribution Rights, the amount that bears the
same ratio to such Additional Book Basis Derivative Items as the Remaining Net
Positive Adjustments of the Partners holding the Incentive Distribution Rights
as of the end of such period bears to the Aggregate Remaining Net Positive
Adjustments as of that time.

   "Special Approval" means approval by a majority of the members of the
Conflicts Committee.

   "Subordinated Unit" means a Senior Subordinated Unit or a Junior
Subordinated Unit. The term "Subordinated Unit" as used herein does not include
a Common Unit or Parity Unit. A Subordinated Unit that is convertible into a
Common Unit or a Parity Unit shall not constitute a Common Unit or Parity Unit
until such conversion occurs.

   "Subordination Period" means the period commencing on the Closing Date and
ending on the first to occur of the following dates:

       (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, in respect of which (i) (A) distributions of
  Available Cash from Operating Surplus on each of the Outstanding Common
  Units, Senior Subordinated Units and Junior Subordinated Units with respect
  to each of the three consecutive, non-overlapping four-Quarter periods
  immediately preceding such date equaled or exceeded the sum of the Minimum
  Quarterly Distribution (or portion thereof for the first fiscal quarter
  after the Closing Date) on all Outstanding Common Units, Senior
  Subordinated Units and Junior Subordinated Units during such periods and
  (B) the Adjusted Operating Surplus generated during each of the three
  consecutive, non-overlapping four-Quarter periods immediately preceding
  such date 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 such periods on a fully
  diluted basis (i.e., taking into account for purposes of such determination
  all Outstanding Common Units, Senior Subordinated Units and Junior
  Subordinated Units, all Common Units, Subordinated Units and Junior
  Subordinated Units issuable upon exercise of employee options that have, as
  of the date of determination, already vested or are scheduled to vest prior
  to the end of the Quarter immediately following the Quarter with respect to
  which such determination is made, and all Common Units, Senior Subordinated
  Units and Junior Subordinated Units that have as of the date of
  determination, been earned by but not yet issued to management of the
  Partnership in respect of incentive compensation), plus the related
  distribution on the General Partner Interest, during such periods and (ii)
  there are no Cumulative Common Unit Arrearages; and

                                      A-13

       (b)  the date on which the Managing General Partner is removed as
  general partner of the Partnership upon the requisite vote by holders of
  Outstanding Units under circumstances where Cause does not exist and Units
  held by the General Partners and their Affiliates are not voted in favor of
  such removal.

   "Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person or a combination thereof, (b) a partnership (whether general or limited)
in which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
more than 50% of the partnership interests of such partnership (considering all
of the partnership interests of the partnership as a single class) is owned,
directly or indirectly, at the date of determination, by such Person, by one or
more Subsidiaries of such Person, or a combination thereof, or (c) any other
Person (other than a corporation or a partnership) in which such Person, one or
more Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority ownership
interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such-Person.

   "Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with all
the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.

   "Surviving Business Entity" has the meaning assigned to such term in Section
14.2(b).

   "Third Target Distribution" means $0.90 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
2001, it means the product of $0.90 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 91), subject to adjustment in accordance with Sections 6.6 and
6.9.

   "Third Target Liquidation Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(G).

   "Trading Day" has the meaning assigned to such term in Section 15.1(a).

   "Transfer" has the meaning assigned to such term in Section 4.4(a).

   "Transfer Agent" means such bank, trust company or other Person (including
the Managing General Partner or one of its Affiliates) as shall be appointed
from time to time by the Partnership to act as registrar and transfer agent for
the Common Units; provided that if no Transfer Agent is specifically designated
for any other Partnership Securities, the Managing General Partner shall act in
such capacity.

   "Transfer Application" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.

   "Underwriter" means each Person named as an underwriter in Schedule I to the
Underwriting Agreement who purchases Common Units pursuant thereto.

   "Underwriting Agreement" means the Underwriting Agreement dated
  , 2001 among the Underwriters, the Partnership and certain other parties,
providing for the purchase of Common Units by such Underwriters.

   "Unit" means a Partnership Security that is designated as a "Unit" and shall
include Common Units and Subordinated Units but shall not include (i) a General
Partner Interest or (ii) Incentive Distribution Rights.

   "Unitholders" means the holders of Common Units and Subordinated Units.

   "Unit Majority" means, during the Subordination Period, at least a majority
of the Outstanding Common Units (excluding Common Units owned by the General
Partners and their Affiliates), voting as a class, and at least a majority of
the Outstanding Senior Subordinated Units and Junior Subordinated Units, voting
together as a single class, and thereafter, at least a majority of the
Outstanding Common Units.

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   "Unpaid MQD" has the meaning assigned to such term in Section 6.1(c)(i)(B).

   "Unrealized Gain" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the fair market value
of such property as of such date (as determined under Section 5.5(d)) over (b)
the Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 5.5(d) as of such date).

   "Unrealized Loss" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 5.5(d)).

   "Unrecovered Capital" means at any time, with respect to a Unit, the Initial
Unit Price less the sum of all distributions constituting Capital Surplus
theretofore made in respect of an Initial Common Unit and any distributions of
cash (or the Net Agreed Value of any distributions in kind) in connection with
the dissolution and liquidation of the Partnership theretofore made in respect
of an Initial Common Unit, adjusted as the Managing General Partner determines
to be appropriate to give effect to any distribution, subdivision or
combination of such Units.

   "US GAAP" means United States Generally Accepted Accounting Principles
consistently applied.

   "Withdrawal Opinion of Counsel" has the meaning assigned to such term in
Section 11.1(b).

   "Working Capital Borrowings" means borrowings exclusively for working
capital purposes made pursuant to a credit facility or other arrangement
requiring all such borrowings thereunder to be reduced to a relatively small
amount each year (or for the year in which the Initial Offering is consummated,
the 12-month period beginning on the Closing Date) for an economically
meaningful period of time.

Section 1.2. Construction.

   Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.

                                   ARTICLE II

                                  Organization

Section 2.1. Formation.

   The Managing General Partner, the Non-Managing General Partner and the
Organizational Limited Partner have previously formed the Partnership as a
limited partnership pursuant to the provisions of the Delaware Act and hereby
amend and restate the original Agreement of Limited Partnership of Inergy, L.P.
in its entirety. This amendment and restatement shall become effective on the
date of this Agreement. Except as expressly provided to the contrary in this
Agreement, the rights, duties (including fiduciary duties), liabilities and
obligations of the Partners and the administration, dissolution and termination
of the Partnership shall be governed by the Delaware Act, All Partnership
Interests shall constitute personal property of the owner thereof for all
purposes and a Partner has no interest in specific Partnership property.

Section 2.2. Name.

   The name of the Partnership shall be "Inergy, L.P." The Partnership's
business may be conducted under any other name or names deemed necessary or
appropriate by the Managing General Partner in its sole discretion, including
the name of the Managing General Partner. The words "Limited Partnership,"
"Ltd." or

                                      A-15

similar words or letters shall be included in the Partnership's name where
necessary for the purpose of complying with the laws of any jurisdiction that
so requires. The Managing General Partner in its discretion may change the name
of the Partnership at any time and from time to time and shall notify the
Limited Partners of such change in the next regular communication to the
Limited Partners.

Section 2.3. Registered Office; Registered Agent; Principal Office; Other
Offices.

   Unless and until changed by the Managing General Partner, the registered
office of the Partnership in the State of Delaware shall be located at 1209
Orange Street, Wilmington, Delaware 19801, and the registered agent for service
of process on the Partnership in the State of Delaware at such registered
office shall be The Corporation Trust Company. The principal office of the
Partnership shall be located at 1101 Walnut, Suite 1500, Kansas City, Missouri
64106 or such other place as the Managing General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware
as the Managing General Partner deems necessary or appropriate. The address of
the Managing General Partner shall be 1101 Walnut, Suite 1500, Kansas City,
Missouri 64106 or such other place as the Managing General Partner may from
time to time designate by notice to the Limited Partners.

Section 2.4. Purpose and Business.

   The purpose and nature of the business to be conducted by the Partnership
shall be to (a) serve as a member of the Operating Company and, in connection
therewith, to exercise all the rights and powers conferred upon, the
Partnership as a member of the Operating Company pursuant to the Operating
Company Agreement or otherwise, (b) engage directly in, or enter into or form
any corporation, partnership, joint venture, limited liability company or other
arrangement to engage indirectly in, any business activity that the Operating
Company is permitted to engage in by the Operating Company Agreement and, in
connection therewith, to exercise all of the rights and powers conferred upon
the Partnership pursuant to the agreements relating to such business activity,
(c) engage directly in, or enter into or form any corporation, partnership,
joint venture, limited liability company or other entity or arrangement to
engage indirectly in, any business activity that the Managing General Partner
approves and which lawfully may be conducted by a limited partnership organized
pursuant to the Delaware Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Partnership pursuant to the agreements
relating to such business activity; provided, however, that the Managing
General Partner reasonably determines, as of the date of the acquisition or
commencement of such activity, that such activity (i) generates "qualifying
income" (as such term is defined pursuant to Section 7704 of the Code) or a
Subsidiary, or a Partnership activity that generates qualifying income, or (ii)
enhances the operations of an activity of the Operating Company and (d) do
anything necessary or appropriate to the foregoing, including the making of
capital contributions or loans to a Group Member. The Managing General Partner
has no obligation or duty to the Partnership, the Limited Partners, the Non-
Managing General Partner or the Assignees to propose or approve, and in its
discretion may decline to propose or approve, the conduct by the Partnership of
any business.

Section 2.5. Powers.

   The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the Partnership.

Section 2.6. Power of Attorney.

       (a)  Each Limited Partner and each Assignee hereby constitutes and
  appoints the Managing General Partner and, if a Liquidator shall have been
  selected pursuant to Section 12.3, the Liquidator, (and any successor to
  the Liquidator by merger, transfer, assignment, election or otherwise) and
  each of their authorized officers and attorneys-in-fact, as the case may
  be, with full power of substitution, as his true and lawful agent and
  attorney-in-fact, with full power and authority in his name, place and
  stead, to:

                                      A-16

         (i)  execute, swear to, acknowledge, deliver, file and record in
    the appropriate public offices (A) all certificates, documents and
    other instruments (including this Agreement and the Certificate of
    Limited Partnership and all amendments or restatements hereof or
    thereof) that the Managing General Partner or the Liquidator deems
    necessary or appropriate to form, qualify or continue the existence or
    qualification of the Partnership as a limited partnership (or a
    partnership in which the limited partners have limited liability) in
    the State of Delaware and in all other jurisdictions in which the
    Partnership may conduct business or own property; (B) all certificates,
    documents and other instruments that the Managing General Partner or
    the Liquidator deems necessary or appropriate to reflect, in accordance
    with its terms, any amendment, change, modification or restatement of
    this Agreement; (C) all certificates, documents and other instruments
    (including conveyances and a certificate of cancellation) that the
    Managing General Partner or the Liquidator deems necessary or
    appropriate to reflect the dissolution and liquidation of the
    Partnership pursuant to the terms of this Agreement; (D) all
    certificates, documents and other instruments relating to the
    admission, withdrawal, removal or substitution of any Partner pursuant
    to, or other events described in, Article IV, X, XI or XII; (E) all
    certificates, documents and other instruments relating to the
    determination of the rights, preferences and privileges of any class or
    series of Partnership Securities issued pursuant to Section 5.6; and
    (F) all certificates, documents and other instruments (including
    agreements and a certificate of merger) relating to a merger or
    consolidation of the Partnership pursuant to Article XIV; and

          (ii)  execute, swear to, acknowledge, deliver, file and record
    all ballots, consents, approvals, waivers, certificates, documents and
    other instruments necessary or appropriate, in the discretion of the
    Managing General Partner or the Liquidator, to make, evidence, give,
    confirm or ratify any vote, consent, approval, agreement or other
    action that is made or given by the Partners hereunder or is consistent
    with the terms of this Agreement or is necessary or appropriate, in the
    discretion of the Managing General Partner or the Liquidator, to
    effectuate the terms or intent of this Agreement; provided, that when
    required by Section 13.3 or any other provision of this Agreement that
    establishes a percentage of the Limited Partners or of the Limited
    Partners of any class or series required to take any action, the
    Managing General Partner and the Liquidator may exercise the power of
    attorney made in this Section 2.6(a)(ii) only after the necessary vote,
    consent or approval of the Limited Partners or of the Limited Partners
    of such class or series, as applicable.

   Nothing contained in this Section 2.6(a) shall be construed as authorizing
the Managing General Partner to amend this Agreement except in accordance with
Article XIII or as may be otherwise expressly provided for in this Agreement.

       (b)  The foregoing power of attorney is hereby declared to be
  irrevocable and a power coupled with an interest, and it shall survive and,
  to the maximum extent permitted by law, not be affected by the subsequent
  death, incompetency, disability, incapacity, dissolution, bankruptcy or
  termination of any Limited Partner or Assignee and the transfer of all or
  any portion of such Limited Partner's or Assignee's Partnership Interest
  and shall extend to such Limited Partner's or Assignee's heirs, successors,
  assigns and personal representatives. Each such Limited Partner or Assignee
  hereby agrees to be bound by any representation made by the Managing
  General Partner or the Liquidator acting in good faith pursuant to such
  power of attorney; and each such Limited Partner or Assignee, to the
  maximum extent permitted by law, hereby waives any and all defenses that
  may be available to contest, negate or disaffirm the action of the Managing
  General Partner or the Liquidator taken in good faith under such power of
  attorney. Each Limited Partner or Assignee shall execute and deliver to the
  Managing General Partner or the Liquidator, within 15 days after receipt of
  the request therefor, such further designation, powers of attorney and
  other instruments as the Managing General Partner or the Liquidator deems
  necessary to effectuate this Agreement and the purposes of the Partnership.

                                      A-17

Section 2.7. Term.

   The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the dissolution of the Partnership in accordance with the
provisions of Article XII. The existence of the Partnership as a separate legal
entity shall continue until the cancellation of the Certificate of Limited
Partnership as provided in the Delaware Act.

Section 2.8. Title to Partnership Assets.

   Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have
any ownership interest in such Partnership assets or any portion thereof. Title
to any or all of the Partnership assets may be held in the name of the
Partnership, the Managing General Partner, one or more of its Affiliates or one
or more nominees, as the Managing General Partner may determine. The Managing
General Partner hereby declares and warrants that any Partnership assets for
which record title is held in the name of the Managing General Partner or one
or more of its Affiliates or one or more nominees shall be held by the Managing
General Partner or such Affiliate or nominee for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the Managing General Partner shall use reasonable efforts to
cause record title to such assets (other than those assets in respect of which
the Managing General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable)
to be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the Managing General
Partner or as soon thereafter as practicable, the Managing General Partner
shall use reasonable efforts to effect the transfer of record title to the
Partnership and, prior to any such transfer, will provide for the use of such
assets in a manner satisfactory to the Managing General Partner. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which record title to such
Partnership assets is held.

                                  ARTICLE III

                           Rights Of Limited Partners

Section 3.1. Limitation of Liability.

   The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or the Delaware Act.

Section 3.2. Management of Business.

   No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware
Act) of the Partnership's business, transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the Partnership.
Any action taken by any Affiliate of a General Partner or any officer,
director, employee, manager, member, general partner, agent or trustee of a
General Partner or any of its Affiliates, or any officer, director, employee,
manager, member, general partner, agent or trustee of a Group Member, in its
capacity as such, shall not be deemed to be participation in the control of the
business of the Partnership by a limited partner of the Partnership (within the
meaning of Section 17-303(a) of the Delaware Act) and shall not affect, impair
or eliminate the limitations on the liability of the Limited Partners or
Assignees under this Agreement.

Section 3.3. Outside Activities of the Limited Partners.

   Subject to the provisions of Section 7.5, any Limited Partner or Assignee
shall be entitled to and may have business interests and engage in business
activities in addition to those relating to the Partnership, including business
interests and activities in direct competition with the Partnership Group.
Neither the Partnership nor any of the other Partners or Assignees shall have
any rights by virtue of this Agreement in any business ventures of any Limited
Partner or Assignee.

                                      A-18

Section 3.4. Rights of Limited Partners.

       (a)  In addition to other rights provided by this Agreement or by
  applicable law, and except as limited by Section 3.4(b), each Limited
  Partner shall have the right, for a purpose reasonably related to such
  Limited Partner's interest as a limited partner in the Partnership, upon
  reasonable written demand and at such Limited Partner's own expense:

         (i)  to obtain true and full information regarding the status of
    the business and financial condition of the Partnership;

          (ii)  promptly after becoming available, to obtain a copy of the
    Partnership's federal, state and local income tax returns for each
    year;

           (iii)  to have furnished to him a current list of the name and
    last known business, residence or mailing address of each Partner;

          (iv)  to have furnished to him a copy of this Agreement and the
    Certificate of Limited Partnership and all amendments thereto, together
    with a copy of the executed copies of all powers of attorney pursuant
    to which this Agreement, the Certificate of Limited Partnership and all
    amendments thereto have been executed;

         (v)  to obtain true and full information regarding the amount of
    cash and a description and statement of the Net Agreed Value of any
    other Capital Contribution by each Partner and which each Partner has
    agreed to contribute in the future, and the date on which each became a
    Partner; and

          (vi)  to obtain such other information regarding the affairs of
    the Partnership as is just and reasonable.

       (b)  The Managing General Partner may keep confidential from the
  Limited Partners and Assignees, for such period of time as the Managing
  General Partner deems reasonable, (i) any information that the Managing
  General Partner reasonably believes to be in the nature of trade secrets or
  (ii) other information the disclosure of which the Managing General Partner
  in good faith believes (A) is not in the best interests of the Partnership
  Group, (B) could damage the Partnership Group or (C) that any Group Member
  is required by law or by agreement with any third party to keep
  confidential (other than agreements with Affiliates of the Partnership the
  primary purpose of which is to circumvent the obligations set forth in this
  Section 3.4).

                                   ARTICLE IV

        Certificates; Record Holders; Transfer Of Partnership Interests;
                      Redemption Of Partnership Interests

Section 4.1. Certificates.

   Upon the Partnership's issuance of Common Units, Senior Subordinated Units
or Junior Subordinated Units to any Person, the Partnership shall issue one or
more Certificates in the name of such Person evidencing the number of such
Units being so issued. In addition, (a) upon the Managing General Partner's
request, the Partnership shall issue to it one or more Certificates in the name
of the Managing General Partner evidencing its interests in the Partnership and
(b) upon the request of any Person owning Incentive Distribution Rights or any
other Partnership Securities other than Common Units, Senior Subordinated Units
or Junior Subordinated Units, the Partnership shall issue to such Person one or
more certificates evidencing such Incentive Distribution Rights or other
Partnership Securities other than Common Units, Senior Subordinated Units or
Junior Subordinated Units. Certificates shall be executed on behalf of the
Partnership by the Chairman of the Board, President or any Vice President and
the Secretary or any Assistant Secretary of the Managing General Partner. No
Common Unit Certificate shall be valid for any purpose until it has been
countersigned by the Transfer Agent; provided, however, that if the Managing
General Partner elects to issue Common Units in global form, the Common Unit
Certificates shall be valid upon receipt of a certificate from the Transfer
Agent certifying that the Common Units have been duly registered in accordance
with the directions of the Partnership and the Underwriters. Subject to the
requirements of Section 6.7(b), the Partners holding Certificates evidencing
Senior

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Subordinated Units or Junior Subordinated Units may exchange such Certificates
for Certificates evidencing Common Units on or after the date on which such
Senior Subordinated Units or Junior Subordinated Units are converted into
Common Units pursuant to the terms of Section 5.8.

Section 4.2. Mutilated, Destroyed, Lost or Stolen Certificates.

       (a)  If any mutilated Certificate is surrendered to the Transfer
  Agent, the appropriate officers of the Managing General Partner on behalf
  of the Partnership shall execute, and the Transfer Agent shall countersign
  and deliver in exchange therefor, a new Certificate evidencing the same
  number and type of Partnership Securities as the Certificate so
  surrendered.

       (b)  The appropriate officers of the Managing General Partner on
  behalf of the Partnership shall execute and deliver, and the Transfer Agent
  shall countersign a new Certificate in place of any Certificate previously
  issued if the Record Holder of the Certificate:

         (i)  makes proof by affidavit, in form and substance satisfactory
    to the Partnership, that a previously issued Certificate has been lost,
    destroyed or stolen;

          (ii)  requests the issuance of a new Certificate before the
    Partnership has notice that the Certificate has been acquired by a
    purchaser for value in good faith and without notice of an adverse
    claim;

       (iii) if requested by the Partnership, delivers to the Partnership a
    bond, in form and substance satisfactory to the Partnership, with
    surety or sureties and with fixed or open penalty as the Partnership
    may reasonably direct, in its sole discretion, to indemnify the
    Partnership, the Partners, the Managing General Partner and the
    Transfer Agent against any claim that may be made on account of the
    alleged loss, destruction or theft of the Certificate; and

       (iv) satisfies any other reasonable requirements imposed by the
    Partnership.

   If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the Managing General Partner
or the Transfer Agent receives such notification, the Limited Partner or
Assignee shall be precluded from making any claim against the Partnership, the
Managing General Partner or the Transfer Agent for such transfer or for a new
Certificate.

       (c)  As a condition to the issuance of any new Certificate under this
  Section 4.2, the Partnership may require the payment of a sum sufficient to
  cover any tax or other governmental charge that may be imposed in relation
  thereto and any other expenses (including the fees and expenses of the
  Transfer Agent) reasonably connected therewith.

Section 4.3. Record Holders.

   The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of
whether the Partnership shall have actual or other notice thereof, except as
otherwise provided by law or any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which such Partnership
Interests are listed for trading. Without limiting the foregoing, when a Person
(such as a broker, dealer, bank, trust company or clearing corporation or an
agent of any of the foregoing) is acting as nominee, agent or in some other
representative capacity for another Person in acquiring and/or holding
Partnership Interests, as between the Partnership on the one hand, and such
other Persons on the other, such representative Person (a) shall be the Partner
or Assignee (as the case may be) of record and beneficially, (b) must execute
and deliver a Transfer Application and (c) shall be bound by this Agreement and
shall have the rights and obligations of a Partner or Assignee (as the case may
be) hereunder and as, and to the extent, provided for herein.

                                      A-20

Section 4.4. Transfer Generally.

       (a)  The term "transfer," when used in this Agreement with respect to
  a Partnership Interest, shall be deemed to refer to a transaction by which
  a General Partner assigns its General Partner Interest to another Person
  who becomes a General Partner, by which the holder of a Limited Partner
  Interest assigns such Limited Partner Interest to another Person who is or
  becomes a Limited Partner or an Assignee, and includes a sale, assignment,
  gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
  disposition by law or otherwise.

     (b) No Partnership Interest shall be transferred, in whole or in part,
  except in accordance with the terms and conditions set forth in this
  Article IV. Any transfer or purported transfer of a Partnership Interest
  not made in accordance with this Article IV shall be null and void.

     (c) Nothing contained in this Agreement shall be construed to prevent a
  disposition by any member of a General Partner of any or all of the issued
  and outstanding membership interests of such General Partner.

Section 4.5. Registration and Transfer of Limited Partner Interests.

      (a) The Partnership shall keep or cause to be kept on behalf of the
  Partnership a register in which, subject to such reasonable regulations as
  it may prescribe and subject to the provisions of Section 4.5(b), the
  Partnership will provide for the registration and transfer of Limited
  Partner Interests. The Transfer Agent is hereby appointed registrar and
  transfer agent for the purpose of registering Common Units and transfers of
  such Common Units as herein provided. The Partnership shall not recognize
  transfers of Certificates evidencing Limited Partner Interests unless such
  transfers are effected in the manner described in this Section 4.5. Upon
  surrender of a Certificate for registration of transfer of any Limited
  Partner Interests evidenced by a Certificate, and subject to the provisions
  of Section 4.5(b), the appropriate officers of the Managing General Partner
  on behalf of the Partnership shall execute and deliver, and in the case of
  Common Units, the Transfer Agent shall countersign and deliver, in the name
  of the holder or the designated transferee or transferees, as required
  pursuant to the holder's instructions, one or more new Certificates
  evidencing the same aggregate number and type of Limited Partner Interests
  as was evidenced by the Certificate so surrendered.

     (b) Except as otherwise provided in Section 4.9, the Partnership shall
  not recognize any transfer of Limited Partner Interests until the
  Certificates evidencing such Limited Partner Interests are surrendered for
  registration of transfer and such Certificates are accompanied by a
  Transfer Application duly executed by the transferee (or the transferee's
  attorney-in-fact duly authorized in writing). No charge shall be imposed by
  the Partnership for such transfer; provided, that as a condition to the
  issuance of any new Certificate under this Section 4.5, the Partnership may
  require the payment of a sum sufficient to cover any tax or other
  governmental charge that may be imposed with respect thereto.

     (c) Limited Partner Interests may be transferred only in the manner
  described in this Section 4.5. The transfer of any Limited Partner
  Interests and the admission of any new Limited Partner shall not constitute
  an amendment to this Agreement.

     (d) Until admitted as a Substituted Limited Partner pursuant to Section
  10.2, the Record Holder of a Limited Partner Interest shall be an Assignee
  in respect of such Limited Partner Interest. Limited Partners may include
  custodians, nominees or any other individual or entity in its own or any
  representative capacity.

     (e) A transferee of a Limited Partner Interest who has completed and
  delivered a Transfer Application shall be deemed to have (i) requested
  admission as a Substituted Limited Partner, (ii) agreed to comply with and
  be bound by and to have executed this Agreement, (iii) represented and
  warranted that such transferee has the right, power and authority and, if
  an individual, the capacity to enter into this Agreement, (iv) granted the
  powers of attorney set forth in this Agreement and (v) given the consents
  and approvals and made the waivers contained in this Agreement.

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       (f)  Each General Partner and its Affiliates shall have the right at
  any time to transfer their Senior Subordinated Units, Junior Subordinated
  Units and Common Units (whether issued upon conversion of the Subordinated
  Units or otherwise) to one or more Persons.

Section 4.6. Transfer of the General Partners' General Partner Interests.

       (a)  Subject to Section 4.6(c) below, prior to June 30, 2011, a
  General Partner shall not transfer all or any part of its General Partner
  Interest to a Person unless such transfer (i) has been approved by the
  prior written consent or vote of the holders of at least a majority of the
  Outstanding Common Units (excluding Common Units held by the General
  Partners and their Affiliates) or (ii) is of all, but not less than all, of
  its General Partner Interest to (A) an Affiliate of one of the General
  Partners (other than an individual) or (B) another Person (other than an
  individual) in connection with the merger or consolidation of such General
  Partner with or into another Person (other than an individual) or the
  transfer by such General Partner of all or substantially all of its assets
  to another Person (other than an individual) .

       (b)  Subject to Section 4.6(c) below, on or after June 30, 2011, the
  General Partner may transfer all or any of its General Partner Interest
  without Unitholder approval.

