EMPLOYMENT, CONFIDENTIALITY, AND NONCOMPETE AGREEMENT


                  This  Employment,  Confidentiality,  and Noncompete  Agreement
("Agreement") is made and entered into this 17th day of July, 1998, by and among
Ferrell  Companies,  Inc., a Kansas  corporation  ("FCI"),  Ferrellgas,  Inc., a
Delaware  corporation  ("FGI"; FCI and FGI are jointly and severally referred to
herein as the "Company" or the "Companies",  as the context so requires),  James
E. Ferrell (the  "Executive")  and LaSalle  National  Bank, not in its corporate
capacity,  but solely as  Trustee  ("Trustee")  of the  Ferrell  Companies  Inc.
Employee Stock Ownership Trust.

                  WHEREAS, the James E. Ferrell Revocable Trust, an affiliate of
Executive,  has  made  $40,000,000  subordinated  loan  to  FCI  pursuant  to  a
Subordinated  Note  Purchase   Agreement  dated  as  of  the  date  hereof  (the
"Subordinated Loan").

                  WHEREAS, FGI is a wholly-owned subsidiary of FCI and serves as
the general partner of Ferrellgas Partners, L.P., a Delaware limited partnership
("Ferrellgas  Partners") and Ferrellgas,  L.P., a Delaware  limited  partnership
("Ferrellgas",  and referred to herein  collectively with Ferrellgas Partners as
the   "Partnerships"),   which  are  engaged   primarily  in  the  retail  sale,
distribution and marketing of propane (the "Business").

                  WHEREAS, the Companies, through the Partnerships,  conduct the
Business throughout the United States.

                  WHEREAS,  the  Companies,   through  the  Partnerships,   have
expended  a great  deal of time,  money,  and  effort to  develop  and  maintain
proprietary  Confidential  Information  (as defined below) which,  if misused or
disclosed, could be harmful to the Business.

                  WHEREAS, the success of the Companies depends to a substantial
extent upon the protection of the Confidential Information and customer goodwill
by all of their employees and the employees of the Partnerships.

                  WHEREAS, the Executive desires to be employed, and to continue
to be employed, by the Companies as Chairman of the Board of the Companies.

                  WHEREAS,  the  Executive  desires  to be  eligible  for  other
opportunities within the Companies and/or compensation increases which otherwise
would not be available to the Executive  and to be given access to  Confidential
Information  of the  Companies and the  Partnerships  which is necessary for the
Executive  to  perform  his  duties,  but  which  the  Companies  would not make
available to the Executive but for the Executive's signing and agreeing to abide
by the terms of this Agreement as a condition of the Executive's  employment and
continued employment with the Companies.

                  WHEREAS,  the Executive  recognizes and acknowledges  that the
Executive's  position with the  Companies  has provided  and/or will continue to
provide the Executive with access to  Confidential  Information of the Companies
and the Partnerships.

                  WHEREAS,  the Companies  compensate  their employees to, among
other  things,  develop  and  preserve  goodwill  with their  customers  on each
respective  Company's  behalf  and  business  information  for  each  respective
Company's ownership and use.

                  NOW, THEREFORE, in consideration of the compensation and other
benefits of the Executive's employment by the Companies and the recitals, mutual
covenants and agreements  hereinafter set forth, the Executive and the Companies
agree as follows:

     Term. The Executive is hereby employed by the Companies,  and the Executive
hereby accepts such  employment  upon the terms and conditions set forth herein.
The Executive's term of employment under this Agreement shall be for a period of
five (5) years,  commencing on July 17, 1998 (the "Initial  Period"),  and shall
continue  for a period  through and  including  July 17,  2003,  unless  earlier
terminated   pursuant   to  the  terms  and   conditions   of  this   Agreement.
Notwithstanding  anything herein to the contrary, this Agreement and the term of
employment  shall  be  automatically  renewed  for one year  successive  periods
following  the Initial  Period (the  "Successive  Period" and together  with the
Initial Period, the "Employment Period"),  until notice of either party's desire
that the Agreement not be renewed for a Successive Period is given by such party
on or prior to March 31 of the year in which the next  Successive  Period  shall
commence,  in which case, subject to Sections 8, 9 and 10, Executives employment
under this Agreement  shall  terminate upon the expiration of the Initial Period
or current Successive Period, as the case may be; provided, however, that except
as provided in Section 9 (a) the  Companies  may not  terminate  any  Successive
Period for such time as any amount is due under the FCI Subordinated  Notes from
Ferrell Companies, Inc., a Kansas corporation,  to the Executive or his designee
dated as of July 17, 1998.

     Duties and  Responsibilities.  During the  Employment  Period the Executive
shall,  on a  non-exclusive  basis,  perform  the  duties  and  responsibilities
customarily  incident to the position of Chairman of the Board of the  Companies
("Chairman")  and as are  consistent  with the  each  Company's  Bylaws,  as now
existing or hereafter amended.  The duties and responsibilities of the Executive
shall include, but not be limited to, the following:

     chairing the Board of Director meetings for the Companies;

     serving as an ex-officio member of the Senior  Management  Committee of the
Companies;

     providing  strategic  advice and  insights  related to the industry and the
operations   and   development   of  the  Business,   as  well  as   acquisition
opportunities, to the Chief Executive Officer of the Companies;

     interviewing and providing  feedback to the Chief Executive  Officer of the
Companies regarding candidates for senior management positions;

     performing periodic visits to the Companies' district offices at which time
advice is provided to area managers and senior field  managers,  consistent with
past practices,  and providing  feedback to the Chief  Executive  Officer of the
Companies regarding such matters;

     meeting  on a  regular  basis  with  the  Chief  Executive  Officer  of the
Companies to provide insight,  consultation,  guidance, and direction related to
the operation and development of the Companies;

     materially participating in company wide meetings, consistent with past
         practices;

     migrate the role of Chief Operating  Officer-Houston as soon as practicable
following the date hereof, but in any event no later than July 17, 1999;

     assisting in the re-application of FGI's membership to the National Propane
         Gas Association;

     maintaining  PERC board  membership until such membership is transferred to
another senior officer of FGI, which transfer shall occur as soon as practicable
following the date hereof, but in any event no later than July 15, 2003;

     attempting  to facilitate  the transfer of board  membership on the Propane
Vehicle  Counsel  to  another  senior  officer  of FGI,  as soon as  practicable
following the date hereof, but in any event no later than July 17, 2003;

     maintaining  membership with the World LPG Association as a  representative
of FGI,  until such  membership is transferred to another senior officer of FGI,
as soon as practicable following the date hereof, but in any event no later than
July 17, 2003;

     actively  participating  in the  maintenance and development of appropriate
and
     amicable lender, debtholder, and equity holder relationships; and

     such other senior  management  activities as may be agreed to in writing by
the parties from time to time.

