Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-K (Mark One) xxANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2003 OR ¨¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the transition period from to Commission File Number: 33-98490 Commission File Number: 333-103873 STAR GAS PARTNERS, L.P. STAR GAS FINANCE COMPANY(Exact name of registrants as specified in its charters) Delaware 06-1437793Delaware 75-3094991(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2187 Atlantic Street, Stamford, Connecticut 06902(Address of principal executive office) (Zip Code) (203) 328-7310(Registrants’ telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Units New York Stock ExchangeSenior Subordinated Units New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. x The aggregate market value of Star Gas Partners, L.P. Common Units held by non-affiliates of Star Gas Partners, L.P. on March 31, 2003 was approximately$558,527,834. As of December 8, 2003, the registrants had units and shares outstanding for each of the issuers classes of common stock as follows: Star Gas Partners, L.P. Common Units 30,670,528Star Gas Partners, L.P. Senior Subordinated Units 3,141,696Star Gas Partners, L.P. Junior Subordinated Units 345,364Star Gas Partners, L.P. General Partner Units 325,729Star Gas Finance Company Common Shares 100 Documents Incorporated by Reference: None Table of ContentsSTAR GAS PARTNERS, L.P. 2003 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Page PART I Item 1. Business 3Item 2. Properties 14Item 3. Legal Proceedings - Litigation 14Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for the Registrant’s Units and Related Matters 16Item 6. Selected Historical Financial and Operating Data 17Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19Item 7A. Quantitative and Qualitative Disclosures about Market Risk 30Item 8. Financial Statements and Supplementary Data 30Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30Item 9A. Controls and Procedures 30 PART III Item 10. Directors and Executive Officers of the Registrant 31Item 11. Executive Compensation 36Item 12. Security Ownership of Certain Beneficial Owners and Management 39Item 13. Certain Relationships and Related Transactions 39Item 14. Principal Accounting Fees and Services 40 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41 2 Table of ContentsPART I ITEM 1. BUSINESS Structure Star Gas Partners, L.P. (“Star Gas” or the “Partnership”) is a diversified home energy distributor and services provider, specializing in heating oil, propane,natural gas and electricity. Star Gas is a master limited partnership, which at September 30, 2003 had outstanding 30.7 million common units (NYSE: “SGU”representing an 88.9% limited partner interest in Star Gas Partners) and 3.1 million senior subordinated units (NYSE: “SGH” representing a 9.1% limitedpartner interest in Star Gas Partners) outstanding. Additional Partnership interests include 0.3 million junior subordinated units (representing a 1.0% limitedpartner interest) and 0.3 million general partner units (representing a 1.0% general partner interest). The Partnership is organized as follows: •Star Gas Propane, L.P. (“Star Gas Propane”) is the Partnership’s operating subsidiary and, together with its direct and indirect subsidiaries, accountsfor substantially all of the Partnership’s assets, sales and earnings. Both the Partnership and Star Gas Propane are Delaware limited partnerships thatwere formed in October 1995 in connection with the Partnership’s initial public offering. The Partnership is the sole limited partner of Star GasPropane with a 99% limited partnership interest. •The general partner of both the Partnership and Star Gas Propane is Star Gas LLC, a Delaware limited liability company. The Board of Directors ofStar Gas LLC is appointed by its members. Star Gas LLC owns an approximate 1% general partner interest in the Partnership and also owns anapproximate 1% general partner interest in Star Gas Propane. •The Partnership’s propane operations (the “propane segment”) are conducted through Star Gas Propane and its direct subsidiaries. Star GasPropane primarily markets and distributes propane gas and related products to approximately 345,000 customers in the Midwest, Northeast,Florida and Georgia. •The Partnership’s heating oil operations (the “heating oil segment”) are conducted through Petro Holdings, Inc. (“Petro”) and its direct andindirect subsidiaries. Petro is a Minnesota corporation that is an indirect wholly owned subsidiary of Star Gas Propane. Petro is a retail distributorof home heating oil and serves over 535,000 customers in the Northeast and Mid-Atlantic. •The Partnership’s natural gas and electricity operations (the “natural gas and electric reseller segment”) are conducted through Total Gas &Electric, Inc. (“TG&E”), a Florida corporation, that is an indirect wholly-owned subsidiary of Petro. TG&E is an energy reseller that marketsnatural gas and electricity to residential households in deregulated energy markets in New York, New Jersey, Florida and Maryland and servesover 64,000 residential customers. •Star Gas Finance Company is a direct wholly-owned subsidiary of the Partnership. Star Gas Finance Company serves as the co-issuer, jointly andseverally with the Partnership, of the Partnership’s $200 million 10¼% Senior Notes issued February 6, 2003, which are due in 2013. The SeniorNotes have a direct and unconditional guarantee by the Partnership. The Partnership is dependent on distributions from its subsidiaries to servicethe Partnership’s debt obligations. The distributions from the Partnership’s subsidiaries are not guaranteed and are subject to certain loanrestrictions. Star Gas Finance Company has nominal assets and conducts no business operations. The Partnership files annual, quarterly, current, other reports and other information with the SEC. These filings can be viewed and downloaded from theinternet at the SEC’s website at www.sec.gov. In addition, these SEC filings are available at no cost as soon as reasonably practicable after the filing thereofon the Partnership’s website at www.star-gas.com/Edgar.cfm. These reports are also available to be read and copied at the SEC’s public reference room locatedat Judiciary Plaza, 450 5th Street, N.W., Washington, D.C. 20549. You may also obtain copies of these filings and other information at the offices of the NewYork Stock Exchange located at 11 Wall Street, New York, New York 10005. 