       (c)  Notwithstanding anything herein to the contrary, no transfer by a
  General Partner of all or any part of its General Partner Interest to
  another Person shall be permitted unless (i) the transferee agrees to
  assume the rights and duties of such General Partner under this Agreement
  and to be bound by the provisions of this Agreement, (ii) the Partnership
  receives an Opinion of Counsel that such transfer would not result in the
  loss of limited liability of any Limited Partner or of any member of the
  Operating Company or cause the Partnership or the Operating Company to be
  treated as an association taxable as a corporation or otherwise to be taxed
  as an entity for federal income tax purposes (to the extent not already so
  treated or taxed), (iii) in the case of the Managing General Partner's
  General Partner Interest, such transferee also agrees to purchase all (or
  the appropriate portion thereof, if applicable) of the partnership or
  membership interest of the Managing General Partner as the general partner
  or managing member of each other Group Member and (iv) in the case of the
  Non-Managing Partner's General Partner Interest, (x) such transferee also
  agrees to purchase all (or the appropriate portion thereof, if applicable)
  of the partnership or membership interest of the Non-Managing General
  Partner as the general partner or member of each other Group Member and (y)
  the Managing General Partner consents to such transfer. In the case of a
  transfer pursuant to and in compliance with this Section 4.6, the
  transferee or successor (as the case may be) shall, subject to compliance
  with the terms of Section 10.3, be admitted to the Partnership as a General
  Partner immediately prior to the transfer of the Partnership Interest, and
  the business of the Partnership shall continue without dissolution.

Section 4.7. Transfer of Incentive Distribution Rights.

   Prior to June 30, 2011, a holder of Incentive Distribution Rights may
transfer any or all of the Incentive Distribution Rights held by such holder
without any consent of the Unitholders (a) to an Affiliate (other than an
individual) or (b) to another Person (other than an individual) in connection
with (i) the merger or consolidation of such holder of Incentive Distribution
Rights with or into such other Person or (ii) the transfer by such holder of
all or substantially all of its assets to such other Person provided that the
transferee also owns, controls or is controlled by the Managing General
Partner. Any other transfer of the Incentive Distribution Rights prior to June
30, 2011, shall require the prior approval of holders at least a majority of
the Outstanding Common Units (excluding Common Units held by the General
Partners and their Affiliates). On or after June 30, 2011, Inergy Holdings,
LLC, or any other holder of Incentive Distribution Rights may transfer any or
all of its Incentive Distribution Rights without Unitholder approval.
Notwithstanding anything herein to the contrary, no transfer of Incentive
Distribution Rights to another Person shall be permitted unless the transferee
agrees to be bound by the provisions of this Agreement. The Managing General
Partner shall have the authority (but shall not be required) to adopt such
reasonable restrictions on the transfer of Incentive Distribution Rights and
requirements for registering the transfer of Incentive Distribution Rights as
the Managing General Partner, in its sole discretion, shall determine are
necessary or appropriate.

                                      A-22

Section 4.8. Restrictions on Transfers.

       (a)  Except as provided in Section 4.8(d) below, but notwithstanding
  the other provisions of this Article IV, no transfer of any Partnership
  Interests shall be made if such transfer would (i) violate the then
  applicable federal or state securities laws or rules and regulations of the
  Commission, any state securities commission or any other governmental
  authority with jurisdiction over such transfer, (ii) terminate the
  existence or qualification of the Partnership or Operating Company under
  the laws of the jurisdiction of its formation, or (iii) cause the
  Partnership or Operating Company to be treated as an association taxable as
  a corporation or otherwise to be taxed as an entity for federal income tax
  purposes (to the extent not already so treated or taxed).

       (b)  The Managing General Partner may impose restrictions on the
  transfer of Partnership Interests if a subsequent Opinion of Counsel
  determines that such restrictions are necessary to avoid a significant risk
  of the Partnership or Operating Company becoming taxable as a corporation
  or otherwise to be taxed as an entity for federal income tax purposes. The
  restrictions may be imposed by making such amendments to this Agreement as
  the Managing General Partner may determine to be necessary or appropriate
  to impose such restrictions; provided, however, that any amendment that the
  Managing General Partner believes, in the exercise of its reasonable
  discretion, could result in the delisting or suspension of trading of any
  class of Limited Partner Interests on the principal National Securities
  Exchange on which such class of Limited Partner Interests is then traded
  must be approved, prior to such amendment being effected, by the holders of
  at least a majority of the Outstanding Limited Partner Interests of such
  class.

       (c)  The transfer of a Subordinated Unit that has converted into a
  Common Unit shall be subject to the restrictions imposed by Section 6.7(b).

       (d)  Nothing contained in this Article IV, or elsewhere in this
  Agreement, shall preclude the settlement of any transactions involving
  Partnership Interests entered into through the facilities of any National
  Securities Exchange on which such Partnership Interests are listed for
  trading.

Section 4.9. Citizenship Certificates; Non-citizen Assignees.

       (a)  If any Group Member is or becomes subject to any federal, state
  or local law or regulation that, in the reasonable determination of the
  Managing General Partner, creates a substantial risk of cancellation or
  forfeiture of any property in which the Group Member has an interest based
  on the nationality, citizenship or other related status of a Limited
  Partner or Assignee, the Managing General Partner may request any Limited
  Partner or Assignee to furnish to the Managing General Partner, within 30
  days after receipt of such request, an executed Citizenship Certification
  or such other information concerning his nationality, citizenship or other
  related status (or, if the Limited Partner or Assignee is a nominee holding
  for the account of another Person, the nationality, citizenship or other
  related status of such Person) as the Managing General Partner may request.
  If a Limited Partner or Assignee fails to furnish to the Managing General
  Partner within the aforementioned 30-day period such Citizenship
  Certification or other requested information or if upon receipt of such
  Citizenship Certification or other requested information the Managing
  General Partner determines, with the advice of counsel, that a Limited
  Partner or Assignee is not an Eligible Citizen, the Partnership Interests
  owned by such Limited Partner or Assignee shall be subject to redemption in
  accordance with the provisions of Section 4.10. In addition, the Managing
  General Partner may require that the status of any such Partner or Assignee
  be changed to that of a Non-citizen Assignee and, thereupon, the Managing
  General Partner shall be substituted for such Non-citizen Assignee as the
  Limited Partner in respect of his Limited Partner Interests.

       (b)  The Managing General Partner shall, in exercising voting rights
  in respect of Limited Partner Interests held by it on behalf of Non-citizen
  Assignees, distribute the votes in the same ratios as the votes of Partners
  (including without limitation the General Partners) in respect of Limited
  Partner Interests other than those of Non-citizen Assignees are cast,
  either for, against or abstaining as to the matter.

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       (c)  Upon dissolution of the Partnership, a Non-citizen Assignee shall
  have no right to receive a distribution in kind pursuant to Section 12.4
  but shall be entitled to the cash equivalent thereof, and the Partnership
  shall provide cash in exchange for an assignment of the Non-citizen
  Assignee's share of the distribution in kind. Such payment and assignment
  shall be treated for Partnership purposes as a purchase by the Partnership
  from the Non-citizen Assignee of his Limited Partner Interest (representing
  his right to receive his share of such distribution in kind).

       (d)  At any time after he can and does certify that he has become an
  Eligible Citizen, a Non-citizen Assignee may, upon application to the
  General Partner, request admission as a Substituted Limited Partner with
  respect to any Limited Partner Interests of such Non-citizen Assignee not
  redeemed pursuant to Section 4.10, and upon his admission pursuant to
  Section 10.2, the Managing General Partner shall cease to be deemed to be
  the Limited Partner in respect of the Non-citizen Assignee's Limited
  Partner Interests.

Section 4.10. Redemption of Partnership Interests of Non-citizen Assignees.

       (a)  If at any time a Limited Partner or Assignee fails to furnish a
  Citizenship Certification or other information requested within the 30-day
  period specified in Section 4.9(a), or if upon receipt of such Citizenship
  Certification or other information the General Partner determines, with the
  advice of counsel, that a Limited Partner or Assignee is not an Eligible
  Citizen, the Partnership may, unless the Limited Partner or Assignee
  establishes to the satisfaction of the Managing General Partner that such
  Limited Partner or Assignee is an Eligible Citizen or has transferred his
  Partnership Interests to a Person who is an Eligible Citizen and who
  furnishes a Citizenship Certification to the Managing General Partner prior
  to the date fixed for redemption as provided below, redeem the Partnership
  Interest of such Limited Partner or Assignee as follows:

         (i)  The Managing General Partner shall, not later than the 30th
    day before the date fixed for redemption, give notice of redemption to
    the Limited Partner or Assignee, at his last address designated on the
    records of the Partnership or the Transfer Agent, by registered or
    certified mail, postage prepaid. The notice shall be deemed to have
    been given when so mailed. The notice shall specify the Redeemable
    Interests, the date fixed for redemption, the place of payment, that
    payment of the redemption price will be made upon surrender of the
    Certificate evidencing the Redeemable Interests and that on and after
    the date fixed for redemption no further allocations or distributions
    to which the Limited Partner or Assignee would otherwise be entitled in
    respect of the Redeemable Interests will accrue or be made.

          (ii)  The aggregate redemption price for Redeemable Interests
    shall be an amount equal to the Current Market Price (the date of
    determination of which shall be the date fixed for redemption) of
    Limited Partner Interests of the class to be so redeemed multiplied by
    the number of Limited Partner Interests of each such class included
    among the Redeemable Interests. The redemption price shall be paid, in
    the discretion of the Managing General Partner, in cash or by delivery
    of a promissory note of the Partnership in the principal amount of the
    redemption price, bearing interest at the rate of 10% annually and
    payable in three equal annual installments of principal together with
    accrued interest, commencing one year after the redemption date.

           (iii)  Upon surrender by or on behalf of the Limited Partner or
    Assignee, at the place specified in the notice of redemption, of the
    Certificate evidencing the Redeemable Interests, duly endorsed in blank
    or accompanied by an assignment duly executed in blank, the Limited
    Partner or Assignee or his duly authorized representative shall be
    entitled to receive the payment therefor.

          (iv)  After the redemption date, Redeemable Interests shall no
    longer constitute issued and Outstanding Limited Partner Interests.

       (b)  The provisions of this Section 4.10 shall also be applicable to
  Limited Partner Interests held by a Limited Partner or Assignee as nominee
  of a Person determined to be other than an Eligible Citizen.

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     (c) Nothing in this Section 4.10 shall prevent the recipient of a notice
  of redemption from transferring his Limited Partner Interest before the
  redemption date if such transfer is otherwise permitted under this
  Agreement. Upon receipt of notice of such a transfer, the Managing General
  Partner shall withdraw the notice of redemption, provided the transferee of
  such Limited Partner Interest certifies to the satisfaction of the Managing
  General Partner in a Citizenship Certification delivered in connection with
  the Transfer Application that he is an Eligible Citizen. If the transferee
  fails to make such certification, such redemption shall be effected from
  the transferee on the original redemption date.

                                   ARTICLE V

          Capital Contributions And Issuance Of Partnership Interests

Section 5.1. Organizational Contributions.

   In connection with the formation of the Partnership under the Delaware Act,
the Managing General Partner has been admitted as the Managing General Partner
of the Partnership without any economic interest in the Partnership, the Non-
Managing General Partner made an initial Capital Contribution to the
Partnership in the amount of $10.00 for an interest in the Partnership and has
been admitted as the Non-Managing General Partner of the Partnership and the
Organizational Limited Partner made an initial Capital Contribution to the
Partnership in the amount of $990.00 for an interest in the Partnership and has
been admitted as a Limited Partner of the Partnership. As of the Closing Date,
the interest of the Organizational Limited Partner shall be redeemed as
provided in the Contribution and Conveyance Agreement; the initial Capital
Contribution of each Partner shall thereupon be refunded; and the
Organizational Limited Partner shall cease to be a Limited Partner of the
Partnership. Ninety-nine percent of any interest or other profit that may have
resulted from the investment or other use of such initial Capital Contribution
shall be allocated and distributed to the Organizational Limited Partner, and
the balance thereof shall be allocated and distributed to the Non-Managing
General Partner.

Section 5.2. Contributions by the Non-Managing General Partner and its
Affiliates.

       (a)  On the Closing Date and pursuant to the Contribution and
  Conveyance Agreement, (i) the Non-Managing General Partner shall contribute
  to the Partnership, as a Capital Contribution, all of its interest in the
  Operating Company, in exchange for (A) the continuation of its 2% Non-
  Managing General Partner Interest, subject to all of the rights, privileges
  and duties of the Non-Managing General Partner under this Agreement, (B)
  3,135,831 Senior Subordinated Units, (C) 480,659 Junior Subordinated Units,
  (D) the Incentive Distribution Rights and (E) the assumption by the
  Partnership of all liability for funded debt of the Non-Managing General
  Partner and (ii) New Inergy Propane, LLC shall contribute to the
  Partnership, as a Capital Contribution, preferred interests in the
  Operating Company in exchange for 177,536 Senior Subordinated Units and
  91,883 Junior Subordinated Units.

     (b) Upon the issuance of any additional Limited Partner Interests by the
  Partnership (other than the issuance of the Common Units issued in the
  Initial Offering or pursuant to the Over-Allotment Option), the Non-
  Managing General Partner shall be required to make additional Capital
  Contributions equal to 1/98th of any amount contributed to the Partnership
  by the Limited Partners in exchange for such additional Limited Partner
  Interests. Except as set forth in the immediately preceding sentence and
  Article XII, the General Partners shall not be obligated to make any
  additional Capital Contributions to the Partnership.

Section 5.3. Contributions by Initial Limited Partners.

      (a) On the Closing Date and pursuant to the Underwriting Agreement,
  each Underwriter shall contribute to the Partnership cash in an amount
  equal to the Issue Price per Initial Common Unit multiplied by the number
  of Common Units specified in the Underwriting Agreement to be purchased by

                                      A-25

  such Underwriter at the Closing Date. In exchange for such Capital
  Contributions by the Underwriters, the Partnership shall issue Common Units
  to each Underwriter on whose behalf such Capital Contribution is made in an
  amount equal to the quotient obtained by dividing (i) the cash contribution
  to the Partnership by or on behalf of such Underwriter by (ii) the Issue
  Price per Initial Common Unit.

       (b)  Upon the exercise of the Over-Allotment Option, each Underwriter
  shall contribute to the Partnership cash in an amount equal to the Issue
  Price per Initial Common Unit, multiplied by the number of Common Units
  specified in the Underwriting Agreement to be purchased by such Underwriter
  at the Option Closing Date. In exchange for such Capital Contributions by
  the Underwriters, the Partnership shall issue Common Units to each
  Underwriter on whose behalf such Capital Contribution is made in an amount
  equal to the quotient obtained by dividing (i) the cash contributions to
  the Partnership by or on behalf of such Underwriter by (ii) the Issue Price
  per Initial Common Unit.

       (c)  No Limited Partner Interests will be issued or issuable as of or
  at the Closing Date other than (i) the Common Units issuable pursuant to
  subparagraph (a) hereof in aggregate number equal to 1,600,000 Units, (ii)
  the "Option Units" as such term is used in the Underwriting Agreement
  issuable upon exercise of the Over-Allotment Option pursuant to
  subparagraph (b) hereof in an aggregate number of up to 240,000 Units,
  (iii) the 3,313,367 Senior Subordinated Units and the 572,542 Junior
  Subordinated Units issuable to Inergy Partners, LLC and New Inergy Propane,
  LLC, pursuant to Section 5.2 hereof and (iv) the Incentive Distribution
  Rights.

Section 5.4. Interest and Withdrawal.

   No interest on Capital Contributions shall be paid by the Partnership. No
Partner or Assignee shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent, if any, that distributions made
pursuant to this Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided for in this
Agreement. Except to the extent expressly provided in this Agreement, no
Partner or Assignee shall have priority over any other Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses or
distributions. Any such return shall be a compromise to which all Partners and
Assignees agree within the meaning of 17-502(b) of the Delaware Act.

Section 5.5. Capital Accounts.

       (a)  The Partnership shall maintain for each Partner (or a beneficial
  owner of Partnership Interests held by a nominee in any case in which the
  nominee has furnished the identity of such owner to the Partnership in
  accordance with Section 6031(c) of the Code or any other method acceptable
  to the Managing General Partner in its sole discretion) owning a
  Partnership Interest a separate Capital Account with respect to such
  Partnership Interest in accordance with the rules of Treasury Regulation
  Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i)
  the amount of all Capital Contributions made to the Partnership with
  respect to such Partnership Interest pursuant to this Agreement and (ii)
  all items of Partnership income and gain (including, without limitation,
  income and gain exempt from tax) computed in accordance with Section 5.5(b)
  and allocated with respect to such Partnership Interest pursuant to Section
  6.1, and decreased by (x) the amount of cash or Net Agreed Value of all
  actual and deemed distributions of cash or property made with respect to
  such Partnership Interest pursuant to this Agreement and (y) all items of
  Partnership deduction and loss computed in accordance with Section 5.5(b)
  and allocated with respect to such Partnership Interest pursuant to Section
  6.1.

       (b)  For purposes of computing the amount of any item of income, gain,
  loss or deduction which is to be allocated pursuant to Article VI and is to
  be reflected in the Partners' Capital Accounts, the determination,
  recognition and classification of any such item shall be the same as its
  determination, recognition and classification for federal income tax
  purposes (including, without limitation, any method of depreciation, cost
  recovery or amortization used for that purpose), provided, that:

                                      A-26

         (i)  Solely for purposes of this Section 5.5, the Partnership
    shall be treated as owning directly its proportionate share (as
    determined by the Managing General Partner based upon the provisions of
    the Operating Company Agreement) of all property owned by the Operating
    Company or any other Subsidiary that is classified as a partnership for
    federal income tax purposes.

          (ii)  All fees and other expenses incurred by the Partnership to
    promote the sale of (or to sell) a Partnership Interest that can
    neither be deducted nor amortized under Section 709 of the Code, if
    any, shall, for purposes of Capital Account maintenance, be treated as
    an item of deduction at the time such fees and other expenses are
    incurred and shall be allocated among the Partners pursuant to Section
    6.1.

           (iii)  Except as otherwise provided in Treasury Regulation
    Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
    gain, loss and deduction shall be made without regard to any election
    under Section 754 of the Code which may be made by the Partnership and,
    as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of
    the Code, without regard to the fact that such items are not includable
    in gross income or are neither currently deductible nor capitalized for
    federal income tax purposes. To the extent an adjustment to the
    adjusted tax basis of any Partnership asset pursuant to Section 734(b)
    or 743(b) of the Code is required, pursuant to Treasury Regulation
    Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
    Capital Accounts, the amount of such adjustment in the Capital Accounts
    shall be treated as an item of gain or loss.

          (iv)  Any income, gain or loss attributable to the taxable
    disposition of any Partnership property shall be determined as if the
    adjusted basis of such property as of such date of disposition were
    equal in amount to the Partnership's Carrying Value with respect to
    such property as of such date.

         (v)  In accordance with the requirements of Section 704(b) of the
    Code, any deductions for depreciation, cost recovery or amortization
    attributable to any Contributed Property shall be determined as if the
    adjusted basis of such property on the date it was acquired by the
    Partnership were equal to the Agreed Value of such property. Upon an
    adjustment pursuant to Section 5.5(d) to the Carrying Value of any
    Partnership property subject to depreciation, cost recovery or
    amortization, any further deductions for such depreciation, cost
    recovery or amortization attributable to such property shall be
    determined (A) as if the adjusted basis of such property were equal to
    the Carrying Value of such property immediately following such
    adjustment and (B) using a rate of depreciation, cost recovery or
    amortization derived from the same method and useful life (or, if
    applicable, the remaining useful life) as is applied for federal income
    tax purposes; provided, however, that, if the asset has a zero adjusted
    basis for federal income tax purposes, depreciation, cost recovery or
    amortization deductions shall be determined using any reasonable method
    that the Managing General Partner may adopt.

          (vi)  If the Partnership's adjusted basis in a depreciable or
    cost recovery property is reduced for federal income tax purposes
    pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of
    such reduction shall, solely for purposes hereof, be deemed to be an
    additional depreciation or cost recovery deduction in the year such
    property is placed in service and shall be allocated among the Partners
    pursuant to Section 6.1. Any restoration of such basis pursuant to
    Section 48(q)(2) of the Code shall, to the extent possible, be
    allocated in the same manner to the Partners to whom such deemed
    deduction was allocated.

       (c)  (i) A transferee of a Partnership Interest shall succeed to a pro
  rata portion of the Capital Account of the transferor relating to the
  Partnership Interest so transferred.

          (ii)  Immediately prior to the transfer of a Subordinated Unit or
    of a Subordinated Unit that has converted into a Common Unit pursuant
    to Section 5.8 by a holder thereof (other than a transfer to an
    Affiliate unless the Managing General Partner elects to have this
    subparagraph 5.5(c)(ii) apply), the Capital Account maintained for such
    Person with respect to its Subordinated Units or converted Subordinated
    Units will (A) first, be allocated to the Subordinated Units or
    converted Subordinated Units to be transferred in an amount equal to
    the product of (x) the number of such Subordinated

                                      A-27

    Units or converted Subordinated Units to be transferred and (y) the Per
    Unit Capital Amount for a Common Unit, and (B) second, any remaining
    balance in such Capital Account will be retained by the transferor,
    regardless of whether it has retained any Subordinated Units or
    converted Subordinated Units. Following any such allocation, the
    transferor's Capital Account, if any, maintained with respect to the
    retained Subordinated Units or converted Subordinated Units, if any,
    will have a balance equal to the amount allocated under clause (B)
    above, and the transferee's Capital Account established with respect to
    the transferred Subordinated Units or converted Subordinated Units will
    have a balance equal to the amount allocated under clause (A) above.

       (d)  (i) In accordance with Treasury Regulation Section 1.704-
  1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for cash
  or Contributed Property or the conversion of a General Partner's Combined
  Interest to Common Units pursuant to Section 11.3(b), the Capital Account
  of all Partners and the Carrying Value of each Partnership property
  immediately prior to such issuance shall be adjusted upward or downward to
  reflect any Unrealized Gain or Unrealized Loss attributable to such
  Partnership property, as if such Unrealized Gain or Unrealized Loss had
  been recognized on an actual sale of each such property immediately prior
  to such issuance and had been allocated to the Partners at such time
  pursuant to Section 6.1(c) in the same manner as any item of gain or loss
  actually recognized during such period would have been allocated. In
  determining such Unrealized Gain or Unrealized Loss, the aggregate cash
  amount and fair market value of all Partnership assets (including, without
  limitation, cash or cash equivalents) immediately prior to the issuance of
  additional Partnership Interests shall be determined by the Managing
  General Partner using such reasonable method of valuation as it may adopt;
  provided, however, that the Managing General Partner, in arriving at such
  valuation, must take fully into account the fair market value of the
  Partnership Interests of all Partners at such time. The Managing General
  Partner shall allocate such aggregate value among the assets of the
  Partnership (in such manner as it determines in its discretion to be
  reasonable) to arrive at a fair market value for individual properties.

          (ii)  In accordance with Treasury Regulation Section 1.704-
    1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution
    to a Partner of any Partnership property (other than a distribution of
    cash that is not in redemption or retirement of a Partnership
    Interest), the Capital Accounts of all Partners and the Carrying Value
    of all Partnership property shall be adjusted upward or downward to
    reflect any Unrealized Gain or Unrealized Loss attributable to such
    Partnership property, as if such Unrealized Gain or Unrealized Loss had
    been recognized in a sale of such property immediately prior to such
    distribution for an amount equal to its fair market value, and had been
    allocated to the Partners, at such time, pursuant to Section 6.1(c) in
    the same manner as any item of gain or loss actually recognized during
    such period would have been allocated. In determining such Unrealized
    Gain or Unrealized Loss the aggregate cash amount and fair market value
    of all Partnership assets (including, without limitation, cash or cash
    equivalents) immediately prior to a distribution shall (A) in the case
    of an actual distribution which is not made pursuant to Section 12.4 or
    in the case of a deemed contribution and/or distribution, be determined
    and allocated in the same manner as that provided in Section 5.5(d)(i)
    or (B) in the case of a liquidating distribution pursuant to Section
    12.4, be determined and allocated by the Liquidator using such
    reasonable method of valuation as it may adopt.

Section 5.6. Issuances of Additional Partnership Securities.

       (a)  Subject to Section 5.7, the Partnership may issue additional
  Partnership Securities and options, rights, warrants and appreciation
  rights relating to the Partnership Securities for any Partnership purpose
  at any time and from time to time to such Persons for such consideration
  and on such terms and conditions as shall be established by the Managing
  General Partner in its sole discretion, all without the approval of any
  Limited Partners.

       (b)  Each additional Partnership Security authorized to be issued by
  the Partnership pursuant to Section 5.6(a) may be issued in one or more
  classes, or one or more series of any such classes, with such

                                      A-28

  designations, preferences, rights, powers and duties (which may be senior
  to existing classes and series of Partnership Securities), as shall be
  fixed by the Managing General Partner in the exercise of its sole
  discretion, including (i) the right to share Partnership profits and losses
  or items thereof; (ii) the right to share in Partnership distributions;
  (iii) the rights upon dissolution and liquidation of the Partnership; (iv)
  whether, and the terms and conditions upon which, the Partnership may
  redeem the Partnership Security; (v) whether such Partnership Security is
  issued with the privilege of conversion or exchange and, if so, the terms
  and conditions of such conversion or exchange; (vi) the terms and
  conditions upon which each Partnership Security will be issued, evidenced
  by certificates and assigned or transferred; and (vii) the right, if any,
  of each such Partnership Security to vote on Partnership matters, including
  matters relating to the relative designations, preferences, rights, powers
  and duties of such Partnership Security.

       (c)  The Managing General Partner is hereby authorized and directed to
  take all actions that it deems necessary or appropriate in connection with
  (i) each issuance of Partnership Securities and options, rights, warrants
  and appreciation rights relating to Partnership Securities pursuant to this
  Section 5.6, (ii) the conversion of the Non-Managing General Partner
  Interest and Incentive Distribution Rights into Units pursuant to the terms
  of this Agreement, (iii) the admission of Additional Limited Partners and
  (iv) all additional issuances of Partnership Securities. The Managing
  General Partner is further authorized and directed to specify the relative
  rights, powers and duties of the holders of the Units or other Partnership
  Securities being so issued. The Managing General Partner shall do all
  things necessary to comply with the Delaware Act and is authorized and
  directed to do all things it deems to be necessary or advisable in
  connection with any future issuance of Partnership Securities or in
  connection with the conversion of the Non-Managing General Partner Interest
  and Incentive Distribution Rights into Units pursuant to the terms of this
  Agreement, including compliance with any statute, rule, regulation or
  guideline of any federal, state or other governmental agency or any,
  National Securities Exchange on which the Units or other Partnership
  Securities are listed for trading.

Section 5.7. Limitations on Issuance of Additional Partnership Securities.

   The issuance of Partnership Securities pursuant to Section 5.6 shall be
subject to the following restrictions and limitations:

      (a) Until all Outstanding Senior Subordinated Units have been converted
  into Common Units, the Partnership shall not issue (and shall not issue any
  options, rights, warrants or appreciation rights relating to) an aggregate
  of more than 800,000 additional Parity Units without the prior approval of
  the holders of a Unit Majority. In applying this limitation, there shall be
  excluded Common Units and other Parity Units issued (A) in connection with
  the exercise of the Over-Allotment Option pursuant to Section 5.3(b), (B)
  in accordance with Section 5.7(b), (C) upon conversion of Subordinated
  Units pursuant to Section 5.8, (D) upon conversion of the Non-Managing
  General Partner Interest and Incentive Distribution Rights pursuant to
  Section 11.3(b), (E) pursuant to the employee benefit plans of the Managing
  General Partner, the Partnership or any other Group Member and (F) in the
  event of a combination or subdivision of Common Units.