     Performance of Services. During the Employment Period, the Executive agrees
to dedicate a reasonably  sufficient  amount of time per year (which the parties
estimate to equate to approximately  1,000 hours) to the  accomplishment  of his
duties and  responsibilities and to perform the duties and responsibilities in a
diligent,  trustworthy, loyal, business-like and efficient manner. The Executive
agrees  to  follow  and act in  accordance  with  all of the  Companies'  rules,
policies, and procedures.


<PAGE>


                            Compensation.

     (a) Salary.  During the  Employment  Period,  the  Companies  shall pay the
Executive  as  compensation  for his  services a monthly base salary of not less
than ten thousand dollars  ($10,000),  payable in accordance with the Companies'
usual  practices.  The Executive's  base salary shall be eligible for review and
increase  consistent with practices of the Companies in effect from time to time
during the Employment Period,  but shall not be reduced.  The Executive shall be
eligible to participate in such  perquisites as may from time to time be awarded
to the Executive by the  Companies  payable at such times and in such amounts as
the Companies, in their sole discretion, may determine;  provided, however, that
such  perquisites  so awarded are no less  favorable to  Executive  than similar
perquisites awarded to other members of the Companies' senior management.

     (b) Personal  Service  Bonus.  As an additional  inducement,  the Executive
shall be  entitled  to receive a bonus (the  "Incentive  Bonus")  payable by the
Companies on the later of: (i) the date the  Executive's  employment  under this
Agreement terminates (for any reason; (the "Employment  Termination  Date");(ii)
the date that all indebtedness under the Subordinated Loan has been paid in full
(the  "Subordinated  Loan  Payment  Date");  or  (iii)  the  Incentive  Bonus is
permitted to be paid  pursuant to the  covenants,  terms and  conditions  of any
financing documents  applicable to FCI (the "Bonus Payment Date"). The amount of
the  Incentive  Bonus shall be equal to .005 of the increase in the equity value
of FCI from  July 31,  1998 (as  determined  by an  appraisal  by the  financial
advisor to the trustee of the ESOT (the  "Appraiser")) to and including the date
of the most recent appraisal conducted by the Appraiser prior to the earlier of:
(y) the Employment Termination Date; or (z) the Subordinated Loan Payment Date.

     Benefit  Plans.  During the  Employment  Period and as  otherwise  provided
herein,  the Executive  shall be entitled to participate in any and all employee
welfare and health benefit plans (including,  but not limited to life insurance,
health and medical,  dental,  and disability  plans) and other employee  benefit
plans  (including  but not limited to the  Companies'  401(k) plan and qualified
pension plans) established by the Companies from time to time for the benefit of
executive  employees of the Companies;  provided,  however,  that nothing herein
shall  entitle  the  Executive  to  participate  in any Company  employee  stock
ownership plan or any equity board  incentive  compensatoin  plan of the Company
and its affiliates.  Such employee benefit plans in which the Executive shall be
entitled  to  participate  on the date  hereof  shall  include  those  listed on
Schedule 5 hereof. The Executive shall be required to comply with the conditions
attendant  to  coverage  by such  plans and  shall  comply  with and,  except as
otherwise provided herein, shall be entitled to benefits only in accordance with
the terms and conditions of such plans as they may be amended from time to time.
Nothing  herein  contained  shall be  construed as  requiring  the  Companies to
establish  or  continue  any  particular  benefit  plan in  discharge  of  their
obligations under this Agreement.

     Other Benefits.

     During the Employment Period, the Executive shall be entitled to such other
employment  benefits  extended  or  provided  to  other  key  executives  of the
Companies,  including,  but not  limited  to,  payment or  reimbursement  of all
business expenses incurred by the Executive in the performance of his duties and
other job related activities set forth in this Agreement or subsequently  agreed
to by the parties and in the  promotion of the Business in  accordance  with the
Companies' customary policies and procedures.  The Executive shall submit to the
Companies  periodic  statements  of all  expenses so  incurred.  Subject to such
audits as the Companies may deem  necessary,  the Companies  shall reimburse the
Executive the full amount of any such  expenses  advanced by him in the ordinary
course of business.

     During the Employment Period the Companies shall provide the Executive with
office space and administrative support services consistent with past practices.

     The Executive  shall be entitled to  reimbursement  of reasonable  expenses
incurred by Executive in  connection  with the  negotiation  of this  Agreement,
which shall be paid to  Executive  upon  submission  to the  Companies of proper
vouchers  evidencing  such  expenses  and the  purposes  for which the same were
incurred.

     The Board of  Directors  of the  Companies  may, in their sole  discretion,
approve additional  benefits to be offered to the Executive at such time as they
deem appropriate.

     Deductions from Salary and Benefits.  The Companies shall withhold from any
compensation or benefits payable to the Executive all customary federal,  state,
local and other withholdings,  including, without limitation,  federal and state
withholding taxes, social security taxes and state disability insurance.

     Death or Disability.

     In the event of the death or  termination  of  employment  due to permanent
disability of the Executive during the Employment  Period,  (i) all sums payable
to the  Executive  under this  Agreement  through  the end of the  second  month
following the month in which such event occurs,  (ii) all amounts  earned by the
Executive but not taken at the time of the termination of employment,  and (iii)
a cash,  lump-sum amount equal to three (3) times the greater of (X) 125% of the
then  current base salary,  or (Y) the average  compensation  paid for the prior
three (3) fiscal years, shall be paid to the Executive or the Executive's estate
or guardian,  as the case may be, as soon as practicable  after the death occurs
or permanent disability is determined.  In addition,  if such termination occurs
after the third month of the  Companies'  then fiscal year,  sums payable to the
Executive shall include a pro rata portion of any amounts to which the Executive
would have otherwise been entitled for the year in which such event occurs under
any Company  perquisite  to which  Executive is a  participant.  For purposes of
calculating any bonus as applicable  pursuant to Section 6(d), to be paid to the
Executive  pursuant to this Section 8(a), the Executive shall be entitled to the
payment of any bonus normally calculated with reference to a future period based
upon a percentage of the amount paid for such item in the previous  fiscal year;
such  percentage  to be  calculated  by  dividing  the  number  of  days  of his
employment during the Companies' then current fiscal year by the number 365.