3 Table of ContentsSeasonality The Partnership’s fiscal year ends on September 30th. All references in this document are to fiscal years unless otherwise noted. The seasonal nature of thePartnership’s business results in the sale of approximately 30% of its volume in the first quarter (October through December) and 45% of its volume in thesecond quarter (January through March) of each year, the peak heating season, because propane, heating oil and natural gas are primarily used for spaceheating in residential and commercial buildings. The Partnership generally realizes net income in both of these quarters and net losses during the quartersending June and September. The Partnership typically has negative working capital at September 30, 2003 due to seasonality. In addition, sales volumetypically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors. Gross profit is not only affected byweather patterns but also by changes in customer mix. For example, sales to residential customers ordinarily generate higher margins than sales to othercustomer groups, such as commercial or agricultural customers. In addition, gross profit margins vary by geographic region. Accordingly, gross profit marginscould vary significantly from year to year in a period of identical sales volumes. Propane The propane segment is primarily engaged in the retail distribution of propane and related supplies and equipment to residential, commercial, industrial,agricultural and motor fuel customers. Customers are served from 123 branch locations and 126 satellite storage facilities in the Midwest, Northeast, Floridaand Georgia. In addition to its retail business, the segment also serves wholesale customers. Based on sales dollars, approximately 92% of propane sales wereto retail customers and approximately 8% were to wholesale customers. Retail sales have historically had a greater profit margin, more stable customer baseand less price sensitivity as compared to the wholesale business. Propane, also known as a liquid petroleum gas (lpg) ranks as the fourth most important source of residential heating in the United States, according to the U.S.Department of Energy - Energy Information Administration, 2001 Residential Energy Consumption Survey. Excluding propane gas grills, residential andcommercial demand accounts for approximately 45% of all propane used in the United States. Of the 106.9 million households in the United States, 9.3million households depend on propane for one use or another. Because 54% of these households rely on propane for their primary heating fuel, sales ofpropane are highly seasonal. Propane is most commonly used to provide energy to areas not serviced by the natural gas distribution system. Thus, it competesmainly with heating oil and electricity for space heating purposes. Residential customers are typically homeowners, while commercial customers includemotels, restaurants, retail stores and laundromats. Industrial users, such as manufacturers, use propane as a heating and energy source in manufacturing anddrying processes. In addition, propane is used to supply heat for drying crops and as a fuel source for certain vehicles. Propane is extracted from natural gas at processing plants or separated from crude oil during the refining process. It is normally transported and stored in aliquid state under moderate pressure or refrigeration for ease of handling in shipping and distribution. When the pressure is released or the temperature isincreased, propane is usable as a flammable gas. Propane is colorless and odorless; an odorant is added to allow its detection. Home Heating Oil Home heating oil customers are served from 35 branch/depot locations in the Northeast and Mid-Atlantic regions, from which the heating oil segmentdelivers heating oil and other petroleum products and installs and repairs heating equipment 24 hours a day, seven days a week, 52 weeks a year, generallywithin four hours of request. These services are an integral part of its basic heating oil business, and are designed to maximize customer satisfaction andloyalty. In 2003, the heating oil segment’s sales were derived of approximately 76% from sales of home heating oil; 15% from the installation and repair ofheating and air conditioning equipment; and 9% from the sale of other petroleum products, including diesel fuel and gasoline, to commercial customers. Infiscal 2003, sales to residential customers represented 83% of the retail heating oil gallons sold and 91% of heating oil gross profits. Heating oil can be used for residential and commercial heating purposes, and it is the predominant source of fuel used to heat business and residences in theNew England and Mid Atlantic states. According to the U.S. Department of Energy - Energy Information Administration, 2001 Residential EnergyConsumption Survey, these regions account for approximately 77% of the households in the United States where heating oil is the main space-heating fuel.Approximately 31% of the homes in the region use heating oil as its main space-heating fuel. In recent years, demand for home heating oil has been affectedby conservation efforts and conversions to natural gas. In addition, as the number of new homes that use oil heat has not been significant, there has beenvirtually no increase in the customer base due to housing starts. 4 Table of ContentsNatural Gas and Electricity The Partnership is an independent reseller of natural gas and electricity to households and small commercial customers in deregulated markets. In the marketsin which TG&E operates, natural gas and electricity are available from wholesalers. Substantially all of TG&E’s natural gas purchases were from majorwholesalers in fiscal 2003. Natural gas is transported to the local utility, through purchased or assigned capacity on pipelines. In fiscal 2003, all of TG&E’selectricity requirements were purchased at market from the New York Independent System Operator which delivers the electricity to the local utilitycompany. The utility then delivers the gas and electricity to TG&E customers using their distribution system. The utility and TG&E coordinate delivery andbilling, and also compete to sell natural gas and electricity to the ultimate consumer. Generally, TG&E pays the local utility a charge to provide certaincustomer related services like billing. Customers pay a separate delivery charge to the utility for bringing the natural gas or electricity from the customer’schosen supplier. In the case of all but three of the utilities where TG&E currently sells energy, TG&E and the local utility charges are itemized on onecustomer energy bill generated by the utility. For the remaining utilities, TG&E bills its customers directly. Industry