       (b)  The Partnership may also issue an unlimited number of Parity
  Units, prior to the end of the Subordination Period and without the prior
  approval of the Unitholders, if such issuance occurs (i) in connection with
  an Acquisition or a Capital Improvement or (ii) within 365 days of, and the
  net proceeds from such issuance are used to repay debt incurred in
  connection with, an Acquisition or a Capital Improvement, in each case
  where such Acquisition or Capital Improvement involves assets that, if
  acquired by the Partnership as of the date that is one year prior to the
  first day of the Quarter in which such Acquisition is to be consummated or
  such Capital Improvement is to be completed, would have resulted, on a pro
  forma basis, in an increase in:

      (A)  the amount of Adjusted Operating Surplus generated by the
           Partnership on a per-Unit basis (for all Outstanding Units)
           with respect to the four most recently completed Quarters taken
           as a whole (on a pro forma basis as described below) as
           compared to

                                      A-29

      (B)  the actual amount of Adjusted Operating Surplus generated by
           the Partnership on a per-Unit basis (for all Outstanding Units)
           (excluding Adjusted Operating Surplus attributable to the
           Acquisition or Capital Improvement) with respect to such four
           most recently completed Quarters taken as a whole.

   If the issuance of Parity Units with respect to an Acquisition or Capital
Improvement occurs within the first four full Quarters after the Closing Date,
then Adjusted Operating Surplus as used in clauses (A) (subject to the
succeeding sentence) and (B) above shall be calculated (i) for each Quarter, if
any, that commenced after the Closing Date for which actual results of
operations are available, based on the actual Adjusted Operating Surplus of the
Partnership generated with respect to such Quarter, and (ii) for each other
Quarter, on a pro forma basis consistent with the procedures, as applicable,
set forth in Appendix D to the Registration Statement. Furthermore, the amount
in clause (A) shall be determined on a pro forma basis assuming that (1) all of
the Parity Units to be issued in connection with or within 365 days of such
Acquisition or Capital Improvement had been issued and outstanding, (2) all
indebtedness for borrowed money to be incurred or assumed in connection with
such Acquisition or Capital Improvement (other than any such indebtedness that
is to be repaid with the proceeds of such issuance of Parity Units) had been
incurred or assumed, in each case as of the commencement of such four-Quarter
period, (3) the personnel expenses that would have been incurred by the
Partnership in the operation of the acquired assets are the personnel expenses
for employees to be retained by the Partnership in the operation of the
acquired assets, and (4) the non-personnel costs and expenses are computed on
the same basis as those incurred by the Partnership in the operation of the
Partnership's business at similarly situated Partnership facilities.

       (c)  Until all Outstanding Senior Subordinated Units have been
  converted into Common Units, the Partnership shall not issue (and shall not
  issue any options, rights, warrants or appreciation rights relating to)
  additional Partnership Securities having rights to distributions or in
  liquidation ranking prior or senior to the Common Units, without the prior
  approval of the holders of a Unit Majority.

       (d)  No fractional Units shall be issued by the Partnership.

Section 5.8. Conversion of Subordinated Units.

       (a)  A total of 828,342 of the outstanding Senior Subordinated Units
  will convert into Common Units on a one-for-one basis on the first day
  after the Record Date for distribution in respect of any Quarter ending on
  or after June 30, 2004, in respect of which:

         (i)  distributions under Section 6.4 in respect of all Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    with respect to each of the three consecutive, non-overlapping four-
    Quarter periods immediately preceding such date equaled or exceeded the
    sum of the Minimum Quarterly Distribution on all of the Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    during such periods;

          (ii)  the Adjusted Operating Surplus generated during each of the
    three consecutive, non-overlapping four-Quarter periods immediately
    preceding such date 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 such
    periods on a fully-diluted basis (i.e. taking into account for purposes
    of such determination all Outstanding Common Units, Senior Subordinated
    Units and Junior Subordinated Units; all Common Units, Senior
    Subordinated Units and Junior Subordinated Units issuable upon exercise
    of employee options that have, as of the date of determination, already
    vested or are scheduled to vest prior to the end of the Quarter
    immediately following the Quarter with respect to which such
    determination is made; and all Common Units, Senior Subordinated Units
    and Junior Subordinated Units that have, as of the date of
    determination, been earned by but not yet issued to management of the
    Partnership in respect of incentive compensation), plus the related
    distribution on the General Partner Interests during such periods; and

           (iii)  the Cumulative Common Unit Arrearage on all of the Common
    Units is zero.

                                      A-30

       (b)  An additional 828,342 of the Outstanding Senior Subordinated
  Units will convert into Common Units on a one-for-one basis on the first
  day after the Record Date for distribution in respect of any Quarter ending
  on or after June 30, 2005, in respect of which:

         (i)  distributions under Section 6.4 in respect of all Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    with respect to each of the three consecutive, non-overlapping four-
    Quarter periods immediately preceding such date equaled or exceeded the
    sum of the Minimum Quarterly Distribution on all of the Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    during such periods;

          (ii)  the Adjusted Operating Surplus generated during each of the
    three consecutive, non-overlapping four-Quarter periods immediately
    preceding such date 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 such
    periods on a fully-diluted basis (i.e. taking into account for purposes
    of such determination all Outstanding Common Units, Senior Subordinated
    Units and Junior Subordinated Units; all Common Units, Senior
    Subordinated Units and Junior Subordinated Units issuable upon exercise
    of employee options that have, as of the date of determination, already
    vested or are scheduled to vest prior to the end of the Quarter
    immediately following the Quarter with respect to which such
    determination is made; and all Common Units, Senior Subordinated Units
    and Junior Subordinated Units that have, as of the date of
    determination, been earned by but not yet issued to management of the
    Partnership in respect of incentive compensation), plus the related
    distribution on the General Partner Interests during such periods; and

           (iii)  the Cumulative Common Unit Arrearage on all of the Common
    Units is zero;

provided, however, that the conversion of Senior Subordinated Units pursuant to
this Section 5.8(b) may not occur until at least one year following the
conversion of Senior Subordinated Units pursuant to Section 5.8(a).

       (c)  A total of 143,136 of the outstanding Junior Subordinated Units
  will convert into Common Units on a one-for-one basis on the first day
  after the Record Date for distribution in respect of any Quarter ending on
  or after June 30, 2006, in respect of which:

         (i)  distributions under Section 6.4 in respect of all Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    with respect to each of the three consecutive, non-overlapping four-
    Quarter periods immediately preceding such date equaled or exceeded the
    sum of the Minimum Quarterly Distribution on all of the Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    during such periods;

          (ii)  the Adjusted Operating Surplus generated during each of the
    three consecutive, non-overlapping four-Quarter periods immediately
    preceding such date 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 such
    periods on a fully-diluted basis (i.e. taking into account for purposes
    of such determination all Outstanding Common Units, Senior Subordinated
    Units and Junior Subordinated Units; all Common Units, Senior
    Subordinated Units and Junior Subordinated Units issuable upon exercise
    of employee options that have, as of the date of determination, already
    vested or are scheduled to vest prior to the end of the Quarter
    immediately following the Quarter with respect to which such
    determination is made; and all Common Units, Senior Subordinated Units
    and Junior Subordinated Units that have, as of the date of
    determination, been earned by but not yet issued to management of the
    Partnership in respect of incentive compensation), plus the related
    distribution on the General Partner Interests during such periods; and

                                      A-31

           (iii)  the Cumulative Common Unit Arrearage on all of the Common
    Units is zero.

       (d)  An additional 143,136 of the Outstanding Junior Subordinated
  Units will convert into Common Units on a one-for-one basis on the first
  day after the Record Date for distribution in respect of any Quarter ending
  on or after June 30, 2007, in respect of which:

         (i)  distributions under Section 6.4 in respect of all Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    with respect to each of the three consecutive, non-overlapping four-
    Quarter periods immediately preceding such date equaled or exceeded the
    sum of the Minimum Quarterly Distribution on all of the Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    during such periods;

          (ii)  the Adjusted Operating Surplus generated during each of the
    three consecutive, non-overlapping four-Quarter periods immediately
    preceding such date 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 such
    periods on a fully-diluted basis (i.e. taking into account for purposes
    of such determination all Outstanding Common Units, Senior Subordinated
    Units and Junior Subordinated Units; all Common Units, Senior
    Subordinated Units and Junior Subordinated Units issuable upon exercise
    of employee options that have, as of the date of determination, already
    vested or are scheduled to vest prior to the end of the Quarter
    immediately following the Quarter with respect to which such
    determination is made; and all Common Units, Senior Subordinated Units
    and Junior Subordinated Units that have, as of the date of
    determination, been earned by but not yet issued to management of the
    Partnership in respect of incentive compensation), plus the related
    distribution on the General Partner Interests during such periods; and

           (iii)  the Cumulative Common Unit Arrearage on all of the Common
    Units is zero;

provided, however, that the conversion of Junior Subordinated Units pursuant to
this Section 5.8(d) may not occur until at least one year following the
conversion of Junior Subordinated Units pursuant to Section 5.8(c).

       (e)  In the event that less than all of the Outstanding Senior
  Subordinated Units shall convert into Common Units pursuant to Section
  5.8(a) or 5.8(b) at a time when there shall be more than one holder of
  Senior Subordinated Units, then, unless all of the holders of Senior
  Subordinated Units shall agree to a different allocation, the Senior
  Subordinated Units that are to be converted into Common Units shall be
  allocated among the holders of Senior Subordinated Units pro rata based on
  the number of Senior Subordinated Units held by each such holder.

       (f)  In the event that less than all of the Outstanding Junior
  Subordinated Units shall convert into Common Units pursuant to Section
  5.8(c) or 5.8(d) at a time when there shall be more than one holder of
  Senior Subordinated Units, then, unless all of the holders of Junior
  Subordinated Units shall agree to a different allocation, the Junior
  Subordinated Units that are to be converted into Common Units shall be
  allocated among the holders of Junior Subordinated Units pro rata based on
  the number of Junior Subordinated Units held by each such holder.

       (g)  Any Subordinated Units that are not converted into Common Units
  pursuant to Sections 5.8(a), 5.8(b), 5.8(c) and 5.8(d) shall convert into
  Common Units on a one-for-one basis on the first day following the Record
  Date for distributions in respect of the final Quarter of the Subordination
  Period.

       (h)  Notwithstanding any other provision of this Agreement, all
  Outstanding Junior Subordinated Units will convert into Common Units on a
  one-for-one basis on the first day after the Record Date for distribution
  in respect of any Quarter ending on or after June 30, 2006, in respect of
  which

         (i)  distributions under Section 6.4 in respect of all Outstanding
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    with respect to each of the three consecutive, non-overlapping four-
    Quarter periods immediately prior to such date have equaled or exceeded
    $2.80,

                                      A-32

          (ii)  the Adjusted Operating Surplus generated during each of the
    three consecutive, non-overlapping four-Quarter periods immediately
    preceding such date equaled or exceeded the sum of $2.80 on all of the
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    that were Outstanding during such periods on a fully-diluted basis
    (i.e. taking into account for purposes of such determination all
    Outstanding Common Units, Senior Subordinated Units and Junior
    Subordinated Units; all Common Units, Senior Subordinated Units and
    Junior Subordinated Units issuable upon exercise of employee options
    that have, as of the date of determination, already vested or are
    scheduled to vest prior to the end of the Quarter immediately following
    the Quarter with respect to which such determination is made; and all
    Common Units, Senior Subordinated Units and Junior Subordinated Units
    that have, as of the date of determination, been earned by but not yet
    issued to management of the Partnership in respect of incentive
    compensation), plus the related distribution on the General Partner
    Interests during such periods;

           (iii)  All outstanding Senior Subordinated Units have converted
    into Common Units, and

          (iv)  The Cumulative Common Unit Arrearage on all of the Common
    Units is zero.

       (i)  Notwithstanding any other provision of this Agreement, all the
  then Outstanding Subordinated Units will automatically convert into Common
  Units on a one-for-one basis as set forth in, and pursuant to the terms of,
  Section 11.4.

       (j)  A Subordinated Unit that has converted into a Common Unit shall
  be subject to the provisions of Section 6.7(b).

Section 5.9. Limited Preemptive Right.

   Except as provided in this Section 5.9 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury or
hereafter created. The Non-Managing General Partner shall have the right, which
it may from time to time assign in whole or in part to any of its Affiliates,
to purchase Partnership Securities from the Partnership whenever, and on the
same terms that, the Partnership issues Partnership Securities to Persons other
than the Non-Managing General Partner and its Affiliates, to the extent
necessary to maintain the Percentage Interests of the Non-Managing General
Partner and its Affiliates equal to that which existed immediately prior to the
issuance of such Partnership Securities.

Section 5.10. Splits and Combination.

       (a)  Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with
  adjustments of distribution levels), the Partnership may make a Pro Rata
  distribution of Partnership Securities to all Record Holders or may effect
  a subdivision or combination of Partnership Securities so long as, after
  any such event, each Partner shall have the same Percentage Interest in the
  Partnership as before such event, and any amounts calculated on a per Unit
  basis (including any Common Unit Arrearage or Cumulative Common Unit
  Arrearage) or stated as a number of Units (including the number of Senior
  Subordinated Units and Junior Subordinated Units that may convert prior to
  the end of the Subordination Period and the number of additional Parity
  Units that may be issued pursuant to Section 5.7 without a Unitholder vote)
  are proportionately adjusted retroactive to the beginning of the
  Partnership.

       (b)  Whenever such a distribution, subdivision or combination of
  Partnership Securities is declared, the Managing General Partner shall
  select a Record Date as of which the distribution, subdivision or
  combination shall be effective and shall send notice thereof at least 20
  days prior to such Record Date to each Record Holder as of a date not less
  than 10 days prior to the date of such notice. The Managing General Partner
  also may cause a firm of independent public accountants selected by it to
  calculate the number of Partnership Securities to be held by each Record
  Holder after giving effect to such distribution, subdivision or
  combination. The Managing General Partner shall be entitled to rely on any
  certificate provided by such firm as conclusive evidence of the accuracy of
  such calculation.

                                      A-33

       (c)  Promptly following any such distribution, subdivision or
  combination, the Partnership may issue Certificates to the Record Holders
  of Partnership Securities as of the applicable Record Date representing the
  new number of Partnership Securities held by such Record Holders, or the
  Managing General Partner may adopt such other procedures as it may deem
  appropriate to reflect such changes. If any such combination results in a
  smaller total number of Partnership Securities Outstanding, the Partnership
  shall require, as a condition to the delivery to a Record Holder of such
  new Certificate, the surrender of any Certificate held by such Record
  Holder immediately prior to such Record Date.

       (d)  The Partnership shall not issue fractional Units upon any
  distribution, subdivision or combination of Units. If a distribution,
  subdivision or combination of Units would result in the issuance of
  fractional Units but for the provisions of Section 5.7(d) and this Section
  5.10(d), each fractional Unit shall be rounded to the nearest whole Unit
  (and a 0.5 Unit shall be rounded to the next higher Unit).

Section 5.11. Fully Paid and Non-Assessable Nature of Limited Partner
Interests.

   All Limited Partner Interests issued pursuant to, and in accordance with the
requirements of, this Article V shall be fully paid and non-assessable Limited
Partner Interests in the Partnership, except as such non assessability may be
affected by Section 17-607 of the Delaware Act.

                                   ARTICLE VI

                         Allocations and Distributions

Section 6.1. Allocations for Capital Account Purposes.

   For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.

      (a) Net Income. After giving effect to the special allocations set
  forth in Section 6.1(d), Net Income for each taxable year and all items of
  income, gain, loss and deduction taken into account in computing Net Income
  for such taxable year shall be allocated as follows:

         (i)  First, 100% to the Non-Managing General Partner in an amount
    equal to the aggregate Net Losses allocated to the Non-Managing General
    Partner pursuant to Section 6.1(b)(iii) for all previous taxable years
    until the aggregate Net Income allocated to the Non-Managing General
    Partner pursuant to this Section 6.1(a)(i) for the current taxable year
    and all previous taxable years is equal to the aggregate Net Losses
    allocated to the Non-Managing General Partner pursuant to Section
    6.1(b)(iii) for all previous taxable years;

          (ii)  Second, 2% to the Non-Managing General Partner in an amount
    equal to the aggregate Net Losses allocated to the Non-Managing General
    Partner pursuant to Section 6.1(b)(ii) for all previous taxable years
    and 98% to the Unitholders, in accordance with their respective
    Percentage Interests, until the aggregate Net Income allocated to such
    Partners pursuant to this Section 6.1(a)(ii) for the current taxable
    year and all previous taxable years is equal to the aggregate Net
    Losses allocated to such Partners pursuant to Section 6.1(b)(ii) for
    all previous taxable years; and

           (iii)  Third, the balance, if any, 2% to the Non-Managing
    General Partner and 98% to the Unitholders, in accordance with their
    respective Percentage Interests.

       (b)  Net Losses. After giving effect to the special allocations set
  forth in Section 6.1(d), Net Losses for each taxable period and all items
  of income, gain, loss and deduction taken into account in computing Net
  Losses for such taxable period shall be allocated as follows:

         (i)  First, 2% to the Non-Managing General Partner and 98% to the
    Unitholders, in accordance with their respective Percentage Interests,
    until the aggregate Net Losses allocated pursuant to this

                                      A-34

    Section 6.1(b)(i) for the current taxable year and all previous taxable
    years is equal to the aggregate Net Income allocated to such Partners
    pursuant to Section 6.1(a)(iii) for all previous taxable years,
    provided that the Net Losses shall not be allocated pursuant to this
    Section 6. 1 (b)(i) to the extent that such allocation would cause any
    Unitholder to have a deficit balance in its Adjusted Capital Account at
    the end of such taxable year (or increase any existing deficit balance
    in its Adjusted Capital Account);

          (ii)  Second, 2% to the Non-Managing General Partner and 98% to
    the Unitholders in accordance with their respective Percentage
    Interests; provided, that Net Losses shall not be allocated pursuant to
    this Section 6.1(b)(ii) to the extent that such allocation would cause
    any Unitholder to have a deficit balance in its Adjusted Capital
    Account at the end of such taxable year (or increase any existing
    deficit balance in its Adjusted Capital Account);

           (iii)  Third, the balance, if any, 100% to the Non-Managing
    General Partner.

       (c)  Net Termination Gains and Losses. After giving effect to the
  special allocations set forth in Section 6.1(d), all items of income, gain,
  loss and deduction taken into account in computing Net Termination Gain or
  Net Termination Loss for such taxable period shall be allocated in the same
  manner as such Net Termination Gain or Net Termination Loss is allocated
  hereunder. All allocations under this Section 6.1(c) shall be made after
  Capital Account balances have been adjusted by all other allocations
  provided under this Section 6.1 and after all distributions of Available
  Cash provided under Sections 6.4 and 6.5 have been made; provided, however,
  that solely for purposes of this Section 6.1(c), Capital Accounts shall not
  be adjusted for distributions made pursuant to Section 12.4.

         (i)  If a Net Termination Gain is recognized (or deemed recognized
    pursuant to Section 5.5(d)), such Net Termination Gain shall be
    allocated among the Partners in the following manner (and the Capital
    Accounts of the Partners shall be increased by the amount so allocated
    in each of the following subclauses, in the order listed, before an
    allocation is made pursuant to the next succeeding subclause):

              (A)  First, to each Partner having a deficit balance in its
                   Capital Account, in the proportion that such deficit
                   balance bears to the total deficit balances in the Capital
                   Accounts of all Partners, until each such Partner has been
                   allocated Net Termination Gain equal to any such deficit
                   balance in its Capital Account;

              (B)  Second, 98% to all Unitholders holding Common Units, Pro
                   Rata, and 2% to the Non-Managing General Partner until the
                   Capital Account in respect of each Common Unit then
                   Outstanding is equal to the sum of (1) its Unrecovered
                   Capital plus (2) the Minimum Quarterly Distribution for the
                   Quarter during which the Liquidation Date occurs, reduced
                   by any distribution pursuant to Section 6.4(a)(i) or (b)(i)
                   with respect to such Common Unit for such Quarter (the
                   amount determined pursuant to this clause (2) is
                   hereinafter defined as the "Unpaid MQD") plus (3) any then
                   existing Cumulative Common Unit Arrearage;

              (C)  Third, if such Net Termination Gain is recognized (or is
                   deemed to be recognized) prior to the expiration of the
                   Subordination Period, 98% to all Unitholders holding Senior
                   Subordinated Units, Pro Rata, and 2% to the Non-Managing
                   General Partner until the Capital Account in respect of
                   each Senior Subordinated Unit then Outstanding equals the
                   sum of (1) its Unrecovered Capital, determined for the
                   taxable year (or portion thereof) to which this allocation
                   of gain relates, plus (2) the Minimum Quarterly
                   Distribution for the Quarter during which the Liquidation
                   Date occurs, reduced by any distribution pursuant to
                   Section 6.4(a)(iii) with respect to such Senior
                   Subordinated Unit for such Quarter;

              (D)  Fourth, if such Net Termination Gain is recognized (or is
                   deemed to be recognized) prior to the expiration of the
                   Subordination Period, 98% to all Unitholders holding

                                      A-35

                 Junior Subordinated Units, Pro Rata, and 2% to the Non-
                 Managing General Partner until the Capital Account in respect
                 of each Junior Subordinated Unit then Outstanding equals the
                 sum of (1) its Unrecovered Capital, determined for the
                 taxable year (or portion thereof) to which this allocation of
                 gain relates, plus (2) the Minimum Quarterly Distribution for
                 the Quarter during which the Liquidation Date occurs, reduced
                 by any distribution pursuant to Section 6.4(a)(iv) with
                 respect to such Junior Subordinated Unit for such Quarter;

              (E)  Fifth, 98% to all Unitholders, Pro Rata, and 2% to the Non-
                   Managing General Partner until the Capital Account in
                   respect of each Common Unit then Outstanding is equal to
                   the sum of (1) its Unrecovered Capital, plus (2) the Unpaid
                   MQD, plus (3) any then existing Cumulative Common Unit
                   Arrearage, plus (4) the excess of (aa) the First Target
                   Distribution less the Minimum Quarterly Distribution for
                   each Quarter of the Partnership's existence over (bb) the
                   cumulative per Unit amount of any distributions of
                   Operating Surplus that was distributed pursuant to Sections
                   6.4(a)(v) and 6.4(b)(ii) (the sum of (1) plus (2) plus (3)
                   plus (4) is hereinafter defined as the "First Liquidation
                   Target Amount");

              (F)  Sixth, 85% to all Unitholders, Pro Rata, 13% to the holders
                   of the Incentive Distribution Rights, Pro Rata, and 2% to
                   the Non-Managing General Partner until the Capital Account
                   in respect of each Common Unit then Outstanding is equal to
                   the sum of (1) the First Liquidation Target Amount, plus
                   (2) the excess of (aa) the Second Target Distribution less
                   the First Target Distribution for each Quarter of the
                   Partnership's existence over (bb) the cumulative per Unit
                   amount of any distributions of Operating Surplus that was
                   distributed pursuant to Sections 6.4(a)(vi) and 6.4(b)(iii)
                   (the sum of (1) plus (2) is hereinafter defined as the
                   "Second Liquidation Target Amount");

              (G)  Seventh, 75% to all Unitholders, Pro Rata, 23% to the
                   holders of the Incentive Distribution Rights, Pro Rata, and
                   2% to the Non-Managing General Partner until the Capital
                   Account in respect of each Common Unit then Outstanding is
                   equal to the sum of (1) the Second Liquidation Target
                   Amount, plus (2) the excess of (aa) the Third Target
                   Distribution less the Second Target Distribution for each
                   Quarter of the Partnership's existence over (bb) the
                   cumulative per Unit amount of any distributions of
                   Operating Surplus that was distributed pursuant to Sections
                   6.4(a)(vii) and 6.4(b)(iv) (the sum of (1) plus (2) is
                   hereinafter defined as the "Third Liquidation Target
                   Amount");

              (H)  Finally, any remaining amount 50% to all Unitholders, Pro
                   Rata, 48% to the holders of the Incentive Distribution
                   Rights, Pro Rata, and 2% to the Non-Managing General
                   Partner.

          (ii)  If a Net Termination Loss is recognized (or deemed
    recognized pursuant to Section 5.5(d)), such Net Termination Loss shall
    be allocated among the Partners in the following manner:

              (A)  First, if such Net Termination Loss is recognized (or is
                   deemed to be recognized) prior to the conversion of the
                   last Outstanding Junior Subordinated Unit, 98% to the
                   Unitholders holding Junior Subordinated Units, Pro Rata,
                   and 2% to the Non-Managing General Partner until the
                   Capital Account in respect of each Junior Subordinated Unit
                   then Outstanding has been reduced to zero;

              (B)  Second, if such Net Termination Loss is recognized (or is
                   deemed to be recognized) prior to the conversion of the
                   last Outstanding Senior Subordinated Unit, 98% to the
                   Unitholders holding Senior Subordinated Units, Pro Rata,
                   and 2% to the Non-

                                     A-36

                 Managing General Partner until the Capital Account in respect
                 of each Senior Subordinated Unit then Outstanding has been
                 reduced to zero;

              (C)  Third, 98% to all Unitholders holding Common Units, Pro
                   Rata, and 2% to the Non-Managing General Partner until the
                   Capital Account in respect of each Common Unit then
                   Outstanding has been reduced to zero; and

              (D)  Fourth, the balance, if any, 100% to the Non-Managing
                   General Partner.

       (d)  Special Allocations. Notwithstanding any other provision of this
  Section 6.1, the following special allocations shall be made for such
  taxable period:

         (i)  Partnership Minimum Gain Chargeback. Notwithstanding any
    other provision of this Section 6.1, if there is a net decrease in
    Partnership Minimum Gain during any Partnership taxable period, each
    Partner shall be allocated items of Partnership income and gain for
    such period (and, if necessary, subsequent periods) in the manner and
    amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-
    2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes
    of this Section 6.1(d), each Partner's Adjusted Capital Account balance
    shall be determined, and the allocation of income or gain required
    hereunder shall be effected, prior to the application of any other
    allocations pursuant to this Section 6.1(d) with respect to such
    taxable period (other than an allocation pursuant to Sections
    6.1(d)(vi) and 6.1(d)(vii)). This Section 6.1(d)(i) is intended to
    comply with the Partnership Minimum Gain chargeback requirement in
    Treasury Regulation Section 1.704-2(f) and shall be interpreted
    consistently therewith.

          (ii)  Chargeback of Partner Nonrecourse Debt Minimum Gain.
    Notwithstanding the other provisions of this Section 6.1 (other than
    Section 6.1(d)(i)), except as provided in Treasury Regulation Section
    1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
    Minimum Gain during any Partnership taxable period, any Partner with a
    share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
    taxable period shall be allocated items of Partnership income and gain
    for such period (and, if necessary, subsequent periods) in the manner
    and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
    1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
    Section 6.1(d), each Partner's Adjusted Capital Account balance shall
    be determined, and the allocation of income or gain required hereunder
    shall be effected, prior to the application of any other allocations
    pursuant to this Section 6.1(d), other than Section 6.1(d)(i) and other
    than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii),
    with respect to such taxable period. This Section 6.1(d)(ii) is
    intended to comply with the chargeback of items of income and gain
    requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
    interpreted consistently therewith.