     For purposes of this Agreement, "permanent disability" means the impairment
of Executive's  physical or mental health which makes the  performance of duties
impractical  or  impossible  as evidenced by the  certification  of  Executive's
doctor.

     Termination by the Companies.

     The Executive's duties and responsibilities under this Agreement may be
         terminated by the Companies for good Cause,  subject to the  provisions
         of this Section 9(a),  upon at least sixty (60) calendar days' ("Notice
         Period") written notice  ("Notice") to the Executive of their intent to
         terminate  Executive's   employment.   The  Notice  shall  specify  the
         particulars of such Cause and shall afford the Executive an opportunity
         to discuss the particulars of such Cause with the Board of Directors of
         FCI and to cure such Cause to the reasonable  satisfaction of the Board
         of Directors of FCI during the Notice  Period.  If such Cause shall not
         be cured  accordingly,  Executive's  employment  shall  terminate  upon
         expiration  of the Notice Period and no  compensation  shall be due him
         beyond the date of such termination  (other than pursuant to pension or
         other plans which by their terms  provide  payments  beyond the date of
         termination  in such  circumstances).  For  purposes of this  Agreement
         "Cause" means:  (i) the conviction of Executive by a court of competent
         jurisdiction of, or entry of a plea of nolo contendere with respect to,
         a  felony  or any  other  crime,  which  other  crime  involves  fraud,
         dishonesty or moral turpitude which  interferes with the performance of
         Executive's   duties,   responsibilities   or  obligations  under  this
         Agreement;  (ii)  fraud  or  embezzlement  related  to  either  of  the
         Companies on the part of Executive;  (iii) Executive's chronic abuse of
         or  dependency  on  alcohol  or  drugs  (illicit  or  otherwise)  which
         materially  interferes  with the  performance  of  Executive's  duties,
         responsibilities or obligations under this Agreement; (iv) the material
         breach  by  Executive  of  Sections  15,  16 or 17  hereof,  except  as
         permitted pursuant to Section 11 hereof; (v) any act of moral turpitude
         or willful  misconduct  by  Executive  which (A)  results  in  personal
         enrichment  of  Executive at the expense of the  Companies,  or (B) may
         have a material  adverse  impact on the Business or  reputation  of the
         Companies;  (vi)  gross and  willful  neglect  of  material  duties and
         responsibilities  of the Executive  pursuant hereto,  or an intentional
         violation  of a material  term of this  Agreement;  (vii) any  material
         violation of any statutory or common law fiduciary duty of Executive to
         FCI or FGI; or (viii)  failure by  Executive  to comply with a material
         Company policy,  as reasonably  determined by the Board of Directors of
         FCI.

     While  the  parties   agree  that  the  Companies  may  not  terminate  the
Executive's duties and responsibilities  under this Agreement except as provided
in  Section  9(a),  if  such  duties  and   responsibilities  are  involuntarily
terminated by the Companies for any reason other than for good Cause as noted in
Section 9(a), the Companies shall pay Executive the payments and provide him the
benefits specified in Section 8(a) hereof.

     Termination  by the  Executive.  The Executive may terminate his employment
under this Agreement upon at least sixty (60) calendar days' ("Executive  Notice
Period")  written  notice   ("Executive   Notice")  to  the  Companies  of  such
termination:

     without Cause,  upon  expiration of the Executive  Notice Period,  in which
event no  compensation  shall  be due him  beyond  the date of such  termination
(other than  pursuant  to pension or other  plans  which by their terms  provide
payment beyond the date of termination); and

     for Executive  Cause. The Executive Notice shall specify the particulars of
such Executive Cause and during the Executive  Notice Period the Executive shall
afford the Board of Directors of FCI an opportunity  to discuss the  particulars
of such Executive  Cause with the Executive and to cure such Executive  Cause to
the satisfaction of the Executive  during the Executive  Notice Period.  If such
Executive Cause shall not be cured  accordingly,  Executive's  employment  shall
terminate  upon  expiration  of the  Executive  Notice  Period.  In all  events,
Executive  shall be paid all  compensation  and  provided  all  benefits due him
during  the  Executive  Notice  Period  (and  thereafter  under  Section  8(a)).
"Executive  Cause" means any of the  following to which the  Executive  does not
agree:  (i)  assignment to the Executive of duties or  responsibilities,  or the
material  diminution of duties or  responsibilities,  that are inconsistent with
his  position,  duties,   responsibilities  or  status  as  they  exist  at  the
commencement  of the  term  of  this  Agreement;  (ii)  material  change  in the
reporting   responsibilities   of  the  Executive;   provided,   however,   that
notwithstanding  the  effect of changes  on the Board  under  Section 11 hereof,
changes in the identity of persons on the Board shall not be considered a change
in reporting  responsibilities for purposes of this Section; or (iii) withdrawal
from the  Executive  of his  title  as  Chairman  or a  material  breach  of any
provision of this Agreement by the Companies.