Characteristics The retail propane and home heating oil industries are both mature, with total demand expected to remain relatively flat or to decline slightly. ThePartnership believes that these industries are relatively stable and predictable due to the largely non-discretionary nature of propane and home heating oiluse. Accordingly, the demand for propane and home heating oil has historically been relatively unaffected by general economic conditions but has been afunction of weather conditions. It is common practice in both the propane and home heating oil distribution industries to price products to customers basedon a per gallon margin over wholesale costs. As a result, distributors generally seek to maintain their margins by passing wholesale costs through tocustomers, thus insulating themselves from the volatility in wholesale heating oil and propane prices. However, during periods of sharp price fluctuations insupply costs, distributors may be unable or unwilling to pass entire product cost increases or decreases through to customers. In these cases, significantincreases or decreases in per gallon margins may result. In addition, the timing of cost pass-throughs can significantly affect margins. The propane and homeheating oil distribution industries are highly fragmented, characterized by a large number of relatively small, independently owned and operated localdistributors. Each year a significant number of these local distributors have sought to sell their business for reasons that include retirement and estateplanning. In addition, the propane and heating oil distribution industries are becoming more complex due to increasing environmental regulations andescalating capital requirements needed to acquire advanced, customer oriented technologies. Primarily as a result of these factors, both industries areundergoing consolidation, and the propane segment and the heating oil segment have been active consolidators in each of their markets. In regard to the Partnership’s natural gas and electricity reselling segment, historically the local utility provided its customers with all three aspects of electricand natural gas service: generation or production, transmission and distribution of natural gas and electricity. However, under deregulation, state PublicUtility Commissions throughout the country are licensing energy service companies (“ESCOs”), such as TG&E, to be approved as alternative suppliers of thecommodity portion to end-users. ESCOs will provide the “generation” function, supplying electricity to specific delivery points. ESCOs are essentially the“producers” of the electricity. ESCOs also act as natural gas distributors, as they bring natural gas to the local utility for redistribution on the utility system tothe ultimate end-user, the customer. The local utility companies will continue to provide the “distribution” function, acting as the distributor of theelectricity and natural gas. Restructuring (commonly called deregulation) means that consumers now have the option to select a new provider for thecommodity portion of their bill - a new supplier of electricity or natural gas. ESCOs are often able to supply electricity or natural gas to end users at discountswhen compared to what is paid to the current local utility. Business Strategy The Partnership’s primary objective is to increase cash flow on a per unit basis. The Partnership pursues this objective principally through (i) the pursuit ofstrategic acquisitions which capitalize on the Partnership’s acquisition expertise in the highly fragmented propane and home heating oil distributionindustries, (ii) the realization of operating efficiencies in existing and acquired operations, (iii) a focus on retention and potential customer growth, (iv) thecontinued enhancement in public awareness of the Partnership’s quality brands and (v) the sale of rationally related products. As a leading retail distributor of propane and heating oil in the United States, the Partnership is able to realize economies of scale in operating, marketing,information technology and other areas by spreading costs over a larger customer base. Additionally, the heating oil segment is using communication andcomputer technology that is generally not used by its competitors, hopefully will allow it to realize operating efficiencies. Recent Acquisitions In fiscal 2003, the Partnership completed the purchase of three retail heating oil dealers for $35.9 million and seven retail propane dealers for $48.5 million. 5 Table of ContentsPropane Segment Operations Retail propane operations are located in the following states: Connecticut Indiana (continued) Michigan New York PennsylvaniaStamford Nashville Big Rapids Addison HazletonSouth Windsor New Salisbury Charlotte Bridgehampton Mansfield N. Manchester Chassell Corith Mt. PoconoFlorida Portland Coleman Granville Wind GapBronson Remington Germfask Penn Yan Chiefland Richmond Gwinn Poughkeepsie Rhode IslandCrystal River Rushville Mattawan Ticonderoga DavisvilleHigh Springs Seymour Munising Washingtonville Kissimmee Sulphur Springs Osseo VermontMelbourne Versailles Owosso Ohio BenningtonNew Smyrna Beach Warren Somerset Center Bowling Green Manchester CenterPompano Beach Waterloo Columbiana Middlebury Winamac Minnesota Columbus MontpelierGeorgia Caledonia Defiance MorrisvilleBlakely Kentucky Deshler St. Albans Dry Ridge New Hampshire Dover White River JunctionIllinois Glencoe Berlin Fairfield Scales Mound Prospect Brentwood Hebron West Virginia Shelbyville Ossipee Ironton (from Ironton, OH)Indiana Jamestown Batesville Maine New Jersey Kenton WisconsinBedford Fairfield Bridgeton Lancaster Black River FallsBluffton Fryeburg Maple Shade Lewisburg ChetekColumbia City Wells Pleasantville Lynchburg Eau ClaireDecatur Windham Woodbine Maumee La CrosseFerdinand Mt. Orab MaustonGreencastle Massachusetts Mt. Vernon MinocquaJeffersonville Belchertown North Star MondoviLawrence Rochdale Ripley OwenLiberty Westfield Sabina Richland CentreLinton Springfield Waverly Shell LakeMadison Swansea West Union Winchester In addition to selling propane, the segment also sells and installs propane equipment, including heating and cooking appliances. Several locations sellbottled water and sell or lease water conditioning equipment. Typical branch locations consist of an office, an appliance showroom and a warehouse andservice facility, with one or more 12,000 to 30,000 gallon bulk storage tanks. Satellite facilities typically contain only storage tanks. The distribution ofpropane at the retail level for the most part involves large numbers of small deliveries