           (iii)  Priority Allocations.

              (A)  If the amount of cash or the Net Agreed Value of any
                   property distributed (except cash or property distributed
                   pursuant to Section 12.4) to any Unitholder with respect to
                   its Units for a taxable year is greater (on a per Unit
                   basis) than the amount of cash or the Net Agreed Value of
                   property distributed to the other Unitholders with respect
                   to their Units (on a per Unit basis), then (1) each
                   Unitholder receiving such greater cash or property
                   distribution shall be allocated gross income in an amount
                   equal to the product of (aa) the amount by which the
                   distribution (on a per Unit basis) to such Unitholder
                   exceeds the distribution (on a per Unit basis) to the
                   Unitholders receiving the smallest distribution and (bb)
                   the number of Units owned by the Unitholder receiving the
                   greater distribution; and (2) the Non-Managing General
                   Partner shall be allocated gross income in an aggregate
                   amount equal to 1/98th of the sum of the amounts allocated
                   in clause (1) above.

              (B)  After the application of Section 6.1(d)(iii)(A), all or any
                   portion of the remaining items of Partnership gross income
                   or gain for the taxable period, if any, shall be allocated
                   100% to the holders of Incentive Distribution Rights, Pro
                   Rata, until the

                                      A-37

                 aggregate amount of such items allocated to the holders of
                 Incentive Distribution Rights pursuant to this paragraph
                 6.1(d)(iii)(B) for the current taxable year and all previous
                 taxable years is equal to the cumulative amount of all
                 Incentive Distributions made to the holders of Incentive
                 Distribution Rights from the Closing Date to a date 45 days
                 after the end of the current taxable year.

          (iv)  Qualified Income Offset. In the event any Partner
    unexpectedly receives any adjustments, allocations or distributions
    described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
    1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
    Partnership income and gain shall be specially allocated to such
    Partner in an amount and manner sufficient to eliminate, to the extent
    required by the Treasury Regulations promulgated under Section 704(b)
    of the Code, the deficit balance, if any, in its Adjusted Capital
    Account created by such adjustments, allocations or distributions as
    quickly as possible unless such deficit balance is otherwise eliminated
    pursuant to Section 6.1(d)(i) or (ii).

         (v)  Gross Income Allocations. In the event any Partner has a
    deficit balance in its Capital Account at the end of any Partnership
    taxable period in excess of the sum of (A) the amount such Partner is
    required to restore pursuant to the provisions of this Agreement and
    (B) the amount such Partner is deemed obligated to restore pursuant to
    Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner
    shall be specially allocated items of Partnership gross income and gain
    in the amount of such excess as quickly as possible; provided, that an
    allocation pursuant to this Section 6.1(d)(v) shall be made only if and
    to the extent that such Partner would have a deficit balance in its
    Capital Account as adjusted after all other allocations provided for in
    this Section 6.1 have been tentatively made as if this Section
    6.1(d)(v) were not in this Agreement.

          (vi)  Nonrecourse Deductions. Nonrecourse Deductions for any
    taxable period shall be allocated to the Partners in accordance with
    their respective Percentage Interests. If the Managing General Partner
    determines in its good faith discretion that the Partnership's
    Nonrecourse Deductions must be allocated in a different ratio to
    satisfy the safe harbor requirements of the Treasury Regulations
    promulgated under Section 704(b) of the Code, the General Partner is
    authorized, upon notice to the other Partners, to revise the prescribed
    ratio to the numerically closest ratio that does satisfy such
    requirements.

           (vii)  Partner Nonrecourse Deductions. Partner Nonrecourse
    Deductions for any taxable period shall be allocated 100% to the
    Partner that bears the Economic Risk of Loss with respect to the
    Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
    are attributable in accordance with Treasury Regulation Section 1.704-
    2(i). If more than one Partner bears the Economic Risk of Loss with
    respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
    Deductions attributable thereto shall be allocated between or among
    such Partners in accordance with the ratios in which they share such
    Economic Risk of Loss.

            (viii)  Nonrecourse Liabilities. For purposes of Treasury
    Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse
    Liabilities of the Partnership in excess of the sum of (A) the amount
    of Partnership Minimum Gain and (B) the total amount of Nonrecourse
    Built-in Gain shall be allocated among the Partners in accordance with
    their respective Percentage Interests.

          (ix)  Code Section 754 Adjustments. To the extent an adjustment
    to the adjusted tax basis of any Partnership asset pursuant to Section
    734(b) or 743(c) of the Code is required, pursuant to Treasury
    Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in
    determining Capital Accounts, the amount of such adjustment to the
    Capital Accounts shall be treated as an item of gain (if the adjustment
    increases the basis of the asset) or loss (if the adjustment decreases
    such basis), and such item of gain or loss shall be specially allocated
    to the Partners in a manner consistent with the manner in which their
    Capital Accounts are required to be adjusted pursuant to such Section
    of the Treasury Regulations.

                                      A-38

         (x)  Economic Uniformity. At the election of the Managing General
    Partner with respect to any taxable period ending upon, or after, the
    termination of the Subordination Period, all or a portion of the
    remaining items of Partnership gross income or gain for such taxable
    period, after taking into account allocations pursuant to Section
    6.1(d)(iii), shall be allocated 100% to each Partner holding
    Subordinated Units that are Outstanding as of the termination of the
    Subordination Period ("Final Subordinated Units") in the proportion of
    the number of Final Subordinated Units held by such Partner to the
    total number of Final Subordinated Units then Outstanding, until each
    such Partner has been allocated an amount of gross income or gain which
    increases the Capital Account maintained with respect to such Final
    Subordinated Units to an amount equal to the product of (A) the number
    of Final Subordinated Units held by such Partner and (B) the Per Unit
    Capital Amount for a Common Unit. The purpose of this allocation is to
    establish uniformity between the Capital Accounts underlying Final
    Subordinated Units and the Capital Accounts underlying Common Units
    held by Persons other than the General Partners and their Affiliates
    immediately prior to the conversion of such Final Subordinated Units
    into Common Units. This allocation method for establishing such
    economic uniformity will only be available to the Managing General
    Partner if the method for allocating the Capital Account maintained
    with respect to the Subordinated Units between the transferred and
    retained Subordinated Units pursuant to Section 5.5(c)(ii) does not
    otherwise provide such economic uniformity to the Final Subordinated
    Units.

          (xi)  Curative Allocation.

              (A)  Notwithstanding any other provision of this Section 6.1,
                   other than the Required Allocations, the Required
                   Allocations shall be taken into account in making the
                   Agreed Allocations so that, to the extent possible, the net
                   amount of items of income, gain, loss and deduction
                   allocated to each Partner pursuant to the Required
                   Allocations and the Agreed Allocations, together, shall be
                   equal to the net amount of such items that would have been
                   allocated to each such Partner under the Agreed Allocations
                   had the Required Allocations and the related Curative
                   Allocation not otherwise been provided in this Section 6.1.
                   Notwithstanding the preceding sentence, Required
                   Allocations relating to (1) Nonrecourse Deductions shall
                   not be taken into account except to the extent that there
                   has been a decrease in Partnership Minimum Gain and (2)
                   Partner Nonrecourse Deductions shall not be taken into
                   account except to the extent that there has been a decrease
                   in Partner Nonrecourse Debt Minimum Gain. Allocations
                   pursuant to this Section 6.1(d)(xi)(A) shall only be made
                   with respect to Required Allocations to the extent the
                   General Partner reasonably determines that such allocations
                   will otherwise be inconsistent with the economic agreement
                   among the Partners. Further, allocations pursuant to this
                   Section 6.1(d)(xi)(A) shall be deferred with respect to
                   allocations pursuant to clauses (1) and (2) hereof to the
                   extent the Managing General Partner reasonably determines
                   that such allocations are likely to be offset by subsequent
                   Required Allocations.

              (B)  The Managing General Partner shall have reasonable
                   discretion, with respect to each taxable period, to (1)
                   apply the provisions of Section 6.1(d)(xi)(A) in whatever
                   order is most likely to minimize the economic distortions
                   that might otherwise result from the Required Allocations,
                   and (2) divide all allocations pursuant to Section
                   6.1(d)(xi)(A) among the Partners in a manner that is likely
                   to minimize such economic distortions.

           (xii)  Corrective Allocations. In the event of any allocation of
    Additional Book Basis Derivative Items or any Book-Down Event or any
    recognition of a Net Termination Loss, the following rules shall apply:

              (A)  In the case of any allocation of Additional Book Basis
                   Derivative Items (other than an allocation of Unrealized
                   Gain or Unrealized Loss under Section 5.5(d) hereof), the

                                      A-39

                 Managing General Partner shall allocate additional items of
                 gross income and gain away from the holders of Incentive
                 Distribution Rights to the Unitholders and the Non-Managing
                 General Partner, or additional items of deduction and loss
                 away from the Unitholders and the Non-Managing General
                 Partner to the holders of Incentive Distribution Rights, to
                 the extent that the Additional Book Basis Derivative Items
                 allocated to the Unitholders or the Non-Managing General
                 Partner exceed their Share of Additional Book Basis
                 Derivative Items. For this purpose, the Unitholders and the
                 Non-Managing General Partner shall be treated as being
                 allocated Additional Book Basis Derivative Items to the
                 extent that such Additional Book Basis Derivative Items have
                 reduced the amount of income that would otherwise have been
                 allocated to the Unitholders or the Non-Managing General
                 Partner under the Partnership Agreement (e.g., Additional
                 Book Basis Derivative Items taken into account in computing
                 cost of goods sold would reduce the amount of book income
                 otherwise available for allocation among the Partners). Any
                 allocation made pursuant to this Section 6.1(d)(xii)(A) shall
                 be made after all of the other Agreed Allocations have been
                 made as if this Section 6.1(d)(xii) were not in this
                 Agreement and, to the extent necessary, shall require the
                 reallocation of items that have been allocated pursuant to
                 such other Agreed Allocations.

              (B)  In the case of any negative adjustments to the Capital
                   Accounts of the Partners resulting from a Book-Down Event
                   or from the recognition of a Net Termination Loss, such
                   negative adjustment (1) shall first be allocated, to the
                   extent of the Aggregate Remaining Net Positive Adjustments,
                   in such a manner, as reasonably determined by the Managing
                   General Partner, that to the extent possible the aggregate
                   Capital Accounts of the Partners will equal the amount
                   which would have been the Capital Account balance of the
                   Partners if no prior Book-Up Events had occurred, and (2)
                   any negative adjustment in excess of the Aggregate
                   Remaining Net Positive Adjustments shall be allocated
                   pursuant to Section 6.1(c) hereof.

              (C)  In making the allocations required under this Section
                   6.1(d)(xii), the Managing General Partner, in its sole
                   discretion, may apply whatever conventions or other
                   methodology it deems reasonable to satisfy the purpose of
                   this Section 6.1(d)(xii).

Section 6.2. Allocations for Tax Purposes.

     (a)  Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as its correlative item of "book"
income, gain, loss or deduction is allocated pursuant to Section 6. 1.

     (b)  In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:

       (i)  (A) In the case of a Contributed Property, such items
  attributable thereto shall be allocated among the Partners in the manner
  provided under Section 704(c) of the Code that takes into account the
  variation between the Agreed Value of such property and its adjusted basis
  at the time of contribution; and (B) any item of Residual Gain or Residual
  Loss attributable to a Contributed Property shall be allocated among the
  Partners in the same manner as its correlative item of "book" gain or loss
  is allocated pursuant to Section 6.1.

        (ii)  (A) In the case of an Adjusted Property, such items shall (1)
  first, be allocated among the Partners in a manner consistent with the
  principles of Section 704(c) of the Code to take into account the
  Unrealized Gain or Unrealized Loss attributable to such property and the
  allocations thereof pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2)
  second, in the event such property was originally a Contributed

                                     A-40

  Property, be allocated among the Partners in a manner consistent with
  Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss
  attributable to an Adjusted Property shall be allocated among the Partners
  in the same manner as its correlative item of "book" gain or loss is
  allocated pursuant to Section 6.1.

         (iii)  The Managing General Partner shall apply the principles of
  Treasury Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.

     (c)  For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the Managing General Partner shall have sole discretion to
(i) adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Limited Partner Interests
(or any class or classes thereof). The Managing General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement
as provided in this Section 6.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the
holders of any class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.

     (d)  The Managing General Partner in its discretion may determine to
depreciate or amortize the portion of an adjustment under Section 743(b) of the
Code attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation or amortization method and useful life applied to
the Partnership's common basis of such property, despite any inconsistency of
such approach with Treasury Regulation Section 1.167(c)-1(a)(6) or any
successor regulations thereto. If the Managing General Partner determines that
such reporting position cannot reasonably be taken, the Managing General
Partner may adopt depreciation and amortization conventions under which all
purchasers acquiring Limited Partner Interests in the same month would receive
depreciation and amortization deductions, based upon the same applicable rate
as if they had purchased a direct interest in the Partnership's property. If
the Managing General Partner chooses not to utilize such aggregate method, the
Managing General Partner may use any other reasonable depreciation and
amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any Limited Partner Interests that would not have a material
adverse effect on the Limited Partners or the Record Holders of any class or
classes of Limited Partner Interests.

     (e)  Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this Section
6.2, be characterized as Recapture Income in the same proportions and to the
same extent as such Partners (or their predecessors in interest) have been
allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.

     (f)  All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners
in accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.

     (g)  Each item of Partnership income, gain, loss and deduction, shall for
federal income tax purposes, be determined on an annual basis and prorated on a
monthly basis and shall be allocated to the Partners as of the opening of the
New York Stock Exchange on the first Business Day of each month; provided,
however, that (i) such items for the period beginning on the Closing Date and
ending on the last day of the month in which the Option Closing Date or the
expiration of the Over-allotment Option occurs shall be allocated to the
Partners as of the opening of the New York Stock Exchange on the first Business
Day of the next succeeding month; and

                                      A-41

provided, further, that gain or loss on a sale or other disposition of any
assets of the Partnership or any other extraordinary item of income or loss
realized and recognized other than in the ordinary course of business, as
determined by the Managing General Partner in its sole discretion, shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of the month in which such gain or loss is recognized
for federal income tax purposes. The Managing General Partner may revise, alter
or otherwise modify such methods of allocation as it determines necessary or
appropriate in its sole discretion, to the extent permitted or required by
Section 706 of the Code and the regulations or rulings promulgated thereunder.

     (h)  Allocations that would otherwise be made to a Limited Partner under
the provisions of this Article VI shall instead be made to the beneficial owner
of Limited Partner Interests held by a nominee in any case in which the nominee
has furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the Managing
General Partner in its sole discretion.

Section 6.3. Requirement and Characterization of Distributions; Distributions
to Record Holders.

     (a)  Within 45 days following the end of each Quarter commencing with the
Quarter ending on June 30, 2001, an amount equal to 100% of Available Cash with
respect to such Quarter shall, subject to Section 17-607 of the Delaware Act,
be distributed in accordance with this Article VI by the Partnership to the
Partners as of the Record Date selected by the Managing General Partner in its
reasonable discretion. All amounts of Available Cash distributed by the
Partnership on any date from any source shall be deemed to be Operating Surplus
until the sum of all amounts of Available Cash theretofore distributed by the
Partnership to the Partners pursuant to Section 6.4 equals the Operating
Surplus from the Closing Date through the close of the immediately preceding
Quarter. Any remaining amounts of Available Cash distributed by the Partnership
on such date shall, except as otherwise provided in Section 6.5, be deemed to
be "Capital Surplus." All distributions required to be made under this
Agreement shall be made subject to Section 17-607 of the Delaware Act.

     (b)  Notwithstanding Section 6.3(a), in the event of the dissolution and
liquidation of the Partnership, all receipts received during or after the
Quarter in which the Liquidation Date occurs, other than from borrowings
described in (a)(ii) of the definition of Available Cash, shall be applied and
distributed solely in accordance with, and subject to the terms and conditions
of, Section 12.4.

     (c)  The Managing General Partner shall have the discretion to treat taxes
paid by the Partnership on behalf of, or amounts withheld with respect to, all
or less than all of the Partners, as a distribution of Available Cash to such
Partners.

     (d)  Each distribution in respect of a Partnership Interest shall be paid
by the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest as of
the Record Date set for such distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment by reason of an assignment or otherwise.

Section 6.4. Distributions of Available Cash from Operating Surplus.

     (a)  During Subordination Period. Available Cash with respect to any
Quarter within the Subordination Period that is deemed to be Operating Surplus
pursuant to the provisions of Section 6.3 or 6.5 shall, subject to Section 17-
607 of the Delaware Act, be distributed as follows, except as otherwise
required by Section 5.6(b) in respect of additional Partnership Securities
issued pursuant thereto:

       (i)  First, 98% to the Unitholders holding Common Units, Pro Rata, and
  2% to the Non-Managing General Partner until there has been distributed in
  respect of each Common Unit then Outstanding an amount equal to the Minimum
  Quarterly Distribution for such Quarter;

                                      A-42

        (ii)  Second, 98% to the Unitholders holding Common Units, Pro Rata,
  and 2% to the Non-Managing General Partner until there has been distributed
  in respect of each Common Unit then Outstanding an amount equal to the
  Cumulative Common Unit Arrearage existing with respect to such Quarter;

         (iii)  Third, 98% to the Unitholders holding Senior Subordinated
  Units, Pro Rata, and 2% to the Non-Managing General Partner until there has
  been distributed in respect of each Senior Subordinated Unit then
  Outstanding an amount equal to the Minimum Quarterly Distribution for such
  Quarter;

        (iv)  Fourth, 98% to the Unitholders holding Junior Subordinated
  Units, Pro Rata, and 2% to the Non-Managing General Partner until there has
  been distributed in respect of each Junior Subordinated Unit then
  Outstanding an amount equal to the Minimum Quarterly Distribution for such
  Quarter;

       (v)  Fifth, 98% to all Unitholders, Pro Rata, and 2% to the Non-
  Managing General Partner until there has been distributed in respect of
  each Unit then Outstanding an amount equal to the excess of the First
  Target Distribution over the Minimum Quarterly Distribution for such
  Quarter;

        (vi)  Sixth, 85% to all Unitholders, Pro Rata, 13% to the holders of
  the Incentive Distribution Rights, Pro Rata, and 2% to the Non-Managing
  General Partner until there has been distributed in respect of each Unit
  then Outstanding an amount equal to the excess of the Second Target
  Distribution over the First Target Distribution for such Quarter;

         (vii)  Seventh, 75% to all Unitholders, Pro Rata, 23% to the holders
  of the Incentive Distribution Rights, Pro Rata, and 2% to the Non-Managing
  General Partner until there has been distributed in respect of each Unit
  then Outstanding an amount equal to the excess of the Third Target
  Distribution over the Second Target Distribution for such Quarter; and

          (viii)  Thereafter, 50% to all Unitholders, Pro Rata, 48% to the
  holders of the Incentive Distribution Rights, Pro Rata, and 2% to the Non-
  Managing General Partner;

provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a),
the distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.4(a)(viii).

     (b)  After Subordination Period. Available Cash with respect to any
Quarter after the Subordination Period that is deemed to be Operating Surplus
pursuant to the provisions of Section 6.3 or 6.5, subject to Section 17-607 of
the Delaware Act, shall be distributed as follows, except as otherwise required
by Section 5.6(b) in respect of additional Partnership Securities issued
pursuant thereto:

       (i)  First, 98% to all Unitholders, Pro Rata, and 2% to the Non-
  Managing General Partner until there has been distributed in respect of
  each Unit then Outstanding an amount equal to the Minimum Quarterly
  Distribution for such Quarter;

        (ii)  Second, 98% to all Unitholders, Pro Rata, and 2% to the Non-
  Managing General Partner until there has been distributed in respect of
  each Unit then Outstanding an amount equal to the excess of the First
  Target Distribution over the Minimum Quarterly Distribution for such
  Quarter;

         (iii)  Third, 85% to all Unitholders, Pro Rata, and 13% to the
  holders of the Incentive Distribution Rights, Pro Rata, and 2% to the Non-
  Managing General Partner until there has been distributed in respect of
  each Unit then Outstanding an amount equal to the excess of the Second
  Target Distribution over the First Target Distribution for such Quarter;

        (iv)  Fourth, 75% to all Unitholders, Pro Rata, and 23% to the
  holders of the Incentive Distribution Rights, Pro Rata, and 2% to the Non-
  Managing General Partner until there has been

                                      A-43

  distributed in respect of each Unit then Outstanding an amount equal to the
  excess of the Third Target Distribution over the Second Target Distribution
  for such Quarter; and

       (v)  Thereafter, 50% to all Unitholders, Pro Rata, and 48% to the
  holders of the Incentive Distribution Rights, Pro Rata, and 2% to the Non-
  Managing General Partner;

provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a),
the distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.4(b)(v).

Section 6.5. Distributions of Available Cash from Capital Surplus.

   Available Cash that is deemed to be Capital Surplus pursuant to the
provisions of Section 6.3(a) shall, subject to Section 17-607 of the Delaware
Act, be distributed, unless the provisions of Section 6.3 require otherwise,
98% to all Unitholders, Pro Rata, and 2% to the Non-Managing General Partner
until a hypothetical holder of a Common Unit acquired on the Closing Date has
received with respect to such Common Unit, during the period since the Closing
Date through such date, distributions of Available Cash that are deemed to be
Capital Surplus in an aggregate amount equal to the Initial Unit Price.
Available Cash that is deemed to be Capital Surplus shall then be distributed
98% to all Unitholders holding Common Units, Pro Rata, and 2% to the Non-
Managing General Partner until there has been distributed in respect of each
Common Unit then Outstanding an amount equal to the Cumulative Common Unit
Arrearage. Thereafter, all Available Cash shall be distributed as if it were
Operating Surplus and shall be distributed in accordance with Section 6.4.

Section 6.6. Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.

    (a) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution, Third Target Distribution Common Unit Arrearages and
Cumulative Common Unit Arrearages shall be proportionately adjusted in the
event of any distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other Partnership
Securities in accordance with Section 5.10. In the event of a distribution of
Available Cash that is deemed to be from Capital Surplus, the then applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution shall be adjusted proportionately
downward to equal the product obtained by multiplying the otherwise applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, as the case may be, by a fraction
of which the numerator is the Unrecovered Capital of the Common Units
immediately after giving effect to such distribution and of which the
denominator is the Unrecovered Capital of the Common Units immediately prior to
giving effect to such distribution.

     (b)  The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution shall also be subject to
adjustment pursuant to Section 6.9.

Section 6.7. Special Provisions Relating to the Holders of Senior Subordinated
          Units and Junior Subordinated Units.

     (a)  Except with respect to the right to vote on or approve matters
requiring the vote or approval of a percentage of the holders of Outstanding
Common Units and the right to participate in allocations of income, gain, loss
and deduction and distributions made with respect to Common Units, the holder
of a Senior Subordinated Unit or a Junior Subordinated Unit shall have all of
the rights and obligations of a Unitholder holding Common Units hereunder;
provided, however, that immediately upon the conversion of Subordinated Units
into Common Units pursuant to Section 5.8, the Unitholder holding a
Subordinated Unit shall possess all of the rights and obligations of a
Unitholder holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of income, gain,
loss and deduction and

                                      A-44

distributions made with respect to Common Units; provided, however, that such
converted Subordinated Units shall remain subject to the provisions of Sections
5.5(c)(ii), 6.1(d)(x) and 6.7(b).

     (b)  The Unitholder holding a Senior Subordinated Unit or a Junior
Subordinated Unit which has converted into a Common Unit pursuant to Section
5.8 shall not be issued a Common Unit Certificate pursuant to Section 4.1, and
shall not be permitted to transfer its converted Subordinated Units to a Person
which is not an Affiliate of the holder until such time as the Managing General
Partner determines, based on advice of counsel, that a converted Subordinated
Unit should have, as a substantive matter, like intrinsic economic and federal
income tax characteristics, in all material respects, to the intrinsic economic
and federal income tax characteristics of an Initial Common Unit. In connection
with the condition imposed by this Section 6.7(b), the Managing General Partner
may take whatever reasonable steps are required to provide economic uniformity
to the converted Subordinated Units in preparation for a transfer of such
converted Subordinated Units, including the application of Sections 5.5 (c)(ii)
and 6.1(d)(x); provided, however, that no such steps may be taken that would
have a material adverse effect on the Unitholders holding Common Units
represented by Common Unit Certificates.

Section 6.8. Special Provisions Relating to the Holders of Incentive
Distribution Rights.

   Notwithstanding anything to the contrary set forth in this Agreement, the
holders of the Incentive Distribution Rights (a) shall (i) possess the rights,
and obligations provided in this Agreement with respect to a Limited Partner
pursuant to Articles III and VII and (ii) have a Capital Account as a Partner
pursuant to Section 5.5 and all other provisions related thereto and (b) shall
not (i) be entitled to vote on any matters requiring the approval or vote of
the holders of Outstanding Units, (ii) be entitled to any distributions other
than as provided in Sections 6.4(a)(vi), (vii) and (viii), 6.4(b)(iii), (iv)
and (v), and 12.4 or (iii) be allocated items of income, gain, loss or
deduction other than as specified in this Article VI.

Section 6.9. Entity-Level Taxation.

   If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership or
the Operating Company to be treated as an association taxable as a corporation
or otherwise subjects the Partnership or the Operating Company to entity-level
taxation for federal income tax purposes, the then applicable Minimum Quarterly
Distribution, First Target Distribution, Second Target Distribution and Third
Target Distribution shall be adjusted to equal the product obtained by
multiplying (a) the amount thereof by (b) one minus the sum of (i) the highest
marginal federal corporate (or other entity, as applicable) income tax rate of
the Partnership or the Operating Company for the taxable year of the
Partnership or the Operating Company in which such Quarter occurs (expressed as
a percentage) plus (ii) the effective overall state and local income tax rate
(expressed as a percentage) applicable to the Partnership or the Operating
Company for the calendar year next preceding the calendar year in which such
Quarter occurs (after taking into account the benefit of any deduction
allowable for federal income tax purposes with respect to the payment of state
and local income taxes), but only to the extent of the increase in such rates
resulting from such legislation or interpretation. Such effective overall state
and local income tax rate shall be determined for the taxable year next
preceding the first taxable year during which the Partnership or the Operating
Company is taxable for federal income tax purposes as an association taxable as
a corporation or is otherwise subject to entity-level taxation by determining
such rate as if the Partnership or the Operating Company had been subject to
such state and local taxes during such preceding taxable year.

                                  ARTICLE VII

                      Management and Operation of Business

Section 7.1. Management.