     Effect of Certain  Terminations;  Change in Control.  If (a) any Company or
Partnership  merges with or is  consolidated  into another  corporation or other
entity  not  theretofore  affiliated  with any  Company  or  Partnership  (i.e.,
controlled  by,  controlling  or under common  control with the Companies or the
Partnerships,  as  applicable)  and the  Company  or  Partnership  so merging or
consolidating   is  not  the  surviving   entity  pursuant  to  such  merger  or
consolidation,  or if all or  substantially  all of the assets of any Company or
Partnership are acquired by another  corporation or other entity not theretofore
affiliated  with either  Company or  Partnership  in a single  transaction  or a
series  of  related  transactions,  or if more than a  majority  of the Board of
Directors of either Company  changes within a 12-month  period,  or if FGI is no
longer the general partner of the Partnerships,  or if either Company registures
a class of equity securities under the Securities Exchange Act of 1934 (all such
events being referred to herein as "Change in Control"), and (b) within eighteen
(18) months after any such Change in Control the  Executive's  employment  under
this Agreement is terminated,  then upon such termination or occurence:  (i) the
Companies shall pay the Executive a cash, lump-sum termination benefit not later
than thirty (30) calendar days after such  termination  equal to three (3) times
the  greatest  of 125% of (A) his then  current  base  salary,  (B) the  average
compensation  (base  salary plus  bonuses,  if any) paid for the prior three (3)
fiscal years prior to such termination,  or (C) the total compensation remaining
for the  Initial  Period,  if such Change of Control  occurs  during the Initial
Period,  or for the  Successive  Period,  if such occurs  during any  Successive
Period,  (ii) the Companies shall pay the Executive any other amounts earned but
unpaid, (iii) if such termination occurs after the third month of the Companies'
then  current  fiscal year,  the  Companies  shall pay the  Executive a pro rata
portion (such  proration  shall be on the basis that the number of months of his
employment  during the  Companies'  then current fiscal year bears to the number
12,  considering the month of termination as a month of full employment,  and in
the case of any plan measured over a full year, such  determination  and payment
shall be made  after the close of such  year) of any  amounts  to which he would
have otherwise been entitled under any Company  perquisite to which Executive is
a  participant,  (iv)  the  Companies,  at their  expense,  shall  continue  the
Executive's  health,  accident  and life  insurance  benefits for six (6) months
after the month in which such termination occurs (following which the Executive,
at his expense,  shall have the right to extend such benefits  under COBRA for a
period of eighteen (18) months),  and (iv) Section 17 hereof shall terminate and
be of no effect.  For purposes of calculating  any bonus,  if applicable,  to be
paid to the  Executive  pursuant  to this  Section  11, the  Executive  shall be
entitled to the payment of any bonus  normally  calculated  with  reference to a
future  period  based upon the total amount paid for such bonus in the three (3)
previous fiscal years.

     Mitigation  or Reduction of  Benefits.  Executive  shall not be required to
mitigate  or reduce the amount of any  payment  upon  termination  provided  for
herein by  seeking  other  employment  or  otherwise  nor,  except as  otherwise
specifically  set forth  herein,  shall the amount of any  payment  or  benefits
provided upon  termination be reduced by any  compensation or other amounts paid
to or earned by Executive as the result of employment by another  employer after
such termination or otherwise.

     Certain Additional Payments by the Companies.

                           (a) Notwithstanding anything in this Agreement to the
         contrary  and  except  as set  forth  below,  in the  event it shall be
         determined  that any payment or distribution by the Companies to or for
         the benefit of the Executive (whether paid or payable or distributed or
         distributable pursuant to the terms of this Agreement or otherwise, but
         determined  without  regard to any additional  payments  required under
         this Section) (a "Payment")  would be subject to the excise tax imposed
         by Section 4999 of the Internal  Revenue Code of 1986,  as amended (the
         "Code"),  or any  interest or penalties  are incurred by the  Executive
         with  respect to such excise tax (such  excise tax,  together  with any
         such interest and penalties,  are hereinafter  collectively referred to
         as the "Excise Tax"),  then the Executive  shall be entitled to receive
         an  additional  payment (a  "Gross-Up  Payment") in an amount such that
         after payment by the Executive of all taxes  (including any interest or
         penalties  imposed  with  respect to such  taxes),  including,  without
         limitation,  any income taxes (and any interest and  penalties  imposed
         with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
         the  Executive  retains an amount of the Gross-Up  Payment equal to the
         Excise Tax imposed upon the Payments.

                           (b) Subject to the provisions of Section  13(c),  all
         determinations  required to be made under this  Section  13,  including
         whether and when a Gross-Up  Payment is required and the amount of such
         Gross-Up Payment and the assumptions to be utilized in arriving at such
         determination,  shall be made by certified  public  accounting  firm as
         designated by the Executive (the "Accounting Firm") which shall provide
         detailed  supporting   calculations  both  to  the  Companies  and  the
         Executive  within  fifteen (15)  business days of the receipt of notice
         from the Executive that there has been a Payment,  or such earlier time
         as is requested by the Companies. In the event that the Accounting Firm
         is serving as accountant or auditor for the individual, entity or group
         effecting a Change of Control,  the  Executive  shall  appoint  another
         nationally  recognized  accounting  firm  to  make  the  determinations
         required  hereunder (which accounting firm shall then be referred to as
         the Accounting Firm hereunder). All fees and expenses of the Accounting
         Firm shall be borne solely by the Companies.  Any Gross-Up Payment,  as
         determined  pursuant to this Section 13, shall be paid by the Companies
         to the  Executive  within five (5) calendar  days of the receipt of the
         Accounting  Firm's  determination.  Any determination by the Accounting
         Firm shall be binding upon the Companies and the Executive. As a result
         of the  uncertainty  in the  application of Section 4999 of the Code at
         the time of the initial determination by the Accounting Firm hereunder,
         it is possible that Gross-Up  Payments which will not have been made by
         the Companies should have been made  ("Underpayment"),  consistent with
         the calculations  required to be made hereunder.  In the event that the
         Companies  exhaust  their  remedies  pursuant to Section  13(c) and the
         Executive  thereafter  is required to make a payment of any Excise Tax,
         the Accounting Firm shall determine the amount of the Underpayment that
         has occurred and any such  Underpayment  shall be promptly  paid by the
         Companies to or for the benefit of the Executive.