averaging 100 to 150 gallons to each customer. Retail deliveries ofpropane are usually made to customers by means of the propane segment’s fleet of bobtail and rack trucks. Currently the propane segment has 704 bobtail and rack trucks. Propane is pumped from a bobtail truck, which generally holds 2,000 to 3,000 gallons, into astorage tank at the customer’s premises. The capacity of these tanks ranges from approximately 24 gallons to approximately 1,000 gallons. The propanesegment also delivers propane to retail customers in portable cylinders, which typically are picked up and replenished at distribution locations, then returnedto the retail customer. To a limited extent, the propane segment also delivers propane to certain end-users of propane in larger trucks known as transports.These trucks have an average capacity of approximately 9,000 gallons. End-users receiving transport deliveries include industrial customers, large-scaleheating accounts, such as local gas utilities that use propane as a supplemental fuel to meet peak demand requirements, and large agricultural accounts thatuse propane for crop drying and space heating. 6 Table of ContentsCustomers During the last fiscal year, the propane segment’s residential volume, excluding the impact of volume obtained through acquisitions, decreased 2.5% due towhat the Partnership believes was a combination of attrition and consumer conservation. However, the propane segment has continued to grow throughacquisitions and it completed seven acquisitions with approximately 55,000 customers and total annual volumes of 56 million gallons during fiscal 2003.Approximately 72% of the propane segment’s retail sales are made to residential customers and 28% of retail sales are made to commercial and agriculturalcustomers. Sales to residential customers in 2003 accounted for approximately 77% of propane gross profit on propane sales, reflecting the higher-margins ofthis segment of the market. In excess of 95% of the residential propane customers lease their tanks from the propane segment. In most states, due to fire safetyregulations, a leased tank may only be refilled by the propane distributor that owns that tank. The inconvenience associated with switching tanks greatlyreduces a propane customer’s tendency to change distributors. Over half of the propane segment’s residential customers receive their propane supply under anautomatic delivery system. The amount delivered is based on weather and historical consumption patterns. Thus, the automatic delivery system eliminatesthe customer’s need to make an affirmative purchase decision. The propane segment provides emergency service 24 hours a day, seven days a week, 52 weeksa year. Competition The propane industry is highly competitive; however, long-standing customer relationships are typical of the retail propane industry. The ability to competeeffectively within the propane industry depends on the reliability of service, responsiveness to customers and the ability to maintain competitive prices. Thepropane segment believes that its superior service capabilities and customer responsiveness differentiates it from many of its competitors. Branch operationsoffer emergency service 24 hours a day, seven days a week, 52 weeks a year. Competition in the propane industry is highly fragmented and generally occurson a local basis with other large full-service multi-state propane marketers, smaller local independent marketers and farm cooperatives. According to LP GasMagazine – February 2002, the ten largest multi-state marketers, including the Partnership’s propane segment, account for approximately 37% of the totalretail sales of propane in the United States, and no single marketer has a greater than 10% share of the total retail market in the United States. Most of thepropane segment’s branches compete with five or more marketers or distributors. The principal factors influencing competition among propane marketers areprice and service. Each branch operates in its own competitive environment. While retail marketers locate in close proximity to customers to lower the cost ofproviding delivery and service, the typical retail distribution outlet has an effective marketing radius of approximately 35 miles. In addition, propane competes primarily with electricity, natural gas and fuel oil as an energy source on the basis of price, availability and portability. Incertain parts of the country, propane is generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking. Propaneis generally more expensive than natural gas, but serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable orportability of product is required. The expansion of natural gas into traditional propane markets has historically been inhibited by the capital costs requiredto expand distribution and pipeline systems. Although the extension of natural gas pipelines tends to displace propane distribution in the areas affected, thePartnership believes that new opportunities for propane sales arise as more geographically remote areas are developed. Although propane is similar to fuel oilin space heating and water heating applications, as well as in market demand and price, propane and fuel oil have generally developed their own distinctgeographic markets. Because furnaces that burn propane will not operate on fuel oil, a conversion from one fuel to the other requires the installation of newequipment. 7 Table of ContentsHome Heating Oil Segment Operations The Partnership’s heating oil segment serves over 535,000 customers in the Northeast and Mid-Atlantic states. In addition to selling home heating oil, theheating oil segment installs and repairs heating and air conditioning equipment. To a limited extent, it also markets other petroleum products. During thetwelve months ended September 30, 2003, the total sales in the heating oil segment were comprised of approximately 76% from sales of home heating oil;15% from the installation and repair of heating equipment; and 9% from the sale of other petroleum products. The heating oil segment provides homeheating equipment repair service 24 hours a day, seven days a week, 52 weeks a year, generally within four hours of a request. It also regularly providesvarious service incentives to obtain and retain customers. The heating oil segment is consolidating its operations under two brand names, which it is buildingby employing an upgraded sales force, together with a professionally developed marketing campaign, including radio and print advertising media. Theheating oil segment has a nationwide toll free telephone number, 1-800-OIL-HEAT, which