     (a)  The Managing General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the Managing General Partner, and
neither the Non-

                                      A-45

Managing General Partner nor any Limited Partner or Assignee shall have any
management power over the business and affairs of the Partnership. In addition
to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the Managing General
Partner under any other provision of this Agreement, the Managing General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:

     (i) the making of any expenditures, the lending or borrowing of money,
  the assumption or guarantee of, or other contracting for, indebtedness and
  other liabilities, the issuance of evidences of indebtedness, including
  indebtedness that is convertible into Partnership Securities, and the
  incurring of any other obligations;

     (ii) the making of tax, regulatory and other filings, or rendering of
  periodic or other reports to governmental or other agencies having
  jurisdiction over the business or assets of the Partnership;

     (iii) the acquisition, disposition, mortgage, pledge, encumbrance,
  hypothecation or exchange of any or all of the assets of the Partnership or
  the merger or other combination of the Partnership with or into another
  Person (the matters described in this clause (iii) being subject, however,
  to any prior approval that may be required by Section 7.3);

     (iv) the use of the assets of the Partnership (including cash on hand)
  for any purpose consistent with the terms of this Agreement, including the
  financing of the conduct of the operations of the Partnership Group;
  subject to Section 7.6(a), the lending of funds to other Persons (including
  the Operating Company); the repayment of obligations of the Partnership
  Group and the making of capital contributions to any member of the
  Partnership Group;

     (v) the negotiation, execution and performance of any contracts,
  conveyances or other instruments (including instruments that limit the
  liability of the Partnership under contractual arrangements to all or
  particular assets of the Partnership, with the other party to the contract
  to have no recourse against the General Partners or their assets other than
  their interest in the Partnership, even if same results in the terms of the
  transaction being less favorable to the Partnership than would otherwise be
  the case);

     (vi) the distribution of Partnership cash;

     (vii) the selection and dismissal of employees (including employees
  having titles such as "president," "vice president," "secretary" and
  "treasurer") and agents, outside attorneys, accountants, consultants and
  contractors and the determination of their compensation and other terms of
  employment or hiring;

     (viii) the maintenance of such insurance for the benefit of the
  Partnership Group and the Partners as it deems necessary or appropriate;

     (ix) the formation of, or acquisition of an interest in, and the
  contribution of property and the making of loans to, any further limited or
  general partnerships, joint ventures, limited liability companies,
  corporations or other relationships (including the acquisition of interests
  in, and the contributions of property to, the Operating Company from time
  to time) subject to the restrictions set forth in Section 2.4;

     (x) the control of any matters affecting the rights and obligations of
  the Partnership, including the bringing and defending of actions at law or
  in equity and otherwise engaging in the conduct of litigation and the
  incurring of legal expense and the settlement of claims and litigation;

     (xi) the indemnification of any Person against liabilities and
  contingencies to the extent permitted by law;

                                      A-46

     (xii) the entering into of listing agreements with any National
  Securities Exchange and the delisting of some or all of the Limited Partner
  Interests from, or requesting that trading be suspended on, any such
  exchange (subject to any prior approval that may be required under Section
  4.8);

     (xiii) unless restricted or prohibited by Section 5.7, the purchase,
  sale or other acquisition or disposition of Partnership Securities, or the
  issuance of additional options, rights, warrants and appreciation rights
  relating to Partnership Securities; and

     (xiv) the undertaking of any action in connection with the Partnership's
  participation in the Operating Company as a partner.

     (b)  Notwithstanding any other provision of this Agreement, the Operating
Company Agreement, the Delaware Act or any applicable law, rule or regulation,
each of the Partners and the Assignees and each other Person who may acquire an
interest in Partnership Securities hereby (i) approves, ratifies and confirms
the execution, delivery and performance by the parties thereto of the Operating
Company Agreement, the Underwriting Agreement, the Contribution and Conveyance
Agreement, and the other agreements and other described in or filed as exhibits
to the Registration Statement that are related to the transactions contemplated
by the Registration Statement; (ii) agrees that the Managing General Partner
(on its own or through any officer of the Partnership) is authorized to
execute, deliver and perform the agreements referred to in clause (i) of this
sentence and the other agreements, acts, transactions and matters described in
or contemplated by the Registration Statement on behalf of the Partnership
without any further act, approval or vote of the Partners or the Assignees or
the other Persons who may acquire an interest in Partnership Securities; and
(iii) agrees that the execution, delivery or performance by the General
Partners, any Group Member or any Affiliate of any of them, of this Agreement
or any agreement authorized or permitted under this Agreement (including the
exercise by the Managing General Partner or any Affiliate of the Managing
General Partner of the rights accorded pursuant to Article XV), shall not
constitute a breach by the General Partners of any duty that the General
Partners may owe the Partnership or the Limited Partners or any other Persons
under this Agreement (or any other agreements) or of any duty stated or implied
by law or equity.

Section 7.2. Certificate of Limited Partnership.

   The Managing General Partner has caused the Certificate of Limited
Partnership to be filed with the Secretary of State of the State of Delaware as
required by the Delaware Act and shall use all reasonable efforts to cause to
be filed such other certificates or documents as may be determined by the
Managing General Partner in its sole discretion to be reasonable and necessary
or appropriate for the formation, continuation, qualification and operation of
a limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware or any other state in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the Managing General Partner in its sole discretion to
be reasonable and necessary or appropriate, the Managing General Partner shall
file amendments to and restatements of the Certificate of Limited Partnership
and do all things to maintain the Partnership as a limited partnership (or a
partnership or other entity in which the limited partners have limited
liability) under the laws of the State of Delaware or of any other state in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 3.4(a), the Managing General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate of Limited
Partnership, any qualification document or any amendment thereto to any Limited
Partner.

Section 7.3. Restrictions on General Partners' Authority.

     (a)  The General Partners may not, without written approval of the
specific act by holders of all of the Outstanding Limited Partner Interests or
by other written instrument executed and delivered by holders of all of the
Outstanding Limited Partner Interests subsequent to the date of this Agreement,
take any action in contravention of this Agreement, including, except as
otherwise provided in this Agreement, (i) committing any

                                      A-47

act that would make it impossible to carry on the ordinary business of the
Partnership; (ii) possessing Partnership property, or assigning any rights in
specific Partnership property, for other than a Partnership purpose; (iii)
admitting a Person as a Partner; (iv) amending this Agreement in any manner; or
(v) transferring its interest as general partner of the Partnership.

     (b)  Except as provided in Articles XII and XIV, no General Partner may
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination)
or approve on behalf of the Partnership the sale, exchange or other disposition
of all or substantially all of the assets of the Operating Company, without the
approval of holders of a Unit Majority; provided however that this provision
shall not preclude or limit the General Partners' ability to mortgage, pledge,
hypothecate or grant a security interest in all or substantially all of the
assets of the Partnership or Operating Company and shall not apply to any
forced sale of any or all of the assets of the Partnership or Operating Company
pursuant to the foreclosure of, or other realization upon, any such
encumbrance. Without the approval of holders of a Unit Majority, the General
Partners shall not, on behalf of the Partnership, (i) consent to any amendment
to the Operating Company Agreement or, except as expressly permitted by Section
7.9(d), take any action permitted to be taken by a member of the Operating
Company, in either case, that would have a material adverse effect on the
Partnership as a member of the Operating Company or (ii) except as permitted
under Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to elect a
successor general partner of the Partnership or a successor general partner or
managing member of any Group Member.

Section 7.4. Reimbursement of the General Partners.

     (a)  Except as provided in this Section 7.4 and elsewhere in this
Agreement, the General Partners shall not be compensated for their services as
general partners or managing members of any Group Member.

     (b)  Each of the General Partners shall be reimbursed on a monthly basis,
or such other reasonable basis as the Managing General Partner may determine in
its sole discretion, for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership (including salary, bonus,
incentive compensation and other amounts paid to any Person including
Affiliates of such General Partner to perform services for the Partnership or
for such General Partner in the discharge of its duties to the Partnership),
and (ii) all other necessary or appropriate expenses allocable to the
Partnership or otherwise reasonably incurred by such General Partner in
connection with operating the Partnership's business (including expenses
allocated to such General Partner by its Affiliates). The Managing General
Partner shall determine the expenses that are allocable to the Partnership in
any reasonable manner determined by the Managing General Partner in its sole
discretion. Reimbursements pursuant to this Section 7.4 shall be in addition to
any reimbursement to the General Partners as a result of indemnification
pursuant to Section 7.7.

     (c)  Subject to Section 5.7, the Managing General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance of Partnership
Securities or options to purchase Partnership Securities), or cause the
Partnership to issue Partnership Securities in connection with, or pursuant to,
any employee benefit plan, employee program or employee practice maintained or
sponsored by either of the General Partners or any one of its Affiliates, in
each case for the benefit of employees of either of the General Partners, any
Group Member or any Affiliate, or any of them, in respect of services
performed, directly or indirectly, for the benefit of the Partnership Group.
The Partnership agrees to issue and sell to the General Partners or any of
their Affiliates any Partnership Securities that the General Partners or such
Affiliates are obligated to provide to any employees pursuant to any such
employee benefit plans, employee programs or employee practices. Expenses
incurred by the General Partners in connection with any such plans, programs
and practices (including the net cost to the General Partners or such
Affiliates of Partnership Securities purchased by the General Partners or such
Affiliates from the Partnership to fulfill options or awards under such plans,
programs and practices) shall be reimbursed in accordance with Section 7.4(b).
Any and all

                                      A-48

obligations of the General Partners under any employee benefit plans, employee
programs or employee practices adopted by the Managing General Partner as
permitted by this Section 7.4(c) shall constitute obligations of the General
Partners hereunder and shall be assumed by any successor General Partner
approved pursuant to Section 11.1, 11.2 or 11.4 or the transferee of or
successor to all of the Managing General Partner's General Partner Interest or
the Non-Managing General Partner's General Partner Interest pursuant to
Section 4.6.

Section 7.5. Outside Activities.

     (a)  After the Closing Date, the Managing General Partner, for so long as
it is a General Partner of the Partnership (i) agrees that its sole business
will be to act as a general partner or managing member of the Partnership, the
Operating Company, and any other partnership or limited liability company of
which the Partnership or the Operating Company is, directly or indirectly, a
partner or member and to undertake activities that are ancillary or related
thereto (including being a limited partner in the Partnership), and (ii) shall
not engage in any business or activity or incur any debts or liabilities except
in connection with or incidental to (A) its performance as general partner or
managing member of one or more Group Members or as described in or contemplated
by the Registration Statement or (B) the acquiring, owning or disposing of debt
or equity securities in any Group Member.

     (b)  Except as specifically restricted by Section 7.5(a), each Indemnitee
(other than the Managing General Partner) shall have the right to engage in
businesses of every type and description and other activities for profit and to
engage in and possess an interest in other business ventures of any and every
type or description, whether in businesses engaged in or anticipated to be
engaged in by any Group Member, independently or with others, including
business interests and activities in direct competition with the business and
activities of any Group Member, and none of the same shall constitute a breach
of this Agreement or any duty express or implied by law to any Group Member or
any Partner or Assignee. Neither any Group Member, any Limited Partner nor any
other Person shall have any rights by virtue of this Agreement, the Operating
Company Agreement or the partnership relationship established hereby or thereby
in any business ventures of any Indemnitee.

     (c)  Subject to the terms of Section 7.5(a) and Section 7.5(b), but
otherwise notwithstanding anything to the contrary in this Agreement, (i) the
engaging in competitive activities by any Indemnitees (other than the Managing
General Partner) in accordance with the provisions of this Section 7.5 is
hereby approved by the Partnership and all Partners, (ii) it shall be deemed
not to be a breach of the General Partners' fiduciary duties or any other
obligation of any type whatsoever of the General Partners for the Indemnitees
(other than the Managing General Partner) to engage in such business interests
and activities in preference to or to the exclusion of the Partnership and
(iii) the General Partners and the Indemnities shall have no obligation to
present business opportunities to the Partnership.

     (d)  The General Partners and any of their Affiliates may acquire Units or
other Partnership Securities in addition to those acquired on the Closing Date
and, except as otherwise provided in this Agreement, shall be entitled to
exercise all rights of a General Partner or Limited Partner, as applicable,
relating to such Units or Partnership Securities.

     (e)  The term "Affiliates" when used in Section 7.5(a) and Section 7.5(d)
with respect to the General Partner shall not include any Group Member or any
Subsidiary of the Group Member.

     (f)  Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of
this Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partners to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partners have complied with their
fiduciary duties in connection with determinations made by it under this
Section 7.5.

                                      A-49

Section 7.6. Loans from the General Partners; Loans or Contributions from the
          Partnership; Contracts with Affiliates; Certain Restrictions on the
          General Partners.

     (a)  Each of the General Partners or any of their Affiliates may lend to
any Group Member, and any Group Member may borrow from a General Partner or any
of its Affiliates, funds needed or desired by the Group Member for such periods
of time and in such amounts as the Managing General Partner may determine;
provided, however, that in any such case the lending party may not charge the
borrowing party interest at a rate greater than the rate that would be charged
the borrowing party or impose terms less favorable to the borrowing party than
would be charged or imposed on the borrowing party by unrelated lenders on
comparable loans made on an arm's-length basis (without reference to the
lending party's financial abilities or guarantees). The borrowing party shall
reimburse the lending party for any costs (other than any additional interest
costs) incurred by the lending party in connection with the borrowing of such
funds. For purposes of this Section 7.6(a) and Section 7.6(b), the term "Group
Member" shall include any Affiliate of a Group Member that is controlled by the
Group Member. No Group Member may lend funds to a General Partner or any of its
Affiliates (other than another Group Member).

   (b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the Managing General Partner; provided,
however, that the Partnership may not charge the Group Member interest at a
rate less than the rate that would be charged to the Group Member (without
reference to the General Partners' financial abilities or guarantees) by
unrelated lenders on comparable loans. The foregoing authority shall be
exercised by the Managing General Partner in its sole discretion and shall not
create any right or benefit. in favor of any Group Member or any other Person.

     (c)  The General Partners may, or may enter into an agreement with any of
their Affiliates to, render services to a Group Member or to the General
Partners in the discharge of their duties as general partners of the
Partnership. Any services rendered to a Group Member by a General Partner or
any of its Affiliates shall be on terms that are fair and reasonable to the
Partnership; provided, however, that the requirements of this Section 7.6(c)
shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to the
Partnership Group than those generally being provided to or available from
unrelated third parties or (iii) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership Group), is equitable to the Partnership Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).

     (d)  The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.

     (e)  Neither General Partner nor any of their Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i)
the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
and Conveyance Agreement and any other transactions described in or
contemplated by the Registration Statement, (ii) any transaction approved by
Special Approval, (iii) any transaction, the terms of which are no less
favorable to the Partnership than those generally being provided to or
available from unrelated third parties, or (iv) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or
advantageous to the Partnership), is equitable to the Partnership. With respect
to any contribution of assets to the Partnership in exchange for Partnership
Securities, the Conflicts Committee, in determining whether the appropriate
number of Partnership Securities are being issued, may take into account, among
other things, the fair market value of the assets, the liquidated and
contingent liabilities assumed, the tax basis in the assets, the extent to
which tax-only allocations to the transferor will protect the existing partners
of the Partnership against a low tax basis, and such other factors as the
Conflicts Committee deems relevant under the circumstances.

                                      A-50

     (f)  The General Partners and their Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partners
and their Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partners or their Affiliates to enter
into such contracts.

     (g)  Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of
the conflicts of interest described in the Registration Statement are hereby
approved by all Partners.

Section 7.7. Indemnification.

     (a)  To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or other amounts
arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each
case the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or (in the case of a Person other than the
General Partners) not opposed to, the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful; provided, further, no indemnification pursuant to this
Section 7.7 shall be available to the General Partners with respect to their
obligations incurred pursuant to the Underwriting Agreement or the Contribution
and Conveyance Agreement (other than obligations incurred by the General
Partners on behalf of the Partnership or the Operating Company). The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that the Indemnitee acted in a manner contrary to that
specified above. Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership, it being agreed that the General
Partners shall not be personally liable for such indemnification and shall have
no obligation to contribute or loan any monies or property to the Partnership
to enable it to effectuate such indemnification.

     (b)  To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action; suit or proceeding
shall, from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the Partnership of any undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.

     (c)  The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests,
as a matter of law or otherwise, both as to actions in the Indemnitee's
capacity as an Indemnitee and as to actions in any other capacity (including
any capacity under the Underwriting Agreement), and shall continue as to an
Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.

     (d)  The Partnership may purchase and maintain (or reimburse the General
Partners or their Affiliates for the cost of) insurance, on behalf of the
General Partners, their Affiliates and such other Persons as the Managing
General Partner shall determine, against any liability that may be asserted
against or expense that may be incurred by such Person in connection with the
Partnership's activities or such Person's activities on behalf of the
Partnership, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.

                                      A-51

     (e)  For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 7.7(a); and action taken or omitted by the
Indemnitee with respect to any employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.

     (f)  In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.

     (g)  An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.

     (h)  The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

     (i)  No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership,
nor the obligations of the Partnership to indemnify any such Indemnitee under
and in accordance with the provisions of this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or-in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.

Section 7.8. Liability of Indemnitees.

     (a)  Notwithstanding anything to the contrary set forth in this Agreement,
no Indemnitee shall be liable for monetary damages to the Partnership, the
Limited Partners, the Assignees or any other Persons who have acquired
interests in the Partnership Securities, for losses sustained or liabilities
incurred as a result of any act or omission if such Indemnitee acted in good
faith.

     (b)  Subject to its obligations and duties as Managing General Partner set
forth in Section 7.1(a), the Managing General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents, and the Managing
General Partner shall not be responsible for any misconduct or negligence on
the part of any such agent appointed by the Managing General Partner in good
faith.

     (c)  To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Partners, the General Partners and any other Indemnitee
acting in connection with the Partnership's business or affairs shall not be
liable to the Partnership or to any Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict or otherwise modify the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Partners
to replace such other duties and liabilities of such Indemnitee.

     (d)  Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partners, and the Partnership's and General Partners' directors,
officers and employees under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be
asserted.

                                      A-52

Section 7.9. Resolution of Conflicts of Interest.

     (a)  Unless otherwise expressly provided in this Agreement or the
Operating Company Agreement, whenever a potential conflict of interest exists
or arises between a General Partner or any of its Affiliates, on the one hand,
and the Partnership, the Operating Company, any Partner or any Assignee, on the
other, any resolution or course of action by a General Partner or its
Affiliates in respect of such conflict of interest shall be permitted and
deemed approved by all Partners, and shall not constitute a breach of this
Agreement, of the Operating Company Agreement, of any agreement contemplated
herein or therein, or of any duty stated or implied by law or equity, if the
resolution or course of action is, or by operation of this Agreement is deemed
to be, fair and reasonable to the Partnership. The Managing General Partner
shall be authorized but not required in connection with its resolution of such
conflict of interest to seek Special Approval of such resolution. Any conflict
of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Partnership if such conflict of
interest or resolution is (i) approved by Special Approval (as long as the
material facts known to the Managing General Partner or any of its Affiliates
regarding any proposed transaction were disclosed to the Conflicts Committee at
the time it gave its approval), (ii) on terms no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties or (iii) fair to the Partnership, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership). The Managing General Partner may also adopt a resolution or
course of action that has not received Special Approval. The Managing General
Partner (including the Conflicts Committee in connection with any Special
Approval) shall be authorized in connection with its determination of what is
"fair and reasonable" to the Partnership and in connection with its resolution
of any conflict of interest to consider (A) the relative interests of any party
to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interest; (B) any customary or accepted industry
practices and any customary or historical dealings with a particular Person;
(C) any applicable generally accepted accounting practices or principles; and
(D) such additional factors as the Managing General Partner (including the
Conflicts Committee) determines in its sole discretion to be relevant,
reasonable or appropriate under the circumstances. Nothing contained in this
Agreement, however, is intended to nor shall it be construed to require the
Managing General Partner (including the Conflicts Committee) to consider the
interests of any Person other than the Partnership. In the absence of bad faith
by the Managing General Partner, the resolution, action or terms so made, taken
or provided by the Managing General Partner with respect to such matter shall
not constitute a breach of this Agreement or any other agreement contemplated
herein or a breach of any standard of care or duty imposed herein or therein
or, to the extent permitted by law, under the Delaware Act or any other law,
rule or regulation.

     (b)  Whenever this Agreement or any other agreement contemplated hereby
provides that the Managing General Partner or any of its Affiliates is
permitted or required to make a decision (i) in its "sole discretion" or
"discretion," that it deems "necessary or appropriate" or "necessary or
advisable" or under a grant of similar authority or latitude, except as
otherwise provided herein, the Managing General Partner or such Affiliate shall
be entitled to consider only such interests and factors as it desires and shall
have no duty or obligation to give any consideration to any interest of, or
factors affecting, the Partnership, the Operating Company, any Limited Partner
or any Assignee, (ii) it may make such decision in its sole discretion
(regardless of whether there is a reference to "sole discretion" or
"discretion") unless another express standard is provided for, or (iii) in
"good faith" or under another express standard, the Managing General Partner or
such Affiliate shall act under such express standard and shall not be subject
to any other or different standards imposed by this Agreement, the Operating
Company Agreement, any other agreement contemplated hereby or under the
Delaware Act or any other law, rule or regulation. In addition, any actions
taken by the Managing General Partner or such Affiliate consistent with the
standards of "reasonable discretion" set forth in the definitions of Available
Cash or Operating Surplus shall not constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners. The Managing
General Partner shall have no duty, express or implied, to sell or otherwise
dispose of any asset of the Partnership Group other than in the ordinary course
of business. No borrowing by any Group Member or the approval thereof by the
Managing General Partner shall be deemed to constitute a

                                      A-53

breach of any duty of the Managing General Partner to the Partnership or the
Limited Partners by reason of the fact that the purpose or effect of such
borrowing is directly or indirectly to (A) enable distributions to the Non-
Managing General Partner or its Affiliates (including in their capacities as
Limited Partners) to exceed 2% of the total amount distributed to all partners
or (B) hasten the expiration of the Subordination Period or the conversion of
any Senior Subordinated Units or Junior Subordinated Units into Common Units.

     (c)  Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.

     (d)  The Unitholders hereby authorize the Managing General Partner, on
behalf of the Partnership as a partner or member of a Group Member, to approve
of actions by the general partner or managing member of such Group Member
similar to those actions permitted to be taken by the Managing General Partner
pursuant to this Section 7.9.

Section 7.10. Other Matters Concerning the General Partners.

     (a)  A General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.

     (b)  A General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion (including an Opinion of Counsel) of such Persons as
to matters that such General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.

     (c)  A General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.

     (d)  Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited to the extent permitted by law, as required to permit the
General Partners to act under this Agreement or any other agreement
contemplated by this Agreement and to make any decision pursuant to the
authority prescribed in this Agreement, so long as such action is reasonably
believed by the Managing General Partner to be in, or not inconsistent with,
the best interests of the Partnership.

Section 7.11. Purchase or Sale of Partnership Securities.

   The Managing General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Securities; provided that, except as permitted
pursuant to Section 4.10, the Managing General Partner may not cause any Group
Member to purchase Subordinated Units during the Subordination Period. As long
as Partnership Securities are held by any Group Member, such Partnership
Securities shall not be considered Outstanding for any purpose, except as
otherwise provided herein. The General Partners or any of their Affiliates may
also purchase or otherwise acquire and sell or otherwise dispose of Partnership
Securities for their own account, subject to the provisions of Articles IV and
X.

                                      A-54

Section 7.12. Registration Rights of the General Partners and their Affiliates.

     (a)  If (i) either of the General Partners or any Affiliate of either of
the General Partners (including for purposes of this Section 7.12, any Person
that is an Affiliate of either of the General Partners at the date of this
Agreement notwithstanding that it may later cease to be an Affiliate of the
General Partner) holds Partnership Securities that it desires to sell and (ii)
Rule 144 of the Securities Act (or any successor rule or regulation to Rule
144) or another exemption from registration is not available to enable such
holder of Partnership Securities (the "Holder") to dispose of the number of
Partnership Securities it desires to sell at the time it desires to do so
without registration under the Securities Act, then upon the request of such
General Partner or any of its Affiliates, the Partnership shall file with the
Commission as promptly as practicable after receiving such request, and use all
reasonable efforts to cause to become effective and remain effective for a
period of not less than six months following its effective date or such shorter
period as shall terminate when all Partnership Securities covered by such
registration statement have been sold, a registration statement under the
Securities Act registering the offering and sale of the number of Partnership
Securities specified by the Holder; provided, however, that the Partnership
shall not be required to effect more than three registrations pursuant to this
Section 7.12(a); and provided further, that if the Conflicts Committee
determines in its good faith judgment that a postponement of the requested
registration for up to six months would be in the best interests of the
Partnership and its Partners due to a pending transaction, investigation or
other event, the filing of such registration statement or the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the immediately preceding sentence, the
Partnership shall promptly prepare and file (x) such documents as may be
necessary to register or qualify the securities subject to such registration
under the securities laws of such states as the Holder shall reasonably
request; provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to do business as
a foreign corporation or partnership doing business in such jurisdiction solely
as a result of such registration, and (y) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject to such
registration on such National Securities Exchange as the Holder shall
reasonably request, and do any and all other acts and things that may
reasonably be necessary or advisable to enable the Holder to consummate a
public sale of such Partnership Securities in such states. Except as set forth
in Section 7.12(c), all costs and expenses of any such registration and
offering (other than the underwriting discounts and commissions) shall be paid
by the Partnership, without reimbursement by the Holder.

     (b)  If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such registration
statement as the Holder shall request. If the proposed offering pursuant to
this Section 7.12(b) shall be an underwritten offering, then, in the event that
the managing underwriter or managing underwriters of such offering advise the
Partnership and the Holder in writing that in their opinion the inclusion of
all or some of the Holder's Partnership Securities would adversely and
materially affect the success of the offering, the Partnership shall include in
such offering only that number or amount, if any, of securities held by the
Holder which, in the opinion of the managing underwriter or managing
underwriters, will not so adversely and materially affect the offering. Except
as set forth in Section 7.12(c), all costs and expenses of any such
registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.

     (c)  If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide
indemnification, representations, covenants, opinions and other assurance to
the underwriters in form and substance reasonably satisfactory to such
underwriters. Further, in addition to and not in limitation of the
Partnership's obligation under Section 7.7, the Partnership shall, to the
fullest extent, permitted by law, indemnify and hold harmless the Holder, its
officers, directors and each Person who controls the Holder (within the meaning
of the Securities Act) and any agent thereof (collectively, "Indemnified
Persons") against any losses, claims, demands, actions, causes of action,
assessments, damages, liabilities

                                      A-55

(joint or several), costs and expenses (including interest, penalties and
reasonable attorneys' fees and disbursements), resulting to, imposed upon, or
incurred by the Indemnified Persons, directly or indirectly, under the
Securities Act or otherwise (hereinafter referred to in this Section 7.12(c) as
a "claim" and in the plural as "claims") based upon, arising out of or
resulting from any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which any Partnership
Securities were registered under the Securities Act or any state securities or
Blue Sky laws, in any preliminary prospectus (if used prior to the effective
date of such registration statement), or in any summary or final prospectus or
in any amendment or supplement thereto (if used during the period the
Partnership is required to keep the registration statement current), or arising
out of, based upon or resulting from the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, however, that the Partnership
shall not be liable to any Indemnified Person to the extent that any such claim
arises out of, is based upon or results from an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, such preliminary, summary or final prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Partnership by or on behalf of such Indemnified Person
specifically for use in the preparation thereof.