                           (c) The  Executive  shall  notify  the  Companies  in
         writing  of  any  claim  by  the  Internal  Revenue  Service  that,  if
         successful,  would require the payment by the Companies of the Gross-Up
         Payment. Such notification shall be given as soon as practicable but no
         later than ten (10)  business  days after the  Executive is informed in
         writing of such claim and shall  apprise the Companies of the nature of
         such claim and the date on which such  claim is  requested  to be paid.
         The Executive  shall not pay such claim prior to the  expiration of the
         30-day  period  following  the date on which the  Executive  gives such
         notice to the Companies (or such shorter period ending on the date that
         any  payment  of taxes  with  respect  to such  claim  is due).  If the
         Companies  notify the Executive in writing  prior to the  expiration of
         such period that it desires to contest such claim, the Executive shall:

     (1)  give  the  Companies  any  information  reasonably  requested  by  the
Companies relating to such claim,

     (2) take such  action  in  connection  with  contesting  such  claim as the
Companies  shall  reasonably  request in writing  from time to time,  including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Companies,

     (3)  cooperate  with the  Companies  in good faith in order to  effectively
contest such claim, and

     (4) permit the Companies to participate in any proceedings relating to such
claim;

          provided,  however, that the Companies shall bear and pay directly all
         costs  and  expenses  (including  additional  interest  and  penalties)
         incurred in connection  with such contest and shall  indemnify and hold
         the Executive  harmless,  on an after-tax  basis, for any Excise Tax or
         income tax  (including  interest and  penalties  with respect  thereto)
         imposed  as a result of such  representation  and  payment of costs and
         expenses.  Without  limitation  on the  foregoing  provisions  of  this
         Section 13(c),  the Companies  shall control all  proceedings  taken in
         connection  with such contest and, at their sole option,  may pursue or
         forgo any and all  administrative  appeals,  proceedings,  hearings and
         conferences with the taxing authority in respect of such claim and may,
         at their  sole  option,  either  direct  the  Executive  to pay the tax
         claimed  and sue for a refund or contest  the claim in any  permissible
         manner,  and the  Executive  agrees  to  prosecute  such  contest  to a
         determination before any administrative tribunal, in a court of initial
         jurisdiction  and in one or more  appellate  courts,  as the  Companies
         shall determine;  provided,  however,  that if the Companies direct the
         Executive to pay such claim and sue for a refund,  the Companies  shall
         advance  the  amount  of  such   payment  to  the   Executive,   on  an
         interest-free basis and shall indemnify and hold Executive harmless, on
         an  after-tax  basis,  from any  Excise  Tax or income  tax  (including
         interest or  penalties  with respect  thereto)  imposed with respect to
         such advance or with respect to any imputed income with respect to such
         advance;  and further  provided  that any  extension  of the statute of
         limitations  relating to payment of taxes for the  taxable  year of the
         Executive with respect to which such contested  amount is claimed to be
         due is  limited  solely  to such  contested  amount.  Furthermore,  the
         Company's  control  of the  contest  shall be  limited  to issues  with
         respect to which a Gross-Up Payment would be payable  hereunder and the
         Executive  shall be entitled to settle or contest,  as the case may be,
         any other issue  raised by the  Internal  Revenue  Service or any other
         taxing authority.

                           (d) If,  after the  receipt  by the  Executive  of an
         amount  advanced  by the  Companies  pursuant  to  Section  13(c),  the
         Executive  becomes  entitled to receive any refund with respect to such
         claim,  the Executive  shall (subject to the Companies'  complying with
         the  requirements  of Section 13(c))  promptly pay to the Companies the
         amount of such  refund  (together  with any  interest  paid or credited
         thereon after taxes applicable  thereto).  If, after the receipt by the
         Executive of an amount  advanced by the  Companies  pursuant to Section
         13(c), a determination is made that the Executive shall not be entitled
         to any  refund  with  respect to such  claim and the  Companies  do not
         notify the  Executive in writing of their intent to contest such denial
         of refund prior to the  expiration  of thirty (30)  calendar days after
         such  determination,  then such advance shall be forgiven and shall not
         be required to be repaid and the amount of such advance  shall  offset,
         to the extent thereof,  the amount of Gross-Up  Payment  required to be
         paid.

     Indemnification. The Companies shall indemnify the Executive to the fullest
extent permitted by law against any liability he incurs,  or which is threatened
against him,  during or after  termination of his  employment,  by reason of the
fact that he is or was a director,  officer, employee or agent of the Companies,
or is or was serving at the  request of the  Companies  as a director,  officer,
employee or agent of another  corporation  or other  entity.  In providing  such
indemnification,  and in addition to and not in lieu of its general  obligations
to indemnify the  Executive,  the Companies  shall  reimburse the Executive upon
demand  for  all  reasonable  expenses  and  payments  incurred  or  made by the
Executive relating to any matter for such indemnification hereunder is due.

                  15. Confidential Information.  The Executive acknowledges that
the  information,  observations  and data (whether in human or machine  readable
form) obtained by him while employed by the Companies concerning the business or
affairs of the Companies, a Partnership,  or any other affiliate,  including any
information  pertaining  to the  Business  which is not  generally  known in the
propane  industry,  including,  but not  limited  to,  trade  secrets,  internal
processes,  designs,  design  information,  products,  test data,  research  and
development plans and activities, equipment modifications,  techniques, software
and computer  programs and  derivative  works,  business  and  marketing  plans,
projections,  sales data and  reports,  confidential  evaluations,  compilations
and/or analyses of technical or business information,  profit margins,  customer
requirements,  costs,  profitability,  sales and marketing  strategies,  pricing
policies,  strategic plans, training materials,  internal financial information,
operating and financial data and projections,  names and addresses of customers,
inventory  lists,  sources of supplies,  supply lists,  employee lists,  mailing
lists,  and  information   concerning   relationships  between  any  Company  or
Partnership  and  their  employees  or  customers  which  gives  or may give the
Companies or the  Partnerships  an  advantage  over  competitors  ("Confidential
Information")  are the property of the Company,  the  Partnership  or such other
affiliate, as applicable.  Therefore, Executive agrees that he shall not use any
Confidential   Information   other  than  in  connection   with  performing  the
Executive's  services for or on behalf of the Companies in accordance  with this
Agreement, or disclose to any unauthorized person or use for his own account any
Confidential  Information  without the prior written consent of the Board of the
Companies,  unless  and to the extent  that the  aforementioned  matters  become
generally known to and available for use by the public other than as a result of
Executive's  acts or omissions to act.  Executive shall deliver to the Companies
at the termination of Executive's employment, or at any other time the Companies
may request, all memoranda,  notes, plans, records,  reports, computer tapes and
software  and other  documents  and data (and  copies  thereof)  relating to the
Confidential Information, Work Product (as defined below) and the Business which
he may then possess or have under his control.  The  Companies and the Executive
acknowledge   that:  (a)  the  Confidential   Information  is  commercially  and
competitively   valuable  to  the  Companies  and  their  affiliates;   (b)  the
unauthorized  use or  disclosure  of the  Confidential  Information  would cause
irreparable harm to the Companies and their  affiliates;  (c) the Companies have
taken and are  taking  all  reasonable  measures  to  protect  their  legitimate
interest  in  the  Confidential  Information,   including,  without  limitation,
affirmative  action  to  safeguard  the  confidentiality  of  such  Confidential
Information;  (d) the  restrictions  on the  activities  in which  Executive may
engage  set forth in this  Agreement,  and the  periods  of time for which  such
restrictions apply, are reasonably  necessary in order to protect the Companies'
legitimate interests in their Confidential  Information;  and (e) nothing herein
shall  prohibit the  Companies  from  pursuing any  remedies,  whether in law or
equity,  available  to the  Companies  for breach or  threatened  breach of this
Agreement, including the recovery of damages from Executive.