it believes helps build customer awareness and brand identity. The heating oil segment is seeking to take advantage of its large size and to utilize modern technology to increase the efficiency and quality of servicesprovided to its customers. The segment is seeking to create a more customer oriented service approach to significantly differentiate itself from its competitors.A core business process redesign project began in fiscal 2002 with an exhaustive effort to identify customer expectations and document existing businessprocesses. These findings led to a conclusion that improved processes, consolidation of operations, technology investments and selective outsourcing couldhave a meaningful impact on improving customer services while reducing annual operating costs. The Partnership believes technology can improve the efficiency and quality of services provided to its heating oil customers. The heating oil segment hasnow deployed second generation hand-held devices for the automation of its service workforce. These wireless hand held data terminals allow service andinstallation professionals on demand access to customer repair history, data to provide instant part and repair quotations, and the ability to invoice at thecompletion of service. Consolidation of certain heating oil operational activities have been undertaken to create operating efficiencies and cost savings. Service technicians arebeing dispatched from two consolidated locations rather than 27 local offices. Oil delivery is now being managed from 11 regional locations rather than 27local offices. The organization continues to adjust to these significant operational changes. A transition to outsourcing in the area of customer relationship management has been undertaken as both a customer satisfaction and a cost reductionstrategy. The Partnership believes outsourcing customer inquiries can improve performance and leverage the technology to eliminate system redundancyavailable from third party service organizations. In addition, an outsourcing partner has greater flexibility to manage extreme seasonal volume. Significantchallenges remain with this dramatic transition. The complexity of customer interactions combined with the Partnership’s goal for service excellence has ledto protracted training efforts. The heating oil segment has begun introducing call based technology enhancements including capabilities for customerinquiries via automated interactive telephone response and the web. While the physical transition is largely complete, the Partnership anticipates thatsupplementary training and support will be required through the 2003 - 2004 heating season. The heating oil segment operates and markets in the following states: New York Massachusetts New JerseyBronx, Queens and Kings Counties Boston (Metropolitan) CamdenDutchess County Northeastern Massachusetts LakewoodStaten Island (Centered in Lawrence) Newark (Metropolitan)Eastern Long Island Worcester North BrunswickWestern Long Island RockawayWestchester/Putnam Counties Pennsylvania TrentonOrange County Allenstown Berks County Rhode IslandConnecticut Bucks County ProvidenceBridgeport—New Haven Harrisburg County NewportFairfield County Lancaster County Litchfield County Lebanon County Maryland/Virginia/D.C. Philadelphia Arlington York County Baltimore Washington, D.C. (Metropolitan) 8 Table of ContentsCustomers During the twelve months ended September 30, 2003, approximately 86% of the heating oil segment’s heating oil sales were made to homeowners, with theremainder to industrial, commercial and institutional customers. Over the last three fiscal years, the heating oil segment experienced average annual attritionof 1.3%, excluding the impact of acquisitions. Customer losses are the result of various factors, including customer relocation, price, natural gas conversionsand credit problems. Customer gains are a result of marketing and service programs. While the heating oil segment often loses customers when they movefrom their homes, it is able to retain a majority of these homes by obtaining the purchaser as a customer. Approximately 90% of the heating oil customersreceive their home heating oil under an automatic delivery system without the customer having to make an affirmative purchase decision. These deliveriesare scheduled by computer, based upon each customer’s historical consumption patterns and prevailing weather conditions. The heating oil segment delivershome heating oil approximately six times during the year to the average customer. The segment’s practice is to bill customers promptly after delivery.Approximately 34% of its customers are on a budget payment plan, whereby their estimated annual oil purchases and service contract are paid for in a seriesof equal monthly payments over a twelve month period. On September 30, 2003, approximately 40% of the heating oil customers had agreements establishing a fixed or maximum price per gallon over a twelvemonth period, as compared to 17% on September 30, 2002. This percentage could increase or decrease during fiscal 2004 based upon market conditions. Thefixed or maximum price at which home heating oil is sold to these price plan customers is generally renegotiated based on current market conditions at thebeginning of each heating season. The segment currently enters into derivative instruments (futures, options, collars and swaps) covering a substantialmajority of the heating oil it expects to sell to these price plan customers in advance and at a fixed cost. Should events occur after a price plan customer’sprice is established that increases the cost of home heating oil above the amount anticipated, margins for the price plan customers whose heating oil was notpurchased in advance would be lower than expected, while those customers whose heating oil was purchased in advance would be unaffected. Conversely,should events occur during this period that decrease the cost of heating oil below the amount anticipated, margins for the price plan customers whose heatingoil was purchased in advance could be lower than expected, while those customers whose heating oil was not purchased in advance would be unaffected orhigher than expected. Competition The heating oil segment competes with distributors offering a broad range of services and prices, from full service distributors, like itself, to those offeringdelivery only. Long-standing customer relationships are typical in the industry. Like most companies in the home heating oil business, the heating oilsegment provides home heating equipment repair service on a 24-hour a day basis. This