     (d)  The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partners (and any of the General
Partners' Affiliates) after they cease to be Partners of the Partnership,
during a period of two years subsequent to the effective date of such cessation
and for so long thereafter as is required for the Holder to sell all of the
Partnership Securities with respect to which it has requested during such two-
year period inclusion in a registration statement otherwise filed or that a
registration statement be filed; provided, however, that the Partnership shall
not be required to file successive registration statements covering the same
Partnership Securities for which registration was demanded during such two-year
period. The provisions of Section 7.12(c) shall continue in effect thereafter.

     (e)  Any request to register Partnership Securities pursuant to this
Section 7.12 shall (i) specify the Partnership Securities intended to be
offered and sold by the Person making the request, (ii) express such Person's
present intent to offer such shares for distribution, (iii) describe the nature
or method of the proposed offer and sale of Partnership Securities, and (iv)
contain the undertaking of such Person to provide all such information and
materials and take all action as may be required in order to permit the
Partnership to comply with all applicable requirements in connection with the
registration of such Partnership Securities.

Section 7.13. Reliance by Third Parties.

   Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the Managing
General Partner and any officer of the Managing General Partner authorized by
the Managing General Partner to act on behalf of and in the name of the
Partnership has full power and authority to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any
authorized contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the Managing General Partner or any such officer as if it
were the Partnership's sole party in interest, both legally and beneficially.
Each Limited Partner hereby waives any and all defenses or other remedies that
may be available against such Person to contest, negate or disaffirm any action
of the Managing General Partner or any such officer in connection with any such
dealing. In no event shall any Person dealing with the Managing General Partner
or any such officer or its representatives be obligated to ascertain that the
terms of the Agreement have been complied with or to inquire into the necessity
or expedience of any act or action of the Managing General Partner or any such
officer or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the Managing General
Partner or its representatives shall be conclusive evidence in favor of any and
every Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly

                                      A-56

authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.

                                  ARTICLE VIII

                     Books, Records, Accounting and Reports

Section 8.1. Records and Accounting.

   The Managing General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to
Section 3.4(a). Any books and records maintained by or on behalf of the
Partnership in the regular course of its business, including the record of the
Record Holders and Assignees of Units or other Partnership Securities, books of
account and records of Partnership proceedings, may be kept on, or be in the
form of, computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.

Section 8.2. Fiscal Year.

   The fiscal year of the Partnership shall be a fiscal year ending December
31.

Section 8.3. Reports.

     (a)  As soon as practicable, but in no event later than 120 days after the
close of each fiscal year of the Partnership, the Managing General Partner
shall cause to be mailed or furnished to each Record Holder of a Unit as of a
date selected by the Managing General Partner in its discretion, an annual
report containing financial statements of the Partnership for such fiscal year
of the Partnership, presented in accordance with U.S. GAAP, including a balance
sheet and statements of operations, Partnership equity and cash flows, such
statements to be audited by a firm of independent public accountants selected
by the Managing General Partner.

   (b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each fiscal year, the Managing
General Partner shall cause to be mailed or furnished to each Record Holder of
a Unit, as of a date selected by the Managing General Partner in its
discretion, a report containing unaudited financial statements of the
Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which the Units are
listed for trading, or as the Managing General Partner determines to be
necessary or appropriate.

                                   ARTICLE IX

                                  Tax Matters

Section 9.1. Tax Returns and Information.

   The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax
reporting purposes with respect to a taxable year shall be furnished to them
within 90 days of the close of the calendar year in which the Partnership's
taxable year ends. The classification, realization and recognition of income,
gain, losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes.

                                      A-57

Section 9.2. Tax Elections.

     (a)  The Partnership shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the
reservation of the right to seek to revoke any such election upon the Managing
General Partner's determination that such revocation is in the best interests
of the Limited Partners. Notwithstanding any other provision herein contained,
for the purposes of computing the adjustments under Section 743(b) of the Code,
the Managing General Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of a Limited Partner Interest
will be deemed to be the lowest quoted closing price of the Limited Partner
Interests on any National Securities Exchange on which such Limited Partner
Interests are traded during the calendar month in which such transfer is deemed
to occur pursuant to Section 6.2(g) without regard to the actual price paid by
such transferee.

     (b)  The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.

     (c)  Except as otherwise provided herein, the Managing General Partner
shall determine whether the Partnership should make any other elections
permitted by the Code.

Section 9.3. Tax Controversies.

   Subject to the provisions hereof, the Managing General Partner is designated
as the Tax Matters Partner (as defined in the Code) and is authorized and
required to represent the Partnership (at the Partnership's expense) in
connection with all examinations of the Partnership's affairs by tax
authorities, including resulting administrative and judicial proceedings, and
to expend Partnership funds for professional services and costs associated
therewith. Each Partner agrees to cooperate with the Managing General Partner
and to do or refrain from doing any or all things reasonably required by the
Managing General Partner to conduct such proceedings.

Section 9.4. Withholding.

   Notwithstanding any other provision of this Agreement, the Managing General
Partner is authorized to take any action that it determines in its discretion
to be necessary or appropriate to cause the Partnership and the Operating
Company to comply with any withholding requirements established under the Code
or any other federal, state or local law including, without limitation,
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that
the Partnership is required or elects to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
any Partner or Assignee (including, without limitation, by reason of Section
1446 of the Code), the amount withheld may at the discretion of the Managing
General Partner be treated by the Partnership as a distribution of cash
pursuant to Section 6.3 in the amount of such withholding from such Partner.

                                   ARTICLE X

                             Admission of Partners

Section 10.1. Admission of Initial Limited Partners.

   Upon the issuance by the Partnership of Common Units, Senior Subordinated
Units, Junior Subordinated Units and Incentive Distribution Rights to Inergy
Partners, LLC, New Inergy Propane, LLC, Inergy Holdings, LLC, and the
Underwriters as described in Section 5.3 in connection with the Initial
Offering and the execution by each party of a Transfer Application, the
Managing General Partner shall admit such parties to the

                                      A-58

Partnership as Initial Limited Partners in respect of the Common Units, Senior
Subordinated Units, Junior Subordinated Units or Incentive Distribution Rights
issued to them.

Section 10.2. Admission of Substituted Limited Partner.

   By transfer of a Limited Partner Interest in accordance with Article IV, the
transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) the right to transfer the right to request
admission as a Substituted Limited Partner to such purchaser or other
transferee in respect of the transferred Limited Partner Interests. Each
transferee of a Limited Partner Interest (including any nominee holder or an
agent acquiring such Limited Partner Interest for the account of another
Person) who executes and delivers a Transfer Application shall, by virtue of
such execution and delivery, be an Assignee and be deemed to have applied to
become a Substituted Limited Partner with respect to the Limited Partner
Interests so transferred to such Person. Such Assignee shall become a
Substituted Limited Partner (x) at such time as the Managing General Partner
consents thereto, which consent may be given or withheld in the Managing
General Partner's discretion, and (y) when any such admission is shown on the
books and records of the Partnership. If such consent is withheld, such
transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership.
With respect to voting rights attributable to Limited Partner Interests that
are held by Assignees, the Managing General Partner shall be deemed to be the
Limited Partner with respect thereto and shall, in exercising the voting rights
in respect of such Limited Partner Interests on any matter, vote such Limited
Partner Interests at the written direction of the Assignee who is the Record
Holder of such Limited Partner Interests. If no such written direction is
received, such Limited Partner Interests will not be voted. An Assignee shall
have no other rights of a Limited Partner.

Section 10.3. Admission of Successor General Partners.

   A successor General Partner approved pursuant to Section 11.1, 11.2 or 11.4
or the transferee of or successor to such General Partner Interest pursuant to
Section 4.6 who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the Non-Managing General Partner or the
Managing General Partner, as the case may be, effective immediately prior to
the withdrawal or removal of the predecessor or transferring General Partner
pursuant to Section 11.1, 11.2 or 11.4 or the transfer of such General
Partner's General Partner Interest pursuant to Section 4.6; provided, however,
that no such successor shall be admitted to the Partnership until compliance
with the terms of Section 4.6 has occurred and such successor has executed and
delivered such other documents or instruments as may be required to effect such
admission. Any such successor shall, subject to the terms hereof, carry on the
business of the members of the Partnership Group without dissolution.

Section 10.4. Admission of Additional Limited Partners.

     (a)  A Person (other than the General Partners, an Initial Limited Partner
or a Substituted Limited Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the
Managing General Partner (i) evidence of acceptance in form satisfactory to the
Managing General Partner of all of the terms and conditions of this Agreement,
including the power of attorney granted in Section 2.6, and (ii) such other
documents or instruments as may be required in the discretion of the Managing
General Partner to effect such Person's admission as an Additional Limited
Partner.

     (b)  Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent
of the Managing General Partner, which consent may be given or withheld in the
Managing General Partner's discretion. The admission of any Person as an
Additional

                                      A-59

Limited Partner shall become effective on the date upon which the name of such
Person is recorded as such in the books and records of the Partnership,
following the consent of the Managing General Partner to such admission.

Section 10.5. Amendment of Agreement and Certificate of Limited Partnership.

   To effect the admission to the Partnership of any Partner, the Managing
General Partner shall take all steps necessary and appropriate under the
Delaware Act to amend the records of the Partnership to reflect such admission
and, if necessary, to prepare as soon as practicable an amendment to this
Agreement and, if required by law, the Managing General Partner shall prepare
and file an amendment to the Certificate of Limited Partnership, and the
Managing General Partner may for this purpose, among others, exercise the power
of attorney granted pursuant to Section 2.6.

                                   ARTICLE XI

                       Withdrawal or Removal of Partners

Section 11.1. Withdrawal of the Managing General Partner.

     (a)  The Managing General Partner shall be deemed to have withdrawn from
the Partnership upon the occurrence of any one of the following events (each
such event herein referred to as an "Event of Withdrawal");

       (i)  The Managing General Partner voluntarily withdraws from the
  Partnership by giving written notice to the other Partners (and it shall be
  deemed that the Managing General Partner has withdrawn pursuant to this
  Section 11.1(a)(i) if the Managing General Partner voluntarily withdraws as
  managing member of the Operating Company);

        (ii)  The Managing General Partner transfers all of its rights as
  Managing General Partner pursuant to Section 4.6;

         (iii)  The Managing General Partner is removed pursuant to Section
  11.2;

        (iv)  The Managing General Partner (A) makes a general assignment for
  the benefit of creditors; (B) files a voluntary bankruptcy petition for
  relief under Chapter 7 of the United States Bankruptcy Code; (C) files a
  petition or answer seeking for itself a liquidation, dissolution or similar
  relief (but not a reorganization) under any law; (D) files an answer or
  other pleading admitting or failing to contest the material allegations of
  a petition filed against the Managing General Partner in a proceeding of
  the type described in clauses (A)-(C) of this Section 11.1(a)(iv); or (E)
  seeks, consents to or acquiesces in the appointment of a trustee (but not a
  debtor-in-possession), receiver or liquidator of the Managing General
  Partner or of all or any substantial part of its properties;

       (v)  A final and non-appealable order of relief under Chapter 7 of the
  United States Bankruptcy Code is entered by a court with appropriate
  jurisdiction pursuant to a voluntary or involuntary petition by or against
  the Managing General Partner; or

        (vi)  (A) in the event the Managing General Partner is a corporation,
  a certificate of dissolution or its equivalent is filed for the Managing
  General Partner, or 90 days expire after the date of notice to the Managing
  General Partner of revocation of its charter without a reinstatement of its
  charter, under the laws of its state of incorporation; (B) in the event the
  Managing General Partner is a partnership or a limited liability company,
  the dissolution and commencement of winding up of the Managing General
  Partner; (C) in the event the Managing General Partner is acting in such
  capacity by virtue of being a trustee of a trust, the termination of the
  trust; (D) in the event the Managing General Partner is a natural person,
  his death or adjudication of incompetency; and (E) otherwise in the event
  of the termination of the Managing General Partner.

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   If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A),
(B), (C) or (E) occurs, the withdrawing Managing General Partner shall give
notice to the Limited Partners within 30 days after such occurrence. The
Partners hereby agree that only the Events of Withdrawal described in this
Section 11.1 shall result in the withdrawal of the Managing General Partner
from the Partnership.

     (b)  Withdrawal of the Managing General Partner from the Partnership upon
the occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on June 30, 2011, the General Partner voluntarily withdraws by giving at
least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by Unitholders holding at least a majority of the
Outstanding Common Units (excluding Common Units held by the General Partners
and their Affiliates) and the Managing General Partner delivers to the
Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that such
withdrawal (following the selection of the successor Managing General Partner)
would not result in the loss of the limited liability of any Limited Partner or
of a member of the Operating Company or cause the Partnership or the Operating
Company to be treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to the extent not
previously treated as such); (ii) at any time after 12:00 midnight, Eastern
Standard Time, on June 30, 2011, the Managing General Partner voluntarily
withdraws by giving at least 90 days' advance notice to the Unitholders, such
withdrawal to take effect on the date specified in such notice; (iii) at any
time that the Managing General Partner ceases to be the Managing General
Partner pursuant to Section 11.1(a)(ii) or is removed pursuant to Section 11.2;
or (iv) notwithstanding clause (i) of this sentence, at any time that the
Managing General Partner voluntarily withdraws by giving at least 90 days'
advance notice of its intention to withdraw to the Limited Partners, such
withdrawal to take effect on the date specified in the notice, if at the time
such notice is given one Person and its Affiliates (other than the Managing
General Partner and their Affiliates) own beneficially or of record or control
at least 50% of the Outstanding Units. The withdrawal of the Managing General
Partner from the Partnership upon the occurrence of an Event of Withdrawal
shall also constitute the withdrawal of the Managing General Partner as general
partner or managing member, as the case may be, of the other Group Members. If
the Managing General Partner gives a notice of withdrawal pursuant to Section
11.1(a)(i), the holders of a Unit Majority, may, prior to the effective date of
such withdrawal, elect a successor Managing General Partner. The Person so
elected as successor Managing General Partner shall automatically become the
successor general partner or managing member, as the case may be, of the other
Group Members of which the Managing General Partner is a general partner or a
managing member. If, prior to the effective date of the Managing General
Partner's withdrawal, a successor is not selected by the Unitholders as
provided herein or the Partnership does not receive a Withdrawal Opinion of
Counsel, the Partnership shall be dissolved in accordance with Section 12.1.
Any successor Managing General Partner elected in accordance with the terms of
this Section 11.1 shall be subject to the provisions of Section 10.3.

Section 11.2. Removal of the Managing General Partner.

   The Managing General Partner may be removed if such removal is approved by
the Unitholders holding at least 66 2/3% of the Outstanding Units (including
Units held by the General Partners and their Affiliates). Any such action by
such holders for removal of the Managing General Partner must also provide for
the election of a successor Managing General Partner by the Unitholders holding
a Unit Majority (including Units held by the General Partners and their
Affiliates). Such removal shall be effective immediately following the
admission of a successor Managing General Partner pursuant to Section 10.3. The
removal of the Managing General Partner shall also automatically constitute the
removal of the Managing General Partner as general partner or managing member,
as the case may be, of the other Group Members of which the Managing General
Partner is a general partner or a managing member. If a Person is elected as a
successor Managing General Partner in accordance with the terms of this Section
11.2, such Person shall, upon admission pursuant to Section 10.3, automatically
become a successor general partner or managing member, as the case may be, of
the other Group Members of

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which the Managing General Partner is a general partner or a managing member.
The right of the holders of Outstanding Units to remove the Managing General
Partner shall not exist or be exercised unless the Partnership has received an
opinion opining as to the matters covered by a Withdrawal Opinion of Counsel.
Any successor Managing General Partner elected in accordance with the terms of
this Section 11.2 shall be subject to the provisions of Section 10.3.

Section 11.3. Interest of Departing Partner and Successor General Partners.

     (a)  In the event of (i) withdrawal of a General Partner under
circumstances where such withdrawal does not violate this Agreement or (ii)
removal of a General Partner by the holders of Outstanding Units under
circumstances where Cause does not exist, if a successor General Partner is
elected in accordance with the terms of Section 11.1, 11.2 or 11.4, the
Departing Partner shall have the option exercisable prior to the effective date
of the departure of such Departing Partner to require its successor to purchase
(x) its General Partner Interest (y) its general partner interest (or
equivalent interest) in the other Group Members and (z) in the case of the
withdrawal or removal of the Managing General Partner, Inergy Holdings, LLC
shall have the right to require the successor Managing General Partner to
purchase the Incentive Distribution Rights ((x), (y) and (z) are collectively,
the "Combined Interest") in exchange for an amount in cash equal to the fair
market value of such Combined Interest, such amount to be determined and
payable as of the effective date of its departure. If a General Partner is
removed by the Unitholders under circumstances where Cause exists or if a
General Partner withdraws under circumstances where such withdrawal violates
this Agreement or the Operating Company Agreement, and if a successor General
Partner is elected in accordance with the terms of Section 11.1, 11.2 or 11.4,
such successor shall have the option, exercisable prior to the effective date
of the departure of such Departing Partner, to purchase the Combined Interest
for such fair market value of such Combined Interest of the Departing Partner.
In either event, the Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including
any employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by the General
Partner for the benefit of the Partnership or the other Group Members.

   For purposes of this Section 11.3(a), the fair market value of a Departing
Partner's Combined Interest shall be determined by agreement between the
Departing Partner and its successor or, failing agreement within 30 days after
the effective date of such Departing Partner's departure, by an independent
investment banking firm or other independent expert selected by the Departing
Partner and its successor, which, in turn, may rely on other experts, and the
determination of which shall be conclusive as to such matter. If such parties
cannot agree upon one independent investment banking firm or other independent
expert within 45 days after the effective date of such departure, then the
Departing Partner shall designate an independent investment banking firm or
other independent expert, the Departing Partner's successor shall designate an
independent investment banking firm or other independent expert, and such firms
or experts shall mutually select a third independent investment banking firm or
independent expert, which third independent investment banking firm or other
independent expert shall determine the fair market value of the Combined
Interest of the Departing Partner. In making its determination, such third
independent investment banking firm or other independent expert may consider
the then current trading price of Units on any National Securities Exchange on
which Units are then listed, the value of the Partnership's assets, the rights
and obligations of the Departing Partner and other factors it may deem
relevant.

     (b)  If the Combined Interest is not purchased in the manner set forth in
Section 11.3(a), the Departing Partner (or its transferee) shall become a
Limited Partner and its Combined Interest shall be converted into Common Units
pursuant to a valuation made by an investment banking firm or other independent
expert selected pursuant to Section 11.3(a), without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor General Partner shall indemnify the
Departing Partner (or its transferee) as to all debts and liabilities of the
Partnership arising on or after the date on which the Departing Partner (or its
transferee) becomes a Limited Partner. For purposes of this Agreement,

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conversion of the Combined Interest of the Departing Partner to Common Units
will be characterized as if such General Partner (or its transferee)
contributed its Combined Interest to the Partnership in exchange for the newly
issued Common Units.

     (c)  If a successor General Partner is elected in accordance with the
terms of Section 11.1, 11.2 or 11.4 and the option described in Section 11.3(a)
is not exercised by the party entitled to do so, the successor General Partner
shall, at the effective date of its admission to the Partnership, contribute to
the Partnership cash in the amount equal to its Percentage Interest of 1/98th
of the Net Agreed Value of the Partnership's assets on such date. In such
event, such successor General Partner shall, subject to the following sentence,
be entitled to 2% of all Partnership allocations and distributions. The
successor General Partner shall cause this Agreement to be amended to reflect
that, from and after the date of such successor General Partner's admission,
the successor General Partner's interest in all Partnership distributions and
allocations shall be 2%.

Section 11.4. Withdrawal or Removal of Non-Managing General Partner.

     (a)  The Non-Managing General Partner may withdraw from the Partnership in
the capacity of Non-Managing General Partner (i) upon 90 days' advance written
notice to the Managing General Partner or (ii) by transferring its General
Partner Interest in the Partnership pursuant to Section 4.6 hereof. Such
withdrawal shall take effect on the date specified in such notice. Upon
receiving such notice, the Managing General Partner shall select a successor
Non-Managing General Partner within such 90-day period. Any withdrawal of the
Non-Managing General Partner shall not become effective unless the Partnership
has received by the end of such 90-day period a Withdrawal Opinion of Counsel
that such withdrawal will not result in the loss of limited liability of any
Limited Partner or of a member of the Operating Company or cause the
Partnership or the Operating Company to be treated as a corporation or as an
association taxable as a corporation for federal income tax purposes. Following
any withdrawal of the Non-Managing General Partner, the business and operations
of the Partnership shall be continued by the Managing General Partner.

     (b)  In addition to the voluntary withdrawal described above, the Non-
Managing General Partner shall be deemed to have withdrawn (i) when and if, the
Non-Managing General Partner (A) makes a general assignment for the benefit of
creditors, (B) files a voluntary bankruptcy petition, (C) files a petition or
answer seeking for itself a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any law, (D)
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Non-Managing General Partner in a
proceeding of the type described in clauses (A)-(C) of this subsection, or (E)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Non-Managing General Partner or of all or any substantial
part of its properties; or (ii), when a final and non-appealable judgment is
entered by a court with appropriate jurisdiction ruling that the Non-Managing
General Partner is bankrupt or insolvent, or a final and non-appealable order
for relief is entered by a court with appropriate jurisdiction against the Non-
Managing General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereinafter in effect; or (iii) (A) in the event the
Non-Managing General Partner is a corporation, when a certificate of
dissolution or its equivalent is filed for the Non-Managing General Partner, or
90 days expire after the date of notice to the Non-Managing General Partner of
revocation of its charter without a reinstatement of its charter, under the
laws of its state of incorporation, (B) in the event the Non-Managing General
Partner is a partnership or a limited liability company, the dissolution and
commencement of winding up of the Non-Managing General Partner, (C) in the
event the Non-Managing General Partner is acting in such capacity by virtue of
being a trustee of a trust, the termination of the trust, (D) in the event the
Non-Managing General Partner is a natural person, his death or adjudication of
incompetency, and (E) otherwise in the event of the termination of the Non-
Managing General Partner.

     (c)  The Non-Managing General Partner may be removed only if such removal
is approved by the written consent or affirmative vote of Limited Partners
holding at least 66 2/3% of the Outstanding Units (including Units owned by the
General Partners and their Affiliates). Any such action by the Limited Partners
for removal of the Non-Managing General Partner must also provide for the
approval of a successor Non-Managing

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General Partner. Such removal shall be effective immediately following the
admission of the successor Non-Managing General Partner pursuant to Section
10.3. The right of the Limited Partners to remove the Non-Managing General
Partner shall not exist or be exercised unless the Partnership has received an
Opinion of Counsel that the removal of the Non-Managing General Partner and the
selection of a successor Non-Managing General Partner will not result in (i)
the loss of limited liability of any Limited Partner or of a member of the
Operating Company or (ii) the taxation of the Partnership or the Operating
Company as an association taxable as a corporation for federal income tax
purposes unless already so taxed.

     (d)  Notwithstanding the other provisions of this Section 11.4, a
successor Non-Managing General Partner need not be selected if the Partnership
has received an Opinion of Counsel that the failure to select a successor would
not cause the Partnership or the Operating Company to be treated as a
corporation or as an association taxable as a corporation for federal income
tax purposes.

Section 11.5. Termination of Subordination Period, Conversion of Senior
           Subordinated Units and Junior Subordinated Units and Extinguishment
           of Cumulative Common Unit Arrearages.

   Notwithstanding any provision of this Agreement, if the Managing General
Partner is removed as general partner of the Partnership under circumstances
where Cause does not exist and Units held by the General Partners and their
Affiliates are not voted in favor of such removal, (i) the Subordination Period
will end and all Outstanding Senior Subordinated Units and Junior Subordinated
Units will immediately and automatically convert into Common Units on a one-
for-one basis and (ii) all Cumulative Common Unit Arrearages on the Common
Units will be extinguished.

Section 11.6. Withdrawal of Limited Partners.

   No Limited Partner shall have any right to withdraw from the Partnership;
provided, however, that when a transferee of a Limited Partner's Limited
Partner Interest becomes a Record Holder of the Limited Partner Interest so
transferred, such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so transferred.

                                  ARTICLE XII

                          Dissolution and Liquidation

Section 12.1. Dissolution.

   The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor Managing General Partner or a successor Non-Managing General Partner
in accordance with the terms of this Agreement or by the withdrawal of the Non-
Managing General Partner pursuant to Section 11.4. Upon the removal or
withdrawal of the Managing General Partner, if a successor Managing General
Partner is elected pursuant to Section 11.1 or 11.2, the Partnership shall not
be dissolved and such successor Managing General Partner shall continue the
business of the Partnership. The Partnership shall dissolve, and (subject to
Section 12.2) its affairs shall be wound up, upon:

       (a)  an Event of Withdrawal of the Managing General Partner as
  provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a
  successor is elected and an Opinion of Counsel is received as provided in
  Section 11.1(b) or 11.2 and such successor is admitted to the Partnership
  pursuant to Section 10.3;

       (b)  an election to dissolve the Partnership by the Managing General
  Partner that is approved by the holders of a Unit Majority;

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       (c)  the entry of a decree of judicial dissolution of the Partnership
  pursuant to the provisions of the Delaware Act; or

       (d)  the sale of all or substantially all of the assets and properties
  of the Partnership Group.

Section 12.2. Continuation of the Business of the Partnership After
Dissolution.

   Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the Managing General Partner as provided
in Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a Unit Majority may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as the successor managing general partner a
Person approved by the holders of a Unit Majority. Unless such an election is
made within the applicable time period as set forth above, the Partnership
shall conduct only activities necessary to wind up its affairs. If such an
election is so made, then:

       (i)  the reconstituted Partnership shall continue unless earlier
  dissolved in accordance with this Article XII;

        (ii)  if the successor Managing General Partner is not the former
  Managing General Partner, then the interest of the former Managing General
  Partner shall be treated in the manner provided in Section 11.3; and

         (iii)  all necessary steps shall be taken to cancel this Agreement
  and the Certificate of Limited Partnership and to enter into and, as
  necessary, to file a new partnership agreement and certificate of limited
  partnership, and the successor managing general partner may for this
  purpose exercise the powers of attorney granted the Managing General
  Partner pursuant to Section 2.6; provided, that the right of the holders of
  a Unit Majority to approve a successor Managing General Partner and to
  reconstitute and to continue the business of the Partnership shall not
  exist and may not be exercised unless the Partnership has received an
  Opinion of Counsel that (x) the exercise of the right would not result in
  the loss of limited liability of any Limited Partner and (y) neither the
  Partnership, 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 such right to continue.

Section 12.3. Liquidator.

   Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the Managing General Partner shall select one or more Persons to
act as Liquidator. The Liquidator (if other than the Managing General Partner)
shall be entitled to receive such compensation for its services as may be
approved by holders of at least a majority of the Outstanding Common Units and
Subordinated Units voting as a single class. The Liquidator (if other than the
Managing General Partner) shall agree not to resign at any time without 15
days' prior notice and may be removed at any time, with or without cause, by
notice of removal approved by holders of at least a majority of the Outstanding
Common Units, Senior Subordinated Units and Junior Subordinated Units voting as
a single class. Upon dissolution, removal or resignation of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed to all rights,
powers and duties of the original Liquidator) shall within 30 days thereafter
be approved by holders of at least a majority of the Outstanding Common Units,
Senior Subordinated Units and Junior Subordinated Units voting as a single
class. The right to approve a successor or substitute Liquidator in the manner
provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
Managing General Partner under

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the terms of this Agreement (but subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, other than the
limitation on sale set forth in Section 7.3(b)) to the extent necessary or
desirable in the good faith judgment of the Liquidator to carry out the duties
and functions of the Liquidator hereunder for and during such period of time as
shall be reasonably required in the good faith judgment of the Liquidator to
complete the winding up and liquidation of the Partnership as provided for
herein.