                  16.   Inventions  and  Patents.   Executive  agrees  that  all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings,  reports,  and all similar or related information which relates to the
Companies' actual or anticipated  business (to the extent the Executive is aware
thereof),  research and  development or existing or future  products or services
and which are  conceived,  developed or made by Executive  while employed by the
Companies or any of their affiliates  (whether prior to or during the Employment
Period) ("Work Product")  belong to the Companies or such other  affiliate,  and
Executive  hereby assigns to the Companies his entire right,  title and interest
in any such Work Product.  Executive will promptly disclose such Work Product to
the Board of the Companies and perform all actions  reasonably  requested by the
Board of the Companies  (whether during or after Executive's  employment period)
to  establish  and  confirm  such  ownership  (including,   without  limitation,
assignments, consents, powers of attorney and other instruments).

     Noncompete; Nonsolicitation.

     Executive  acknowledges  that in the  course  of his  employment  with  the
Companies he will become  familiar with  Confidential  Information  and that his
services will be of special,  unique and  extraordinary  value to the Companies.
Therefore,  Executive  agrees  that,  during  the  time  he is  employed  by the
Companies  pursuant  hereto  and  thereafter  for the period of time of five (5)
years (ii) until the payment in full of the Senior  Secured Notes (as defined in
the  Subordinated  Note  Purchase  Agreement)  and any  indebtdness  incurred in
connection  with any  extensions,  renewals,  replacements or refinancing of the
indebtedness  evidenced  thereby  in the extent  that all or any  portion of the
Subordiantd  Loan has been  transferred  or  assigned to any person who is not a
"Permitted   Assignee"   (as   defined  in  the   Subordinated   Note   Purchase
Agreement)(the "Noncompete Period"),  Executive shall not directly or indirectly
own, manage,  control,  or engage in any business with any person  (including by
himself or in  association  with any person,  firm,  corporate or other business
organization  or through  any other  entity)  whose  business  is  substantially
similar  to the  Business  (as  defined  in the first  "Whereas"  clause of this
Agreement,  and for  purposes of this Section 17, shall be limited to the retail
aspects of the Business) as such business exists or is in process on the date of
the termination of Executive's employment, within any geographical area in which
the Companies  engage in Business on the date of the  termination of Executive's
employment;  provided, however, that nothing herein shall prohibit the Executive
either directly or indirectly from owning, managing,  controlling or engaging in
any business  which  competes  with the Companies in areas other than the retail
sale of propane gas.

     Nothing herein shall  prohibit  Executive from being a passive owner of not
more than 5% of the outstanding stock of a corporation which is publicly traded,
so long  as  Executive  has no  active  participation  in the  business  of such
corporation.

     During the Noncompete  Period,  Executive  shall not directly or indirectly
through  another  entity (i) induce or  attempt  to induce any  employee  of the
Companies or any affiliate of the Companies to leave the employ of the Companies
or such  affiliate,  or in any way interfere with the  relationship  between the
Companies and any employee thereof,  (ii) hire any person who was an employee of
the  Companies  at any time  within the  six-month  period  prior to the date of
termination  of  Executive's  employment  with the  Companies  or any  affiliate
thereof, or (iii) induce or attempt to induce any customer,  supplier, licensee,
licensor, franchisee,  franchisor or other business relation of the Companies or
any affiliate to cease doing business with the Companies or such  affiliate,  or
in any way interfere with the relationship between any such customer,  supplier,
licensee,  licensor,  franchisee,   franchisor  or  business  relation  and  the
Companies or any affiliate thereof.

     The Companies and the Executive  agree that: (i) the covenants set forth in
this Section 17 are  reasonable in  geographical  and temporal  scope and in all
other  respects,  (ii) the Companies  would not have entered into this Agreement
but for the  covenants of Executive  contained  herein,  and (iii) the covenants
contained  herein have been made in order to induce the  Companies to enter into
this Agreement.

     If, at the time of enforcement of this Section 17, a court or arbiter shall
hold  that  the  duration,   scope  or  area  restrictions   stated  herein  are
unreasonable  under  circumstances  then  existing,  the parties  agree that the
maximum  duration,  scope or area reasonable under such  circumstances  shall be
substituted for the stated  duration,  scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.

     The  Executive  hereby  agrees that he shall at no time either  prior to or
following  expiration of the Noncompete  Period use the name "Ferrellgas" in any
business  venture  unrelated  to FGI engaged in by  Executive  without the prior
written  consent of the FGI;  provided,  however,  that nothing  herein shall be
construed to limit the  Executive  from using the name  "Ferrell" in any context
which is not substantially related to the Business of the Companies.

     Companies' Right to Injunctive Relief, Tolling. In the event of a breach or
threatened  breach of any of the Executive's  duties and  obligations  under the
terms and  provisions of Sections 15, 16 or 17 hereof,  the  Companies  shall be
entitled,  in addition to any other legal or  equitable  remedies it may have in
connection  therewith  (including  any right to damages that it may suffer),  to
temporary,  preliminary, and permanent injunctive relief restraining such breach
or threatened breach. The Executive hereby expressly  acknowledges that the harm
which  might  result to the  Business  as a result of any  noncompliance  by the
Executive  with any of the  provisions  of Sections 15, 16 or 17 hereof would be
largely irreparable.