tends to build customer loyalty. As a result of these factors, it isdifficult for the heating oil segment to acquire new retail customers, other than through acquisitions. In some instances homeowners have formed buyingcooperatives that seek to purchase fuel oil from distributors at a price lower than individual customers are otherwise able to obtain. The heating oil segmentalso competes for retail customers with suppliers of alternative energy products, principally natural gas, propane, and electricity. The rate of conversion fromthe use of home heating oil to natural gas is primarily affected by the relative prices of the two products and the cost of replacing an oil fired heating systemwith one that uses natural gas. The heating oil segment believes that approximately 1% of its home heating oil customer base annually converts from homeheating oil to natural gas. 9 Table of ContentsNatural Gas and Electricity Operations The Partnership’s natural gas and electricity segment serves over 64,000 residential customers in four states. In fiscal 2003, the sales were comprised of 85%from sales of approximately 89.0 million therms of natural gas and 15% from sales of approximately 135 million kilowatts of electricity. The business strategy of TG&E is to expand its market share by concentrating on obtaining new natural gas customers in areas where it believes they will beprofitable and stable. Customers TG&E currently sells energy in the following utility areas: New York New Jersey Maryland FloridaKeySpan PSE&G BG&E City GasCon Edison New Jersey Natural Peoples GasOrange & Rockland South Jersey National Fuel Elizabethtown Niagara Mohawk At September 30, 2003, approximately 95% of TG&E’s customers were residential households, and the remaining 5% were industrial and commercialcustomers. New accounts are obtained through the utilization of third party telemarketing firms on a commission basis. Approximately 45% of TG&E’scustomers are on a budget plan, whereby their estimated purchases are paid for in a series of equal monthly payments over a twelve month period. Competition TG&E’s primary competition is with local utility companies. In most markets, however, the utility is indifferent as to whether a customer buys from anindependent reseller in that the utility tariff structure is commodity neutral. The utility makes its money by transporting the commodity and not from the saleof the commodity. Other competitors fall into two distinct categories; national or local marketing companies. National marketing companies are generallypipeline, producer or utility subsidiaries. These companies have mainly focused their attention on large commercial and industrial customers. Localcompanies typically only service one or two utility markets. 10 Table of ContentsSuppliers and Supply Arrangements Propane Segment The propane segment obtains propane from over 30 sources, all of which are domestic or Canadian companies, including BP Canada Energy MarketingCorp., Dawson Oil Company LTD., Duke Energy NGL Services, LP, Dynegy Inc., Enterprise Products Partners, Kinetic Resources, U.S.A., Marathon OilCompany, Markwest Hydrocarbons, Transammonia Inc. and Vanguard Petroleum Corporation. Supplies from these sources have traditionally been readilyavailable, although there is no assurance that supplies of propane will continue to be readily available. The majority of the propane supply is purchased under annual or longer term supply contracts that generally provide for pricing in accordance with marketprices at the time of delivery. Some of the contracts provide for minimum and maximum amounts of propane to be purchased. The product supplied for thecontracts come from refineries, gas processing plants and bulk purchases at the Mont Belvieu trading and storage complex. The bulk purchases at MontBelvieu are physically moved through the TEPPCO Partners, L.P. pipeline system, to both the Seymour underground storage facility, which the Partnershipowns and leases to TEPPCO Partners, L.P. in southern Indiana, and north into the Pennsylvania and New York area to supplement purchases made by thesegment in the Northeast area. This lease agreement provides the propane segment the ability to store at all times throughout the terms of this agreement 21million gallons of product storage or approximately 8% of the propane segments annual supply requirements, along the TEPPCO Partners, L.P. pipelinesystem. The Seymour facility is located on the TEPPCO Partners, L.P. pipeline system. The pipeline is connected to the Mont Belvieu, Texas storage facilitiesand is one of the largest conduits of supply for the U.S. propane industry. The Partnership believes that its diversification of suppliers will enable it topurchase all of its supply needs at market prices if supplies are interrupted from any of these sources without a material disruption of its operations. ThePartnership also believes that relations with its current suppliers are satisfactory. The financial hedging instruments of Star Gas Propane are limited to major companies such as Kinetics Resources USA and Morgan Stanley Capital GroupInc. The propane segment is able to effectively hedge, when required, without incurring significant basis risk since the majority of the contracted price ofproduct and the financial instruments the propane segment uses are tied to the Mont Belvieu index. Heating Oil Segment The heating oil segment obtains fuel oil in either barge, pipeline, or truckload quantities, and has contracts with over 80 terminals for the right to temporarilystore heating oil at facilities it does not own. Purchases are made under supply contracts or on the spot market. The home heating oil segment has marketprice based contracts for a majority of its petroleum requirements with 12 different suppliers, the majority of which have significant domestic sources for theirproduct, and many of which have been suppliers for over 10 years. The segment’s current suppliers are: Amerada Hess Corporation, BP North AmericaPetroleum Corp., Cargill Inc. Petroleum Trading, Citgo Petroleum Corp., Exxon / Mobil Oil Corporation, George E. Warren Corp., Global Companies, LLC,Mieco, Inc., Morgan Stanley Capital Group, Inc., Northville Industries, Sprague Energy and Sun Oil Company. Supply contracts typically have terms of 12months. All of the supply contracts provide for maximum and in some cases minimum quantities. In most cases the supply contracts do not establish inadvance the price of fuel oil. This price, like the price to most of its home heating oil customers, is based upon market prices at the time of delivery. ThePartnership believes that its policy of contracting for substantially all of its supply needs with diverse and reliable sources will enable it to obtain sufficientproduct should unforeseen shortages develop in worldwide supplies. The Partnership also believes that relations with its current suppliers are satisfactory. Natural Gas and Electricity Reseller Segment The TG&E segment purchases natural gas at either the well-head, the pipeline pooling point or delivered to the city gate. Purchases are at market basedpricing. The segment’s current natural gas supplier is Sempra Energy Trading Corp. All of the segment’s electricity requirements are currently purchased atmarket from New York Independent System Operator. 