Section 12.4. Liquidation.

   The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:

       (a)  Disposition of Assets. The assets may be disposed of by public or
  private sale or by distribution in kind to one or more Partners on such
  terms as the Liquidator and such Partner or Partners may agree. If any
  property is distributed in kind, the Partner receiving the property shall
  be deemed for purposes of Section 12.4(c) to have received cash equal to
  its fair market value; and contemporaneously therewith, appropriate cash
  distributions must be made to the other Partners. The Liquidator may, in
  its absolute discretion, defer liquidation or distribution of the
  Partnership's assets for a reasonable time if it determines that an
  immediate sale or distribution of all or some of the Partnership's assets
  would be impractical or would cause undue loss to the Partners. The
  Liquidator may, in its absolute discretion, distribute the Partnership's
  assets, in whole or in part, in kind if it determines that a sale would be
  impractical or would cause undue loss to the Partners.

       (b)  Discharge of Liabilities. Liabilities of the Partnership include
  amounts owed to the Liquidator as compensation for serving in such capacity
  (subject to the terms of Section 12.3) and amounts to Partners otherwise
  than in respect of their distribution rights under Article VI. With respect
  to any liability that is contingent, conditional or unmatured or is
  otherwise not yet due and payable, the Liquidator shall either settle such
  claim for such amount as it thinks appropriate or establish a reserve of
  cash or other assets to provide for its payment. When paid, any unused
  portion of the reserve shall be distributed as additional liquidation
  proceeds.

       (c)  Liquidation Distributions. All property and all cash in excess of
  that required to discharge liabilities as provided in Section 12.4(b) shall
  be distributed to the Partners in accordance with, and to the extent of,
  the positive balances in their respective Capital Accounts, as determined
  after taking into account all Capital Account adjustments (other than those
  made by reason of distributions pursuant to this Section 12.4(c)) for the
  taxable year of the Partnership during which the liquidation of the
  Partnership occurs (with such date of occurrence being determined pursuant
  to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution
  shall be made by the end of such taxable year (or, if later, within 90 days
  after said date of such occurrence).

Section 12.5. Cancellation of Certificate of Limited Partnership.

   Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.

Section 12.6. Return of Contributions.

   No General Partner shall be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners or Unitholders, or any portion thereof, it being expressly understood
that any such return shall be made solely from Partnership assets.

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Section 12.7. Waiver of Partition.

   To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.

Section 12.8. Capital Account Restoration.

   No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. Each
General Partner shall be obligated to restore any negative balance in its
Capital Account upon liquidation of its interest in the Partnership by the end
of the taxable year of the Partnership during which such liquidation occurs,
or, if later, within 90 days after the date of such liquidation.

                                 ARTICLE XIII

           Amendment of Partnership Agreement; Meetings; Record Date

Section 13.1. Amendment to be Adopted Solely by the Managing General Partner.

   Each Partner agrees that the Managing General Partner, without the approval
of any Partner or Assignee, may amend any provision of this Agreement and
execute, swear to, acknowledge, deliver, file and record whatever documents
may be required in connection therewith, to reflect:

       (a)  a change in the name of the Partnership, the location of the
  principal place of business of the Partnership, the registered agent of the
  Partnership or the registered office of the Partnership;

       (b)  admission, substitution, withdrawal or removal of Partners in
  accordance with this Agreement;

       (c)  a change that, in the sole discretion of the Managing General
  Partner, is necessary or advisable to qualify or continue the qualification
  of the Partnership as a limited partnership or a partnership in which the
  Limited Partners have limited liability under the laws of any state or to
  ensure that the Partnership and the Operating Company will not be treated
  as an association taxable as a corporation or otherwise taxed as an entity
  for federal income tax purposes;

       (d)  a change that, in the discretion of the Managing General Partner,
  (i) does not adversely affect the Limited Partners (including any
  particular class of Partnership Interests as compared to other classes of
  Partnership Interests) in any material respect, (ii) is necessary or
  advisable to (A) 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 (including the Delaware Act) or (B) facilitate the trading
  of the Limited Partner Interests (including the division of any class or
  classes of Outstanding Limited Partner Interests into different classes to
  facilitate uniformity of tax consequences within such classes of Limited
  Partner Interests) or comply with any rule, regulation, guideline or
  requirement of any National Securities Exchange on which the Limited
  Partner Interests are or will be listed for trading, compliance with any of
  which the Managing General Partner determines in its discretion to be in
  the best interests of the Partnership and the Limited Partners, (iii) is
  necessary or advisable in connection with action taken by the Managing
  General Partner pursuant to Section 5.10 or (iv) is required to effect the
  intent expressed in the Registration Statement or the intent of the
  provisions of this Agreement or is otherwise contemplated by this
  Agreement;

       (e)  a change in the fiscal year or taxable year of the Partnership
  and any changes that, in the discretion of the Managing General Partner,
  are necessary or advisable as a result of a change in the fiscal year or
  taxable year of the Partnership including, if the Managing General Partner
  shall so determine, a change in the definition of "Quarter" and the dates
  on which distributions are to be made by the Partnership;

       (f)  an amendment that is necessary, in the Opinion of Counsel, to
  prevent the Partnership, or either of the General Partners or their
  directors, officers, trustees or agents from in any manner being subjected

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  to the provisions of the Investment Company Act of 1940, as amended, the
  Investment Advisers Act of 1940, as amended, or "plan asset" regulations
  adopted under the Employee Retirement Income Security Act of 1974, as
  amended, regardless of whether such are substantially similar to plan asset
  regulations currently applied or proposed by the United States Department
  of Labor;

       (g)  subject to the terms of Section 5.7, an amendment that, in the
  discretion of the Managing General Partner, is necessary or advisable in
  connection with the authorization of issuance of any class or series of
  Partnership Securities pursuant to Section 5.6;

       (h)  any amendment expressly permitted in this Agreement to be made by
  the Managing General Partner acting alone;

       (i)  an amendment effected, necessitated or contemplated by a Merger
  Agreement approved in accordance with Section 14.3;

       (j)  an amendment that, in the discretion of the Managing General
  Partner, is necessary or advisable to reflect, account for and deal with
  appropriately the formation by the Partnership of, or investment by the
  Partnership in, any corporation, partnership, joint venture, limited
  liability company or other entity, in connection with the conduct by the
  Partnership of activities permitted by the terms of Section 2.4;

       (k)  a merger or conveyance pursuant to Section 14.3(d); or

       (l)  any other amendments substantially similar to the foregoing.

Section 13.2. Amendment Procedures.

   Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this 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. A proposed amendment shall be effective upon its approval by the
holders of a Unit Majority, unless a greater or different percentage is
required under this Agreement or by Delaware law. Each proposed amendment that
requires the approval of the holders of a specified percentage of Outstanding
Units shall be set forth in a writing that contains the text of the proposed
amendment. If such an amendment is proposed, the Managing General Partner shall
seek the written approval of the requisite percentage of Outstanding Units or
call a meeting of the Unitholders to consider and vote on such proposed
amendment. The Managing General Partner shall notify all Record Holders upon
final adoption of any such proposed amendments.

Section 13.3. Amendment Requirements.

     (a)  Notwithstanding the provisions of Sections 13.1 and 13.2, no
provision of this Agreement that establishes a percentage of Outstanding Units
(including Units deemed owned by the General Partners) required to take any
action shall be amended, altered, changed, repealed or rescinded in any respect
that would have the effect of reducing such voting percentage unless such
amendment is approved by the written consent or the affirmative vote of holders
of Outstanding Units whose aggregate Outstanding Units constitute not less than
the voting requirement sought to be reduced.

     (b)  Notwithstanding the provisions of Sections 13.1 and 13.2, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner without its consent, unless such shall be deemed to have occurred as a
result of an amendment approved pursuant to Section 13.3(c), (ii) enlarge the
obligations of, restrict in any way any action by or rights of, or reduce in
any way the amounts distributable, reimbursable or otherwise payable to, either
of the General Partners or any of their Affiliates without the consent of the
Managing General Partner, which consent may be given or withheld in its sole
discretion, (iii) change Section 12.1(b), or (iv) change the term of the
Partnership or, except as set forth in Section 12.1(b), give any Person the
right to dissolve the Partnership.

     (c)  Except as provided in Section 14.3, and except as otherwise provided,
and without limitation of the Managing General Partner's authority to adopt
amendments to this Agreement without the approval of

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any Partners or Assignees as contemplated in Section 13.1, any amendment that
would have a material adverse effect on the rights or preferences of any class
of Partnership Interests in relation to other classes of Partnership Interests
must be approved by the holders of not less than a majority of the Outstanding
Partnership Interests of the class affected.

     (d)  Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 13.1 and except as otherwise provided by Section
14.3(b), no amendments shall become effective without the approval of the
holders of at least 90% of the Outstanding Common Units, Senior Subordinated
Units and Junior Subordinated Units voting as a single class unless the
Partnership obtains an Opinion of Counsel to the effect that such amendment
will not affect the limited liability of any Limited Partner under applicable
law.

     (e)  Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of at least 90% of the Outstanding
Units.

Section 13.4. Special Meetings.

   All acts of Limited Partners to be taken pursuant to this Agreement shall be
taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the Managing General Partner or by Limited
Partners owning 20% or more of the Outstanding Limited Partner Interests of the
class or classes for which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the Managing General Partner one or more
requests in writing stating that the signing Limited Partners wish to call a
special meeting and indicating the general or specific purposes for which the
special meeting is to be called. Within 60 days after receipt of such a call
from Limited Partners or within such greater time as may be reasonably
necessary for the Partnership to comply with any statutes, rules, regulations,
listing, agreements or similar requirements governing the holding of a meeting
or the solicitation of proxies for use at such a meeting, the Managing General
Partner shall send a notice of the meeting to the Limited Partners either
directly or indirectly through the Transfer Agent. A meeting shall be held at a
time and place determined by the Managing General Partner on a date not less
than 10 days nor more than 60 days after the mailing of notice of the meeting.
Limited Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to jeopardize the Limited
Partners' limited liability under the Delaware Act or the law of any other
state in which the Partnership is qualified to do business.

Section 13.5. Notice of a Meeting.

   Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Limited Partner Interests for which a
meeting is proposed in writing by mail or other means of written communication
in accordance with Section 16.1. The notice shall be deemed to have been given
at the time when deposited in the mail or sent by other means of written
communication.

Section 13.6. Record Date.

   For purposes of determining the Limited Partners entitled to notice of or to
vote at a meeting of the Limited Partners or to give approvals without a
meeting as provided in Section 13.11 the Managing General Partner may set a
Record Date, which shall not be less than 10 nor more than 60 days before (a)
the date of the meeting (unless such requirement conflicts with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Limited Partner Interests are listed for trading, in which case the
rule, regulation, guideline or requirement of such exchange shall govern) or
(b) in the event that approvals are sought without a meeting, the date by which
Limited Partners are requested in writing by the Managing General Partner to
give such approvals.

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Section 13.7. Adjournment.

   When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting and a new Record Date need not be fixed, if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless such adjournment shall be for more than 45 days. At the adjourned
meeting, the Partnership may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 45 days
or if a new Record Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this Article XIII.

Section 13.8. Waiver of Notice; Approval of Meeting; Approval of Minutes.

   The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if it had occurred at a
meeting duly held after regular call and notice, if a quorum is present, either
in person or by proxy, and if, either before or after the meeting, Limited
Partners representing such quorum who were present in person or by proxy and
entitled to vote, sign a written waiver of notice or an approval of the holding
of the meeting or an approval of the minutes thereof. All waivers and approvals
shall be filed with the Partnership records or made a part of the minutes of
the meeting. Attendance of a Limited Partner at a meeting shall constitute a
waiver of notice of the meeting, except when the Limited Partner does not
approve, at the beginning of the meeting, of the transaction of any business
because the meeting is not lawfully called or convened; and except that
attendance at a meeting is not a waiver of any right to disapprove the
consideration of matters required to be included in the notice of the meeting,
but not so included, if the disapproval is expressly made at the meeting.

Section 13.9. Quorum.

   The holders of a majority of the Outstanding Limited Partner Interests of
the class or classes for which a meeting has been called (including Limited
Partner Interests deemed owned by the General Partners) represented in person
or by proxy shall constitute a quorum at a meeting of Limited Partners of such
class or classes unless any such action by the Limited Partners requires
approval by holders of a greater percentage of such Limited Partner Interests,
in which case the quorum shall be such greater percentage. At any meeting of
the Limited Partners duly called and held in accordance with this Agreement at
which a quorum is present, the act of Limited Partners holding Outstanding
Limited Partner Interests that in the aggregate represent a majority of the
Outstanding Limited Partner Interests entitled to vote and be present in person
or by proxy at such meeting shall be deemed to constitute the act of all
Limited Partners, unless a greater or different percentage is required with
respect to such action under the provisions of this Agreement, in which case
the act of the Limited Partners holding Outstanding Limited Partner Interests
that in the aggregate represent at least such greater or different percentage
shall be required. The Limited Partners present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Limited Partners to leave
less than a quorum, if any action taken (other than adjournment) is approved by
the required percentage of Outstanding Limited Partner Interests specified in
this Agreement (including Limited Partner Interests deemed owned by the General
Partners). In the absence of a quorum any meeting of Limited Partners may be
adjourned from time to time by the affirmative vote of holders of at least a
majority of the Outstanding Limited Partner Interests entitled to vote at such
meeting (including Limited Partner Interests deemed owned by the General
Partners) represented either in person or by proxy, but no other business may
be transacted, except as provided in Section 13.7.

Section 13.10. Conduct of a Meeting.

   The Managing General Partner shall have full power and authority concerning
the manner of conducting any meeting of the Limited Partners or solicitation of
approvals in writing, including the determination of Persons entitled to vote,
the existence of a quorum, the satisfaction of the requirements of Section
13.4, the conduct of voting, the validity and effect of any proxies and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The Managing General Partner shall

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designate a Person to serve as chairman of any meeting and shall further
designate a Person to take the minutes of any meeting. All minutes shall be
kept with the records of the Partnership maintained by the Managing General
Partner. The Managing General Partner may make such other regulations
consistent with applicable law and this Agreement as it may deem advisable
concerning the conduct of any meeting of the Limited Partners or solicitation
of approvals in writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and approvals, the
submission and examination of proxies and other evidence of the right to vote,
and the revocation of approvals in writing.

Section 13.11. Action Without a Meeting.

   If authorized by the Managing General Partner, any action that may be taken
at a meeting of the Limited Partners may be taken without a meeting if an
approval in writing setting forth the action so taken is signed by Limited
Partners owning not less than the minimum percentage of the Outstanding Limited
Partner Interests (including Limited Partner Interests deemed owned by the
General Partner) that would be necessary to authorize or take such action at a
meeting at which all the Limited Partners were present and voted (unless such
provision conflicts with any rule, regulation, guideline or requirement of any
National Securities Exchange on which the Limited Partner Interests are listed
for trading, in which case the rule, regulation, guideline or requirement of
such exchange shall govern). Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in
writing. The Managing General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time period, which
shall be not less than 20 days, specified by the Managing General Partner. If a
ballot returned to the Partnership does not vote all of the Limited Partner
Interests held by the Limited Partners the Partnership shall be deemed to have
failed to receive a ballot for the Limited Partner Interests that were not
voted. If approval of the taking of any action by the Limited Partners is
solicited by any Person other than by or on behalf of the Managing General
Partner, the written approvals shall have no force and effect unless and until
(a) they are deposited with the Partnership in care of the Managing General
Partner, (b) approvals sufficient to take the action proposed are dated as of a
date not more than 90 days prior to the date sufficient approvals are deposited
with the Partnership and (c) an Opinion of Counsel is delivered to the Managing
General Partner to the effect that the exercise of such right and the action
proposed to be taken with respect to any particular matter (i) will not cause
the Limited Partners to be deemed to be taking part in the management and
control of the business and affairs of the Partnership so as to jeopardize the
Limited Partners' limited liability, and (ii) are otherwise permissible under
the state statutes then governing the rights, duties and liabilities of the
Partnership and the Partners.

Section 13.12. Voting and Other Rights.

     (a)  Only those Record Holders of the Limited Partner Interests on the
Record Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to matters
as to which the holders of the Outstanding Limited Partner Interests have the
right to vote or to act. All references in this Agreement to votes of, or other
acts that may be taken by, the Outstanding Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such
Outstanding Limited Partner Interests.

     (b)  With respect to Limited Partner Interests that are held for a
Person's account by another Person (such as a broker, dealer, bank, trust
company or clearing corporation, or an agent of any of the foregoing), in whose
name such Limited Partner Interests are registered, such other Person shall, in
exercising the voting rights in respect of such Limited Partner Interests on
any matter, and unless the arrangement between such Persons provides otherwise,
vote such Limited Partner Interests in favor of, and at the direction of, the
Person who is the beneficial owner, and the Partnership shall be entitled to
assume it is so acting without further inquiry. The provisions of this Section
13.12(b) (as well as all other provisions of this Agreement) are subject to the
provisions of Section 4.3.

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                                  ARTICLE XIV

                                     Merger

Section 14.1. Authority.

   The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.

Section 14.2. Procedure for Merger or Consolidation.

   Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the Managing General Partner. If the Managing
General Partner shall determine, in the exercise of its discretion, to consent
to the merger or consolidation, the Managing General Partner shall approve the
Merger Agreement, which shall set forth:

       (a)  The names and jurisdictions of formation or organization of each
  of the business entities proposing to merge or consolidate;

       (b)  The name and jurisdiction of formation or organization of the
  business entity that is to survive the proposed merger or consolidation
  (the "Surviving Business Entity");

       (c)  The terms and conditions of the proposed merger or consolidation;

       (d)  The manner and basis of exchanging or converting the equity
  securities of each constituent business entity for, or into, cash, property
  or general or limited partner interests, rights, securities or obligations
  of the Surviving Business Entity; and (i) if any general or limited partner
  interests, securities or rights of any constituent business entity are not
  to be exchanged or converted solely for, or into, cash, property or general
  or limited partner interests, rights, securities or obligations of the
  Surviving Business Entity, the cash, property or general or limited partner
  interests, rights, securities or obligations of any limited partnership,
  corporation, trust or other entity (other than the Surviving Business
  Entity) which the holders of such general or limited partner interests,
  securities or rights are to receive in exchange for, or upon conversion of
  their general or limited partner interests, securities or rights, and (ii)
  in the case of securities represented by certificates, upon the surrender
  of such certificates, which cash, property or general or limited partner
  interests, rights, securities or obligations of the Surviving Business
  Entity or any general or limited partnership, corporation, trust or other
  entity (other than the Surviving Business Entity), or evidences thereof,
  are to be delivered;

       (e)  A statement of any changes in the constituent documents or the
  adoption of new constituent documents (the articles or certificate of
  incorporation, articles of trust, declaration of trust, certificate or
  agreement of limited partnership, operating agreement or other similar
  charter or governing document) of the Surviving Business Entity to be
  effected by such merger or consolidation;

       (f)  The effective time of the merger, which may be the date of the
  filing of the certificate of merger pursuant to Section 14.4 or a later
  date specified in or determinable in accordance with the Merger Agreement
  (provided, that if the effective time of the merger is to be later than the
  date of the filing of the certificate of merger, the effective time shall
  be fixed no later than the time of the filing of the certificate of merger
  and stated therein); and

       (g)  Such other provisions with respect to the proposed merger or
  consolidation as are deemed necessary or appropriate by the Managing
  General Partner.

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Section 14.3. Approval by Limited Partners of Merger or Consolidation.

     (a)  Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
VII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.

     (b)  Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a
Unit Majority unless the Merger Agreement contains any provision that, if
contained in an amendment to this Agreement, the provisions of this Agreement
or the Delaware Act would require for its approval the vote or consent of a
greater percentage of the Outstanding Limited Partner Interests or of any class
of Limited Partners, in which case such greater percentage vote or consent
shall be required for approval of the Merger Agreement.

     (c)  Except as provided in Section 14.3(d), after such approval by vote or
consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.

     (d)  Notwithstanding anything else contained in this Article XIV or in
this Agreement, the Managing General Partner is permitted, in its discretion,
without Limited Partner approval, to merge the Partnership or any Group Member
into, or convey all of the Partnership's assets to, another limited liability
entity which shall be newly formed and shall have no assets, liabilities or
operations at the time of such Merger other than those it receives from the
Partnership or other Group Member if (i) the Managing General Partner has
received an Opinion of Counsel that the merger or conveyance, as the case may
be, would not result in the loss of the limited liability of any Limited
Partner or any member in the Operating Company or cause the Partnership or the
Operating Company to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such), (ii) the sole purpose of such merger or
conveyance is to effect a mere change in the legal form of the Partnership into
another limited liability entity and (iii) the governing instruments of the new
entity provide the Limited Partners and the General Partners with the same
rights and obligations as are herein contained.

Section 14.4. Certificate of Merger.

   Upon the required approval by the Managing General Partner and the
Unitholders of a Merger Agreement, a certificate of merger shall be executed
and filed with the Secretary of State of the State of Delaware in conformity
with the requirements of the Delaware Act.

Section 14.5. Effect of Merger.

     (a)  At the effective time of the certificate of merger:

       (i)  all of the rights, privileges and powers of each of the business
  entities that has merged or consolidated, and all property, real, personal
  and mixed, and all debts due to any of those business entities and all
  other things and causes of action belonging to each of those business
  entities, shall be vested in the Surviving Business Entity and after the
  merger or consolidation shall be the property of the Surviving Business
  Entity to the extent they were of each constituent business entity;

        (ii)  the title to any real property vested by deed or otherwise in
  any of those constituent business entities shall not revert and is not in
  any way impaired because of the merger or consolidation;

         (iii)  all rights of creditors and all liens on or security
  interests in property of any of those constituent business entities shall
  be preserved unimpaired; and

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        (iv)  all debts, liabilities and duties of those constituent business
  entities shall attach to the Surviving Business Entity and may be enforced
  against it to the same extent as if the debts, liabilities and duties had
  been incurred or contracted by it.

     (b)  A merger or consolidation effected pursuant to this Article shall not
be deemed to result in a transfer or assignment of assets or liabilities from
one entity to another.

                                   ARTICLE XV

                   Right to Acquire Limited Partner Interests

Section 15.1. Right to Acquire Limited Partner Interests.

     (a)  Notwithstanding any other provision of this Agreement, if at any time
not more than 20% of the total Limited Partner Interests of any class then
Outstanding is held by Persons other than the General Partners and their
Affiliates, the Managing General Partner shall then have the right, which right
it may assign and transfer in whole or in part to the Partnership or any
Affiliate of the Managing General Partner, exercisable in its sole discretion,
to purchase all, but not less than all, of such Limited Partner Interests of
such class then Outstanding held by Persons other than the General Partners and
their Affiliates, at the greater of (x) the Current Market Price as of the date
three days prior to the date that the notice described in Section 15 is mailed
and (y) the highest price paid by a General Partner or any of its Affiliates
for any such Limited Partner Interest of such class purchased during the 90-day
period preceding the date that the notice described in Section 15.1(b) is
mailed. As used in this Agreement, (i) "Current Market Price" as of any date of
any class of Limited Partner Interests listed or admitted to trading on any
National Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per limited partner interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of
the closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted for trading on the principal National
Securities Exchange on which such Limited Partner Interests of such class are
listed or admitted to trading or, if such Limited Partner Interests of such
class are not listed or admitted to trading on any National Securities
Exchange, the last quoted price on such day or, if not so quoted, the average
of the high bid and low asked prices on such day in the over-the-counter
market, as reported by the Nasdaq Stock Market or any other system then in use,
or, if on any such day such Limited Partner Interests of such class are not
quoted by any such organization, the average of the closing bid and asked
prices on such day as furnished by a professional market maker making a market
in such Limited Partner Interests of such class selected by the Managing
General Partner, or if on any such day no market maker is making a market in
such Limited Partner Interests of such class, the fair value of such Limited
Partner Interests on such day as determined reasonably and in good faith by the
Managing General Partner; and (iii) "Trading Day" means a day on which the
principal National Securities Exchange on which such Limited Partner Interests
of any class are listed or admitted to trading is open for the transaction of
business or, if Limited Partner Interests of a class are not listed or admitted
to trading on any National Securities Exchange, a day on which banking
institutions in New York City generally are open.

     (b)  If the Managing General Partner, any Affiliate of the Managing
General Partner or the Partnership elects to exercise the right to purchase
Limited Partner Interests granted pursuant to Section 15.1(a), the Managing
General Partner shall deliver to the Transfer Agent notice of such election to
purchase (the "Notice of Election to Purchase") and shall cause the Transfer
Agent to mail a copy of such Notice of Election to Purchase to the Record
Holders of Limited Partner Interests of such class (as of a Record Date
selected by the Managing General Partner) at least 10, but not more than 60,
days prior to the Purchase Date. Such Notice of Election to Purchase shall also
be published for a period of at least three consecutive days in at least two
daily newspapers of general circulation printed in the English language and
published in the Borough of Manhattan,

                                      A-74

New York. The Notice of Election to Purchase shall specify the Purchase Date
and the price (determined in accordance with Section 15.1(a)) at which Limited
Partner Interests will be purchased and state that the Managing General
Partner, its Affiliate or the Partnership, as the case may be, elects to
purchase such Limited Partner Interests, upon surrender of Certificates
representing such Limited Partner interests in exchange for payment, at such
office or offices of the Transfer Agent as the Transfer Agent may specify, or
as may be required by any National Securities Exchange on which such Limited
Partner Interests are listed or admitted to trading. Any such Notice of
Election to Purchase mailed to a Record Holder of Limited Partner Interests at
his address as reflected in the records of the Transfer Agent shall be
conclusively presumed to have been given regardless of whether the owner
receives such notice. On or prior to the Purchase Date, the Managing General
Partner, its Affiliate or the Partnership, as the case may be, shall deposit
with the Transfer Agent cash in an amount sufficient to pay the aggregate
purchase price of all of such Limited Partner Interests to be purchased in
accordance with this Section 15.1. If the Notice of Election to Purchase shall
have been duly given as aforesaid at least 10 days prior to the Purchase Date,
and if on or prior to the Purchase Date the deposit described in the preceding
sentence has been made for the benefit of the holders of Limited Partner
Interests subject to purchase as provided herein, then from and after the
Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor,
without interest, upon surrender to the Transfer Agent of the Certificates
representing such Limited Partner Interests, and such Limited Partner Interests
shall thereupon be deemed to be transferred to the Managing General Partner,
its Affiliate or the Partnership, as the case may be, on the record books of
the Transfer Agent and the Partnership, and the General Partner or any
Affiliate of the Managing General Partner, or the Partnership, as the case may
be, shall be deemed to be the owner of all such Limited Partner Interests from
and after the Purchase Date and shall have all rights as the owner of such
Limited Partner Interests (including all rights as owner of such Limited
Partner Interests pursuant to Articles IV, V, VI and XII).