     Judicial Enforcement.  If any provision of this Agreement is adjudicated to
be  invalid or  unenforceable  under  applicable  law in any  jurisdiction,  the
validity  or  enforceability  of  the  remaining  provisions  thereof  shall  be
unaffected as to such  jurisdiction and such  adjudication  shall not affect the
validity or enforceability of such provisions in any other jurisdiction.  To the
extent that any  provision  of this  Agreement is  adjudicated  to be invalid or
unenforceable  because it is  overbroad,  that  provision  shall not be void but
rather  shall be  limited  only to the extent  required  by  applicable  law and
enforced as so limited.  The parties  expressly  acknowledge and agree that this
Section is reasonable in view of the parties' respective interests.

     Executive  Warranties  and  Representations.  The  Executive  warrants  and
represents  that the execution and delivery of the Agreement and the Executive's
employment with the Companies do not violate any previous  employment  agreement
or other contractual obligation of the Executive.

     Payments to Executive.  For the avoidance of doubt, while the Companies are
jointly and severally liable for payments due to the Executive hereunder nothing
herein shall be construed to entitle the Executive to duplicate  compensation or
benefits to be paid by both of FCI and FGI pursuant hereto.  Payments due to the
Executive  by the  Companies  shall  be paid  by FCI  and/or  FGI as  determined
appropriate by the Board of Directors of FGI.

     Covenants.

     The Companies  hereby  covenant that unless the  Executive's  employment is
terminated  for good Cause  pursuant to Section 9 (a) hereof,  they shall ensure
that during the Employment  Period, (i) the Executive is elected to the Board of
Directors  of the  Companies  and  that the  Executive  shall  be  appointed  as
Chairman,  (ii) the Executive,  and Danley K. Sheldon and Elizabeth  Solberg are
elected as the Plan  Administrator  as defined in, and  pursuant to, the Ferrell
Companies,  Inc. Stock  Ownership Plan, and that they are, and they each remain,
for so long as they are Directors of the Company,  the only members thereof, and
(iii) the Plan  Administrator  directs the Trustee that the Executive is elected
to the Board of the Companies and appointed Chairman thereof.

     The Trustee,  subject to its duties to comply with applicable provisions of
ERISA  and  the  Department  of  Labor  regulations  promulgated  in  connection
therewith,  hereby covenants to vote the capital stock of the Ferrell  Companies
Inc.  Employee Stock  Ownership Trust to elect the Executive to the Board of the
Companies.

     The  Executive  may  designate in writing to the  Companies,  a replacement
director (the "Designee") to take Executive's place on the Board of Directors of
the Companies in the event of termination of Executive's  employment pursuant to
Section  8, 9 or 10  hereof  at  such  time as the FCI  Subordinated  Notes  are
outstanding.  The Companies  acknowledge that in the event of such a termination
of Executive's  employment and for such time as the FCI  Subordinated  Notes are
outstanding  and held directly or indirectly by the Executive's  trust,  estate,
hiers or beneficiaries,  the Executive or the Executor (or guardian, as the case
may be) of the Executive's  estate shall have the right to appoint the Designee,
or if not so designated by Executive  pursuant hereto, in its sole discretion to
designate the Designee,  and the  Companies  hereby  covenant to ensure that the
Designee is elected to the Board of the Companies.

     In the event that the  Executive's  employment  is  terminated  pursuant to
Section  8, 9 or 10  hereof  at  such  time as the FCI  Subordinated  Notes  are
outstanding,  the Trustee,  subject to compliance with applicable  ERISA and the
Department of Labor regulations promulgated thereunder, hereby covenants to vote
the capital of the Ferrell  Companies  Inc.  Employee Stock  Ownership  Trust to
elect the  Designee  to the Board of the  Companies,  for such period as the FCI
Subordinated  Notes are  outstanding  and held  directly  or  indirectly  by the
Executive's estate, hiers or beneficiaries.

          In the event of a breach or threatened  breach of this Section 22, the
         Executive  shall  be  entitled,  in  addition  to any  other  legal  or
         equitable remedies he may have in connection  therewith  (including any
         right to damages  that he may suffer) to  temporary,  preliminary,  and
         permanent  injunctive  relief  restraining  such  breach or  threatened
         breach.

     Survival.  The provisions of this Agreement,  except as otherwise  provided
herein,   shall   continue  in  full  force  in  accordance   with  their  terms
notwithstanding any termination of the Executive's employment by the Companies.

     Right to Recover Costs and Fees. The Executive and the Companies  undertake
and agree that if either the  Executive  or a Company  breaches or  threatens to
breach this  Agreement (the  "Breaching  Party"),  the Breaching  Party shall be
liable for any attorneys' fees and costs incurred by the non-Breaching  Party in
enforcing the non-Breaching Party's rights hereunder.

     Entire Agreement, Amendments and Modifications.  This Agreement constitutes
the entire agreement and  understanding of the parties  regarding the employment
of the  Executive by the  Companies  and  supersedes  all prior  agreements  and
understandings  between the  Executive  and the Companies to the extent that any
such agreements or understandings  conflict with the terms of this Agreement. No
modification,  amendment or waiver of any of the  provisions  of this  Agreement
shall be effective unless in writing  specifically  referring hereto, and signed
by the parties hereto.

     Assignments. This Agreement shall be freely assignable by the Companies to,
and shall  inure to the benefit of and be binding  upon,  their  successors  and
assigns  and/or any other entity which shall  succeed to the business  presently
being  conducted  by the  Companies.  Being a contract  for  personal  services,
neither  this  Agreement  nor any  rights  hereunder  shall be  assigned  by the
Executive.

     Choice of Forum;  Governing  Law.  In light of the  Companies'  substantial
contacts  with the State of Missouri,  the parties'  interests in ensuring  that
disputes  regarding the  interpretation,  validity,  and  enforceability of this
Agreement are resolved on a uniform basis,  and the Companies  execution of, and
the making of, this  Agreement  in  Missouri,  the parties  agree that:  (i) any
litigation  involving  any  noncompliance  with or breach of the  Agreement,  or
regarding the interpretation,  validity and/or  enforceability of the Agreement,
shall be filed  and  conducted  in the state or  federal  courts in the State of
Missouri;  and (ii) the Agreement  shall be interpreted  in accordance  with and
governed  by the laws of the State of  Missouri,  without  giving  effect to any
choice of law or  conflict  of law  provision  or rule  (whether of the State of
Missouri or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Missouri.