11 Table of ContentsEmployees As of September 30, 2003, the propane segment had 1,209 full-time employees, of whom 56 were employed by the corporate office and 1,153 were located inbranch offices. Of these 1,153 branch employees, 439 were managerial and administrative; 489 were engaged in transportation and storage and 225 wereengaged in field servicing. Approximately 137 of the segment’s employees are represented by seven different local chapters of labor unions. Managementbelieves that its relations with both its union and non-union employees are satisfactory. As of September 30, 2003, the home heating oil segment had 3,127 employees, of whom 833 were office, clerical and customer service personnel; 1,146 wereheating equipment repairmen; 439 were oil truck drivers and mechanics; 369 were management and staff and 340 were employed in sales. In addition,approximately 419 seasonal employees are rehired annually to support the requirements of the heating season. Included within the heating oil segment’semployees are approximately 955 employees, that are represented by 17 different local chapters of labor unions. Management believes that its relations withboth its union and non-union employees are satisfactory. As of September 30, 2003, the TG&E segment had 24 employees, of whom 14 were office, clerical and customer service personnel and 10 were management.Management believes that its relations with its employees is satisfactory. Government Regulations The Partnership is subject to various federal, state and local environmental, health and safety laws and regulations. Generally, these laws impose limitationson the discharge of pollutants and establish standards for the handling of solid and hazardous wastes. These laws include the Resource Conservation andRecovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Clean Air Act, the Occupational Safety andHealth Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes. CERCLA, also known as the“Superfund” law, imposes joint and several liabilities without regard to fault or the legality of the original conduct on certain classes of persons that areconsidered to have contributed to the release or threatened release of a hazardous substance into the environment. Heating oils and certain automotive wasteproducts generated by the Partnership’s fleet are hazardous substances within the meaning of CERCLA. These laws and regulations could result in civil orcriminal penalties in cases of non-compliance or impose liability for remediation costs. The heating oil segment is currently a named “potentially responsibleparty” in two CERCLA civil enforcement actions. Star Gas has agreed to de minimus settlements in one of the two actions for approximately $0.1 million.The remaining action is in its early stages of litigation with preliminary discovery activities taking place. The Partnership believes that both of these actionswill have no material impact on its financial condition or results of operations. Propane is not considered a hazardous substance within the meaning ofCERCLA. National Fire Protection Association Pamphlets No. 54 and 58, which establish rules and procedures governing the safe handling of propane, or comparableregulations, have been adopted as the industry standard in all of the states in which the Partnership operates. In some states these laws are administered bystate agencies, and in others they are administered on a municipal level. With respect to the transportation of heating oils, gasoline and propane by truck, thePartnership is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardousmaterials and are administered by the United States Department of Transportation. The Partnership conducts ongoing training programs to help ensure that itsoperations are in compliance with applicable regulations. The Partnership maintains various permits that are necessary to operate some of its facilities, someof which may be material to its operations. The Partnership believes that the procedures currently in effect at all of its facilities for the handling, storage anddistribution of propane are consistent with industry standards and are in compliance in all material respects with applicable laws and regulations. For acquisitions that involve the purchase or leasing of real estate, the Partnership conducts a due diligence investigation to attempt to determine whetherany regulated substance has been sold from or stored on, 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 duediligence the Partnership’s employees, and, in certain cases, independent environmental consulting firms review historical records and databases and conductphysical investigations of the property to look for evidence of hazardous substances, compliance violations and the existence of underground storage tanks. 12 Table of ContentsFuture developments, such as stricter environmental, health or safety laws and regulations thereunder, could affect Partnership operations. It is not anticipatedthat the Partnership’s compliance with or liabilities under environmental, health and safety laws and regulations, including CERCLA, will have a materialadverse effect on the Partnership. To the extent that there are any environmental liabilities unknown to the Partnership or environmental, health or safety lawsor regulations are made more stringent, there can be no assurance that the Partnership’s results of operations will not be materially and adversely affected. Total Gas & Electric is an authorized supplier of electric and/or gas in the states of New York, New Jersey, Maryland and Florida, which allow consumers tochoose their electric and/or gas supplier. TG&E is either licensed and/or registered to serve as a supplier in each state. The incumbent utility continues toserve as the local distribution company, which delivers the commodity, and in most cases continues to send customers their monthly invoices for the energydelivered. However, TG&E offers an alternative to the commodity portion of the consumers bill. As an alternative supplier, TG&E is subject to oversight bystate public utility commissions, including licensing or registration requirements, information regarding rates and conditions of service, and in someinstances annual filing requirements regarding numbers of customers, numbers of complaints, energy portfolio components, and other information relative tothe company’s conduct of operations. Total Gas & Electric has adopted a comprehensive sales compliance program to comply with applicable regulations. 