     (c)  At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.

                                  ARTICLE XVI

                               General Provisions

Section 16.1. Addresses and Notices.

   Any notice, demand, request, report or proxy materials required or permitted
to be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address described below. Any notice, payment or
report to be given or made to a Partner or Assignee hereunder shall be deemed
conclusively to have been given or made, and the obligation to give such notice
or report or to make such payment shall be deemed conclusively to have been
fully satisfied, upon sending of such notice, payment or report to the Record
Holder of such Partnership Securities at his address as shown on the records of
the Transfer Agent or as otherwise shown on the records of the Partnership,
regardless of any claim of any Person who may have an interest in such
Partnership Securities by reason of any assignment or otherwise. An affidavit
or certificate of making of any notice, payment or report in accordance with
the provisions of this Section 16.1 executed by the Managing General Partner,
the Transfer Agent or the mailing organization shall be prima facie evidence of
the giving or making of such notice, payment or report. If any notice, payment
or report addressed to a Record Holder at the address of such Record Holder
appearing on the books and records of the Transfer Agent or the Partnership is
returned by the United

                                      A-75

States Postal Service marked to indicate that the United States Postal Service
is unable to deliver it, such notice, payment or report and any subsequent
notices, payments and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder or another
Person notifies the Transfer Agent or the Partnership of a change in his
address) if they are available for the Partner or Assignee at the principal
office of the Partnership for a period of one year from the date of the giving
or making of such notice, payment or report to the other Partners and
Assignees. Any notice to the Partnership shall be deemed given if received by
the Managing General Partner at the principal office of the Partnership
designated pursuant to Section 2.3. The Managing General Partner may rely and
shall be protected in relying on any notice or other document from a Partner,
Assignee or other Person if believed by it to be genuine.

Section 16.2. Further Action.

   The parties shall execute and deliver all documents, provide all information
and take or refrain from taking action as may be necessary or appropriate to
achieve the purposes of this Agreement.

Section 16.3. Binding Effect.

   This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

Section 16.4. Integration.

   This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.

Section 16.5. Creditors.

   None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.

Section 16.6. Waiver.

   No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.

Section 16.7. Counterparts.

   This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto or, in the case of a Person acquiring a Unit, upon accepting
the certificate evidencing such Unit or executing and delivering a Transfer
Application as herein described, independently of the signature of any other
party.

Section 16.8. Applicable Law.

   This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.

Section 16.9. Invalidity of Provisions.

   If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

                                      A-76

Section 16.10. Consent of Partners.

   Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be
bound by the results of such action.
                    [Rest of Page Intentionally Left Blank]

                                      A-77

   IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above:

                                          MANAGING GENERAL PARTNER:

                                          INERGY GP, LLC

                                          By: _________________________________
                                          Name: _______________________________
                                          Title: ______________________________

                                          NON-MANAGING GENERAL PARTNER:

                                          INERGY PARTNERS, LLC

                                          By: _________________________________
                                          Name: _______________________________
                                          Title: ______________________________

                                          ORGANIZATIONAL LIMITED PARTNER:

                                          INERGY PARTNERS, LLC

                                          By: _________________________________
                                          Name: _______________________________
                                          Title: ______________________________

                                          LIMITED PARTNERS:
                                          All Limited Partners now and
                                          hereafter admitted as Limited
                                          Partners of the Partnership,
                                          pursuant to powers of attorney now
                                          and hereafter executed in favor of,
                                          and granted and delivered to the
                                          Managing General Partner.

                                          NEW INERGY PROPANE, LLC

                                          By: _________________________________
                                          Name: _______________________________
                                          Title: ______________________________

                                          INERGY HOLDINGS, LLC

                                          By: _________________________________
                                          Name: _______________________________
                                          Title: ______________________________

                                     A-78

                                   EXHIBIT A
                               to the Amended and
                  Restated Agreement of Limited Partnership of
                                  Inergy, L.P.
                      Certificate Evidencing Common Units
                   Representing Limited Partner Interests in
                                  Inergy, L.P.

No.                                                                Common
                                                     Units

   In accordance with Section 4.1 of the Amended and Restated Agreement of
Limited Partnership of Inergy, L.P., as amended, supplemented or restated from
time to time (the "Partnership Agreement"), Inergy, L.P., a Delaware limited
partnership (the "Partnership"), hereby certifies that (the "Holder") is the
registered owner of Common Units representing limited partner interests in the
Partnership (the "Common Units") transferable on the books of the Partnership,
in person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed and accompanied by a properly executed application for
transfer of the Common Units represented by this Certificate. The rights,
preferences and limitations of the Common Units are set forth in, and this
Certificate and the Common Units represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Partnership Agreement.
Copies of the Partnership Agreement are on file at, and will be furnished
without charge on delivery of written request to the Partnership at, the
principal office of the Partnership located at 1101 Walnut, Suite 1500, Kansas
City, Missouri 64106. Capitalized terms used herein but not defined shall have
the meanings given them in the Partnership Agreement.

   The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement,
(ii) represented and warranted that the Holder has all right, power and
authority and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney provided for in the
Partnership Agreement and (iv) made the waivers and given the consents and
approvals contained in the Partnership Agreement.

   This Certificate shall not be valid far any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.

Dated:

                                         Inergy, L.P.
Countersigned and Registered by:

                                         By:  Inergy GP LLC, Its Managing

as Transfer Agent and Registrar                General Partner

By:                                      By:

      Authorized Signature
                                         Name:

                                         By:
                                                     Secretary

                            [Reverse of Certificate]

                                      A-79

                                 ABBREVIATIONS

   The following abbreviations, when used in the inscription on the face of the
Certificate, shall be construed as follows according to applicable laws or
regulations:

TEN COM - as tenants in common             UNIF GIFT/TRANSFERS MIN ACT
TEN ENT - as tenants by the
entireties
                                            Custodian
                                           (Cust)(Minor)
JT TEN - as joint tenants with right       under Uniform Gifts/Transfers
       of survivorship and not as          to CD Minors Act (State)
       tenants in common

   Additional abbreviations, though not in the above list, may also be used.

                           ASSIGNMENT OF COMMON UNITS
                                       in
                                  INERGY, L.P.
              IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
                   DUE TO TAX SHELTER STATUS OF INERGY, L.P.

   You have acquired an interest in Inergy, L.P., 1101 Walnut, Suite 1500,
Kansas City, Missouri 64106, whose taxpayer identification number is [    ].
The Internal Revenue Service has issued Inergy, L.P. the following tax shelter
registration number:

   YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME
BY REASON OF YOUR INVESTMENT IN INERGY, L.P.

   You must report the registration number as well as the name and taxpayer
identification number of Inergy, L.P. on Form 8271. FORM 8271 MUST BE ATTACHED
TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT OR OTHER TAX
BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN INERGY, L.P.

   If you transfer your interest in Inergy, L.P. to another person, you are
required by the Internal Revenue Service to keep a list containing (a) that
person's name, address and taxpayer identification number, (b) the date on
which you transferred the interest and (c) the name, address and tax shelter
registration number of Inergy, L.P. If you do not want to keep such a list, you
must (1) send the information specified above to the Partnership, which will
keep the list for this tax shelter, and (2) give a copy of this notice to the
person to whom you transfer your interest. Your failure to comply with any of
the above-described responsibilities could result in the imposition of a
penalty under Section 6707(b) or 6708(a) of the Internal Revenue Code of 1986,
as amended, unless such failure is shown to be due to reasonable cause.

   ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.

                                      A-80

                                                                      APPENDIX B

                    APPLICATION FOR TRANSFER OF COMMON UNITS

   The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.

   The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of Inergy, L.P. (the "Partnership"),
as amended, supplemented or restated to the date hereof (the "Partnership
Agreement"), (b) represents and warrants that the Assignee has all right, power
and authority and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (c) appoints the General Partner of the Partnership and,
if a Liquidator shall be appointed, the Liquidator of the Partnership as the
Assignee's attorney-in-fact to execute, swear to, acknowledge and file any
document, including, without limitation, the Partnership Agreement and any
amendment thereto and the Certificate of Limited Partnership of the Partnership
and any amendment thereto, necessary or appropriate for the Assignee's
admission as a Substituted Limited Partner and as a party to the Partnership
Agreement, (d) gives the powers of attorney provided for in the Partnership
Agreement, and (e) makes the waivers and gives the consents and approvals
contained in the Partnership Agreement. Capitalized terms not defined herein
have the meanings assigned to such terms in the Partnership Agreement.

Date:

Social Security or other identifying         Signature of Assignee
number of Assignee

Purchase Price including commissions,        Name and Address of Assignee
if any

Type of Entity (check one):

   [_]Individual

                        [_]Partnership

                                             [_]Corporation
   [_]Trust             [_]Other (specify)

Nationality (check one):

   [_]U.S. Citizen, Resident or Domestic Entity

   [_]Foreign Corporation         [_]Non-resident Alien

   If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.

   Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).

                                      B-1

Complete Either A or B:

A.Individual Interestholder

   1. I am not a non-resident alien for purposes of U.S. income taxation.

   2. My U.S. taxpayer identification number (Social Security Number) is
          .

   3. My home address is            .

B.Partnership, Corporation or Other Interestholder

  1.                  is not a foreign corporation, foreign partnership,
     foreign trust (Name of Interestholder) or foreign estate (as those terms
     are defined in the Code and Treasury Regulations).

  2. The interestholder's U.S. employer identification number is            .

  3. The interestholder's office address and place of incorporation (if
     applicable) is            .

   The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.

   The interestholder understands that this certificate may be disclosed to the
Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.

   Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of:

                              Name of Interestholder

                                Signature and Date

                               Title (if applicable)

   Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.

                                      B-2

   FOR VALUE RECEIVED, hereby assigns, conveys, sells and transfers unto

(Please print or typewrite name and       (Please insert Social Security or
address of Assignee)                      other identifying number of
                                          Assignee)

    Common Units representing limited partner interests evidenced by this
Certificate, subject to the Partnership Agreement, and does hereby irrevocably
constitute and appoint     as its attorney-in-fact with full power of
substitution to transfer the same on the books of Inergy, L.P.

Date:                                  NOTE: The signature to any endorsement
                                             hereon must correspond with the
                                             name as written upon the face of
                                             this Certificate in every
                                             particular, without alteration,
                                             enlargement or change.

SIGNATURE(S) MUST BE GUARANTEED BY A   (Signature)
MEMBER FIRM OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS,
INC. OR BY A COMMERCIAL BANK OR
TRUST COMPANY SIGNATURE(S)
GUARANTEED

                                       (Signature)

   No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on
the form set forth below or (b) on a separate application that the Partnership
will furnish on request without charge. A transferor of the Common Units shall
have no duty to the transferee with respect to execution of the transfer
application in order for such transferee to obtain registration of the transfer
of the Common Units.

                                      B-3

                                                                     Appendix C

                               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) or 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 general 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 incentive
distribution right or any other partnership interest will be the amount which
that capital account

                                      C-1

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).

                                      C-2

   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) 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 interests in Inergy,
    L.P. and the operating company; and

                                      C-3

       (3) there are no outstanding cumulative common units arrearages.

     (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.

                                      C-4

                                                                      Appendix D

                PRO FORMA AVAILABLE CASH FROM OPERATING SURPLUS

   The following table shows the calculation of pro forma available cash from
operating surplus for the year ended September 30, 2000 and the twelve months
ended March 31, 2001, and represents the combined results of operations Inergy
Partners, LLC, the Hoosier Propane Group and Country Gas Company, Inc., as
adjusted for the offering. These results should be read in conjunction with
"Cash Available for Distribution," the Inergy, L.P. Unaudited Pro Forma
Consolidated Statement of Operations, the Inergy Partners, LLC Financial
Statements, the Country Gas Company, Inc. Financial Statements, and the Hoosier
Propane Group Financial Statements.

                                                                 Twelve Months
                                                  Year Ended         Ended
                                              September 30, 2000 March 31, 2001
                                              ------------------ --------------
                                                         (unaudited)
                                                       (in thousands)
                                                           
Pro forma income before income taxes.........      $  (265)         $ 7,824
Pro forma depreciation and amortization......        7,806            7,958
Pro forma net changes in working capital
 accounts including liabilities from price
 risk management activities(a)(b)............        3,364           (3,800)
                                                   -------          -------
Pro forma net cash provided by operating
 activities..................................       10,905           11,982
Pro forma cash interest expense..............        5,564            5,455
Pro forma cash interest income...............         (239)            (248)
Pro forma net changes in working capital
 accounts including liabilities from price
 risk management activities(a)(b)............       (3,364)           3,800
                                                   -------          -------
Pro forma EBITDA(c)..........................       12,866           20,989
Less:
  Pro forma cash interest expense............       (5,564)          (5,455)
  Pro forma maintenance capital
   expenditures(d)...........................       (1,234)          (1,202)
Plus:
  Pro forma cash interest income.............          239              248
                                                   -------          -------
Pro forma available cash from operating
 surplus(e)(f)(g)............................      $ 6,307          $14,580
                                                   =======          =======

- --------
(a)   Our working capital is affected by the seasonality of the propane
      business, however, working capital has generally been positive on a
      historical basis. From time to time we utilize our revolving credit
      facility to meet short term working capital needs such as those
      associated with the timing of accounts receivable collections.
      Substantially all of our remaining investing and financing activities are
      related to the acquisition of retail propane companies and do not affect
      operating cash flows.
(b)   Changes in the assets and liabilities from trading and price risk
      management activities, which are current assets and liabilities, 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.
(c) "EBITDA" shown in the table above is defined as income before income taxes,
    plus interest, 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 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 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.
(d) We determined these amounts by combining actual amounts of maintenance
    capital expenditures for Inergy Partners, LLC, Country Gas Company, Inc.
    and the Hoosier Propane Group.

                                      D-1

(e) The pro forma adjustments in the pro forma financial statements are based
    upon currently available information and certain estimates and assumptions.
    The pro forma financial statements do not purport to present the financial
    position or results of operations of Inergy, L.P. had the acquisition of
    Country Gas Company, Inc. and the Hoosier Propane Group and the
    transactions to be effected at the closing of this offering actually been
    completed as of the date indicated. Furthermore, the pro forma financial
    statements are based on accrual accounting concepts whereas available cash
    from operating surplus is defined in the partnership agreement on a cash
    accounting basis. As a consequence, the amount of pro forma cash available
    from operating surplus shown above should be viewed as a general indication
    of the amounts of available cash from operating surplus that may in fact
    have been generated by Inergy, L.P. had it been formed in earlier periods.
(f) Upon completion of the offering, we anticipate that we will incur
    incremental general and administrative expenses (e.g. costs associated with
    reports to unitholders, preparation of tax information for unitholders and
    investor relations) at an annual rate of approximately $500,000, which have
    not been included in the pro forma amounts above.
(g) The amount of available cash from operating surplus needed to pay the
    minimum quarterly distribution for four quarters on the common units and
    subordinated units to be outstanding immediately after this offering and on
    the 2% general partner interest is approximately:

                                                                  Four Quarters
                                                                  --------------
                                                                  (in thousands)
                                                               
   Common units..................................................    $ 3,840
     2% general partner interest.................................         79
   Senior subordinated units.....................................      7,952
     2% general partner interest.................................        162
   Junior subordinated units.....................................      1,374
     2% general partner interest.................................         28
                                                                     -------
     Total.......................................................    $13,435
                                                                     =======

    Our pro forma available cash from operating surplus for the twelve months
    ended March 31, 2001 would have been sufficient to allow us to pay the
    minimum quarterly distribution on all of the common units, all of the
    senior subordinated units and all of the junior subordinated units. Our pro
    forma available cash from operating surplus for the fiscal year ended
    September 30, 2000 would have been sufficient to allow us to pay the
    minimum quarterly distribution on all of our common units and approximately
    29% of the minimum quarterly distribution on the senior subordinated units
    and no distribution on the junior subordinated units.

                                      D-2

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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 sale of common stock
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 shares of common stock 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.............................................................  11
Use of Proceeds..........................................................  20
Capitalization...........................................................  21
Dilution.................................................................  22
Cash Distribution Policy.................................................  23
Cash Available for Distribution..........................................  31
Unaudited Pro Forma Consolidated Financial Statements....................  33
Selected Historical Financial and Operating Data.........................  42
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  46
Business.................................................................  61
Management...............................................................  71
Security Ownership of Certain Beneficial Owners and Management...........  78
Organization of Inergy, L.P. Prior to and Immediately Following the
 Offering................................................................  80
Certain Relationships and Related Transactions...........................  83
Conflicts of Interest and Fiduciary Responsibilities.....................  86
Description of the Common Units..........................................  90
Description of the Subordinated Units....................................  92
The Partnership Agreement................................................  93
Units Eligible For Future Sale........................................... 105
Tax Considerations....................................................... 106
Investment in Inergy, L.P. By Employee Benefit Plans..................... 120
Underwriting............................................................. 121
Validity of the Common Units............................................. 123
Experts.................................................................. 123
Where You Can Find More Information...................................... 124
Forward-Looking Statements............................................... 124
Index to Financial Statements............................................ F-1
Appendix A--Form of Amended and Restated Agreement of Limited
 Partnership............................................................. A-1
Appendix B--Form of Application For Transfer of Common Units............. B-1
Appendix C--Glossary of Terms............................................ C-1
Appendix D--Pro Forma Available Cash From Operating Surplus.............. D-1

   Until      , 2001, all dealers that buy, sell or trade our common units,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

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                             1,600,000 Common Units

                                  Representing
                           Limited Partner Interests

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

                                   PROSPECTUS

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

                           A.G. Edwards & Sons, Inc.

                          First Union Securities, Inc.

                                 Raymond James

                                         , 2001

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                                    PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 13. Other Expenses Of Issuance And Distribution

   Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the NASD filing fee,
the amounts set forth below are estimates.

                                                                  
   Registration fee................................................. $   10,350
   NASD filing fee..................................................      4,641
   Nasdaq Stock Market Listing Fee..................................     38,750
   Printing and engraving expenses..................................    400,000
   Fees and expenses of legal counsel...............................  1,000,000
   Accounting fees and expenses.....................................    500,000
   Other professional services......................................    250,000
   Transfer agent and registrar fees................................      3,500
   Miscellaneous....................................................    392,759
                                                                     ----------
     Total.......................................................... $2,600,000
                                                                     ==========

Item 14. Indemnification Of Directors And Officers.

   The section of the Prospectus entitled "The Partnership Agreement--
Indemnification" is incorporated herein by this reference. Reference is made to
Section of the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement. Subject to any terms, conditions or restrictions set forth in the
Partnership Agreement, Section 17-108 of the Delaware Revised Uniform Limited
Partnership Act empowers a Delaware limited partnership to indemnify and hold
harmless any partner or other person from and against all claims and demands
whatsoever.

Item 16. Exhibits.

   (a) The following documents are filed as exhibits to this registration
statement:

 Exhibit
 Number                               Description
 -------                              -----------
      
  *1.1   --Form of Underwriting Agreement

  *3.1   --Certificate of Limited Partnership of Inergy, L.P.

  *3.2   --Form of Amended and Restated Agreement of Limited Partnership of
           Inergy, L.P. (included as Appendix A to the Prospectus)

  *3.3   --Certificate of Formation as relating to Inergy Propane, LLC, as
          amended

  *3.4   --Second Amended and Restated Limited Liability Company Agreement of
          Inergy Propane, LLC

  *3.5   --Certificate of Formation of Inergy GP, LLC

  *3.6   --Limited Liability Company Agreement of Inergy GP, LLC

  *3.7   --Certificate of Formation as relating to Inergy Partners, LLC, as
          amended

  *3.8   --Amended and Restated Limited Liability Company Agreement of Inergy
           Partners, LLC, as amended

  *4.1   --Specimen Unit Certificate for Senior Subordinated Units

  *4.2   --Specimen Unit Certificate for Junior Subordinated Units

  *4.3   --Specimen Unit Certificate for Common Units

  *5.1   --Opinion of Vinson & Elkins L.L.P. as to the legality of the
          securities being registered

  *8.1   --Opinion of Vinson & Elkins L.L.P. relating to tax matters

                                      II-1

 Exhibit
  Number                               Description
 -------                               -----------
       
 ***10.1  --$100 million Senior Secured Credit Facility

   *10.2  --Asset Purchase Agreement by and between Inergy Partners, LLC and
            Country Gas Company, Inc., dated as of May 20, 2000

   *10.3  --Securities Purchase Agreement by and among Inergy Partners, LLC and
            various investors, dated as of January 12, 2001

   *10.4  --Investor Rights Agreement by and among Inergy Partners, LLC and
            various investors, dated as of January 12, 2001

   *10.5  --Asset Purchase Agreement by and among Inergy Partners, LLC and the
            Hoosier Group, dated as of September 8, 2000

   *10.6  --Inergy Employee Long-Term Incentive Plan

   *10.7  --Inergy Unit Purchase Plan

   *10.8  --Employment Agreement--John J. Sherman

   *10.9  --Employment Agreement--Phillip L. Elbert

   *10.10 --Employment Agreement--R. Brooks Sherman Jr.

   *10.11 --Employment Agreement--Carl A. Hughes

   *10.12 --Employment Agreement--Michael D. Fox

   *10.13 --Employment Agreement--William C. Gautreaux

 ***10.14 --Contribution Agreement by and among Inergy, L.P., Inergy Partners,
            LLC and the other parties named therein, dated as of      , 2001

   *21.1  --List of subsidiaries

  **23.1  --Consent of Ernst & Young LLP.

  **23.2  --Consent of Batchelor, Tillery & Roberts, LLP

   *23.3  --Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1)

   *23.4  --Consent of Vinson & Elkins L.L.P. (contained in Exhibit 8.1)

   *24.1  --Powers of Attorney (included on the signature page to the initial
            filing)

- --------
  *Previously filed.
 **Filed herewith.
***To be provided by amendment.

                                      II-2

Item 17. Undertakings.

   The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

   Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

   The undersigned Registrant hereby undertakes that:

     (1) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of prospectus filed as part of this
  Registration Statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Securities Act shall be deemed to be part of this
  Registration Statement as of the time it was declared effective.

     (2) For the purposes of determining any liability under the Securities
  Act, each post-effective amendment that contains a form of prospectus shall
  be deemed to be a new registration statement relating to the securities
  offered therein, and the offering of such securities at that time shall be
  deemed to be the initial bona fide offering thereof.

                                      II-3

                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement (No.
333-56976) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Kansas City, State of Missouri, on July 17, 2001.

                                          Inergy, L.P.

                                          By:  Inergy GP, LLC
                                              its Managing General Partner

                                               /s/ R. Brooks Sherman Jr.
                                          By: _________________________________
                                            Name: R. Brooks Sherman Jr.
                                            Title: Vice President and Chief
                                                Financial Officer

   Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement (No. 333-56976) has been signed below
by the officers and directors of Inergy GP, LLC, as managing general partner of
Inergy, L.P., the registrant, in the capacities indicated on July 17, 2001.

              Signature                                 Title
              ---------                                 -----

                   *                    President and Chief Executive Officer
______________________________________   and Chairman of the Board (principal
           John J. Sherman               executive officer)

                    *                   Senior Vice President--Operations and
______________________________________   Director
          Phillip L. Elbert

      /s/ R. Brooks Sherman Jr.         Chief Financial Officer (principal
______________________________________   accounting and financial officer)
        R. Brooks Sherman Jr.

                    *                   Director
______________________________________
        Richard C. Green, Jr.

                    *                   Director
 ______________________________________
          Warren H. Gfeller

                    *                   Director
 ______________________________________
           David J. Schulte

     /s/ R. Brooks Sherman Jr.
*By: _________________________________
           Attorney-in-fact

                                      II-4

                                  INERGY, L.P.

                     INDEX TO FINANCIAL STATEMENT SCHEDULE

  Inergy, L.P. Financial Statement Schedule for the Years Ended September 30,
                              1998, 1999 and 2000

                                                                          
Report of Independent Auditors.............................................. S-2
Report of Independent Auditors.............................................. S-3
Schedule II--Valuation and qualifying accounts.............................. S-4

   All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

                                      S-1

                         REPORT OF INDEPENDENT AUDITORS

   We have audited the consolidated financial statements of Inergy Partners,
LLC as of September 30, 1999 and 2000, and the years then ended, and have
issued our report thereon dated December 6, 2000, except for Notes 4 and 12, as
to which the date is January 12, 2001, and Note 13, as to which the date is
March 7, 2001, included elsewhere in this Registration Statement. Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

   In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Kansas City, Missouri
December 6, 2000

                                      S-2

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Members
Inergy Partners, LLC and subsidiary:

   We have audited the consolidated financial statements of Inergy Partners,
LLC and subsidiary (the "Company") for the year ended September 30, 1998 and
have issued our report thereon dated November 20, 1998 included elsewhere in
this Registration Statement. Our audit also included the financial statement
schedule listed in Item 16(b) of this Registration Statement for the year ended
September 30, 1998. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit.

   In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                          /s/ Batchelor, Tillery & Roberts,
                                           LLP

Raleigh, North Carolina
November 20, 1998

                                      S-3

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                     INERGY PARTNERS, LLC AND SUBSIDIARIES

                                                                        Column
         Column A           Column B        Column C         Column D      E
         --------           --------- --------------------- ----------- -------
                                                 Additions-
                             Balance  Additions-  Charged               Balance
                               at     Charged to  to Other              at End
                            Beginning Costs and  Accounts-  Deductions-   of
        Description         of Period  Expenses   Describe   Describe   Period
        -----------         --------- ---------- ---------- ----------- -------
                                                         
Year ended September 30,
 2000:
Deducted from asset
 account:
 Allowance for doubtful
  accounts.................    $86       $139       $20(2)      $20(1)   $225
Year ended September 30,
 1999:
Deducted from asset
 account:
 Allowance for doubtful
  accounts.................      9         77         0           0(1)     86
Year ended September 30,
 1998:
Deducted from asset
 account:
 Allowance for doubtful
  accounts.................     25        28          0          44(1)      9

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(1) Uncollectible accounts written off.
(2) Reserves assumed upon acquisition of Country Gas Company, Inc.

                                      S-4

                         INDEPENDENT AUDITORS' CONSENT

We consent to the references to our firm under the caption "Experts" and to the
use of our report dated December 6, 2000, except Notes 4 and 12, as to which the
date is January 12, 2001, and Note 13, as to which the date is March 7, 2001,
with respect to Inergy Partners, LLC; our report dated May 2, 2001 with respect
to Hoosier Propane Group; our report dated January 26, 2001 with respect to
Country Gas Company, Inc.; our report dated March 7, 2001 with respect to
Inergy, L.P., and our report dated March 2, 2001 with respect to Inergy GP, LLC,
in Amendment No. 3 to the Registration Statement (Form S-1 No. 333-56976) and
related Prospectus of Inergy, L.P. for the registration of 1,600,000 common
units.

                                                        /s/ Ernst & Young LLP

Kansas City, Missouri
July 16, 2001

                         INDEPENDENT AUDITORS' CONSENT

We hereby consent to the use in this Amendment No. 3 to the registration
statement on Form S-1 (No. 333-56976) of our report dated November 20, 1998,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.

                                /s/  Batchelor, Tillery & Roberts, LLP

Raleigh, North Carolina
July 16, 2001