     Headings  and  Interpretation.   Section  headings  are  provided  in  this
Agreement for convenience  only and shall not be deemed to  substantively  alter
the  content of such  sections.  Whenever  the words  "include",  "includes"  or
"including" are used in this  Agreement,  they shall be deemed to be followed by
the words "without limitation".  References to the singular or plural tense of a
word shall also include the plural or singular as the context may require.

     Neutral  Construction.  Each party acknowledges that in the negotiation and
drafting of this  Agreement,  they have been  represented by and relied upon the
advice of  counsel  of their  choice.  The  parties  affirm  that they and their
counsel  have had a  substantial  role in such  negotiation  and  drafting  and,
therefore,  the parties agree that this  Agreement  shall be deemed to have been
drafted by all the  parties  hereto and the rule of  construction  to the effect
that any contract  ambiguities  are to be resolved  against the  drafting  party
shall not be employed in the  interpretation  of this  Agreement  or any exhibit
hereto.

     Notices. Any notice,  request,  consent or communication  (collectively,  a
"Notice")  under this Agreement  shall be effective only if it is in writing and
(i) personally delivered with written receipt thereof, (ii) sent by certified or
registered mail,  return receipt  requested,  postage prepaid or (iii) sent by a
nationally  recognized  overnight  delivery  service,  with delivery  confirmed,
addressed as follows (or at such other address for a party as shall be specified
by like notice):

(a) If to the Executive, to:            Mr. James E. Ferrell
                                        2142 Inwood Drive
                                        Houston, Texas  77019

(b) With a copy to:                     Bryan Cave LLP
                                        One Kansas City Place
                                        1200 Main Street
                                        Kansas City, Missouri 64105
                                        Attn: John M. Edgar, Esq.

(c) If to FGI, to:                      Ferrellgas, Inc.
                                        One Liberty Plaza
                                        Liberty, Missouri  64068
                                        Attention: Mr. Danley K. Sheldon,
                                        President

(d) If to FCI, to:                      Ferrell Companies, Inc.
                                        One Liberty Plaza
                                        Liberty, Missouri  64068
                                        Attention: Mr. Danley K. Sheldon, 
                                   `    President

(e) If to the Trustee, to:              LaSalle National Bank
                                        Trust & Asset Management
                                        135 S. LaSalle, 19th Floor
                                        Chicago, Illinois 60606-5096
                                        Attn: William W. Merten, Esq.

(f) With a copy to:                     McDermott, Will & Emery
                                        277 West Monroe Street
                                        Chicago, Illinois 60606-5096
                                         Attn: William W. Merten, Esq.

          A Notice  shall be deemed  to have been  given as of the date when (i)
personally  delivered as indicated by date of receipt,  (ii) five (5) days after
the date when deposited with the United States  certified  mail,  return receipt
requested,  properly  addressed,  or (iii) when  receipt of a Notice  sent by an
overnight delivery service is confirmed by such overnight  delivery service,  as
the case may be, unless the sending party has actual knowledge that a Notice was
not received by the intended recipient.

     32.   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of which  shall be deemed an  original  and  together  shall
constitute one and the same Agreement.







<PAGE>


     IN WITNESS  WHEREOF,  the parties have caused this Agreement to be executed
as of the day and year first above written.



FERRELL COMPANIES, INC.                     EXECUTIVE


By:       /s/ Kevin T. Kelly                By:  /s/ James E. Ferrell
----------------------------                ---------------------------
Kevin T. Kelly                              James E. Ferrell
Vice President



FERRELLGAS, INC.                            TRUSTEE


By: /s/  Kenneth A. Heinz                   By:  /s/ E. Vaughn Gordy
--------------------------                  -----------------------------------
Kenneth A. Heinz                            E. Vaughn Gordy, on behalf of
Assistant Secretary                         LaSalle National Bank, solely as
                                           Trustee of the Ferrell Companies Inc.
                                            Employee Stock Ownership Trust,
                                            and not in Mr.Gordy's individual
                                            capacity or LaSalle National Bank's
                                            corporate capacity.



PLEASE NOTE:  BY SIGNING THIS  AGREEMENT,  EXECUTIVE IS HEREBY  CERTIFYING  THAT
EXECUTIVE (A) HAS RECEIVED A COPY OF THIS  AGREEMENT FOR REVIEW AND STUDY BEFORE
EXECUTING IT; (B) HAS READ THIS AGREEMENT  CAREFULLY  BEFORE SIGNING IT; (C) HAS
HAD  SUFFICIENT  OPPORTUNITY  BEFORE  SIGNING THE AGREEMENT TO ASK ANY QUESTIONS
EXECUTIVE HAS ABOUT THE AGREEMENT AND HAS RECEIVED  SATISFACTORY  ANSWERS TO ALL
SUCH QUESTIONS; AND (D) UNDERSTANDS EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THE
AGREEMENT.



<PAGE>


                                   Schedule 5

                             Employee Benefit Plans


                  The following is a listing of the benefit plans available to
 James E. Ferrell:


                   Comprehensive medical plan.

                   Dental plan.

                   Vision plan.

                   Short-term disability plan.

                   Long-term disability plan.

                   Employee life insurance - maximum of $500,000.

                   Dependent life insurance.

                   Accidental death and disability - maximum of $300,000.

                   401(k) plan - maximum employee  contribution of 15%; employer
                  match  of 50% of first 8% of  employee  contribution.  Maximum
                  contributions subject to statutory limitations.

                   Profit sharing plan - discretionary  employer contribution to
                  retirement   plan.    Contribution    subject   to   statutory
                  limitations.

                   Supplemental   savings   plan   -   non-qualified    deferred
                  compensation plan.  Maximum  contribution of 100% of earnings,
                  subject to annual  limitation.  This plan provides the balance
                  of the 4% match contemplated by the 401(k) plan for Employee's
                  capped out of the 401(k) plan due to statutory limitations.