13 Table of Contents ITEM 2. PROPERTIES Propane Segment As of September 30, 2003, the propane segment owned 98 of its 123 branch locations and 92 of its 126 satellite storage facilities and leased the balance. Inaddition, it owns a facility in Seymour Indiana, in which it stores propane for itself and third parties. The propane segment leases its corporate headquarters inStamford, Connecticut. The transportation of propane requires specialized trucks which carry specialized steel tanks that maintain the propane in a liquefied state. As of September30, 2003, Star Gas Propane had a fleet of 9 tractors, 35 transport trailers, 704 bobtail and rack trucks and 572 other service and pick-up trucks, the majority ofwhich are owned. As of September 30, 2003, the propane segment owned or leased 385 bulk storage tanks with typical capacities of 12,000 to 30,000 gallons the majority ofwhich are owned; approximately 365,000 stationary customer storage tanks with typical capacities of 24 to 1,000 gallons; and 40,000 portable propanecylinders with typical capacities of 5 to 24 gallons. The propane segment’s obligations under its borrowings are secured by liens and mortgages on all of itsreal and personal property. Heating Oil Segment The heating oil segment provides services to its customers from 35 branches/depots and 38 satellites, 30 of which are owned and 43 of which are leased, in 32marketing areas in the Northeast and Mid-Atlantic Regions of the United States. The heating oil segment leases its corporate headquarters in Stamford,Connecticut. As of September 30, 2003, the heating oil segment had a fleet of 1,737 truck and transport vehicles the majority of which are owned and 843services vans the majority of which are leased. The heating oil segment’s obligations under its borrowings are secured by liens and mortgages on most of itsreal and personal property. TG&E Segment The natural gas and electric reseller segment provides services to its customers from its Matawan, New Jersey corporate headquarters which is leased. Thissegment does not have any vehicles. The Partnership believes its existing facilities are maintained in good condition and are suitable and adequate for its present needs. In addition, there arenumerous comparable facilities available at similar rentals in each of its marketing areas should they be required. ITEM 3. LEGAL PROCEEDINGS - LITIGATION Litigation The Partnership’s operations are subject to all operating hazards and risks normally incidental to handling, storing and transporting and otherwise providingfor use by consumers of combustible liquids such as propane and home heating oil. As a result, at any given time the Partnership is a defendant in variouslegal proceedings and litigation arising in the ordinary course of business. The Partnership maintains insurance policies with insurers in amounts and withcoverages and deductibles as the general partner believes are reasonable and prudent. However, the Partnership cannot assure that this insurance will beadequate to protect it from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will beavailable 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 thePartnership’s products. In the opinion of management, the Partnership is not a party to any litigation, which individually or in the aggregate could reasonablybe expected to have a material adverse effect on the Partnership’s results of operations, financial position or liquidity. 14 Table of Contents ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Partnership held a special meeting of the holders of its common units, senior subordinated units and junior subordinated units on July 25, 2003. Thefollowing matters were voted on and approved at the special meeting and received the votes set forth below, in each case representing a majority of the voteseligible to be cast: (1)A proposal to amend the Partnership Agreement to permit the Partnership to issue an unlimited number of common units or units ranking on a paritywith common units if the proceeds from such issuances are used to repay the Partnership’s long term indebtedness including indebtedness of thePartnership’s direct and indirect subsidiaries. Common Units (not held by the General Partner or its affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining14,895,989 2,173,860 423,832 Senior Subordinated Units and Junior Subordinated Units (not held by the General Partner or its affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining2,228,048 85,201 17,699 (2)A proposal to amend the Partnership Agreement to permit the Partnership to issue an unlimited number of common units or units ranking on a paritywith common units if the proceeds from such issuances are used to acquire capital assets in a transaction approved by the Partnership’s generalpartner’s independent directors. Common Units (not held by the General Partner or affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining14,821,659 2,218,556 453,463 Senior Subordinated Units and Junior Subordinated Units (not held by the General Partner or its affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining2,184,586 87,694 58,668 (3)A proposal to amend the Partnership Agreement to permit the Partnership to issue up to 3,000,000 additional common units or units ranking on a paritywith common units for general partnership purposes. Common Units (not held by the General Partner or its affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining25,177,146 2,777,468 551,866 Senior Subordinated Units and Junior Subordinated Units (not held by the General Partner or its affiliates): Number ofVotes inFavor Number ofVotes inAgainst Number ofVotes inAbstaining2,713,910 204,341 21,248 15 Table of ContentsPART II ITEM 5. MARKET FOR REGISTRANT’S UNITS AND RELATED MATTERS The common units, representing common limited partner interests in the Partnership, are listed and traded on the New York Stock Exchange, Inc. (“NYSE”)under the symbol “SGU”. The common units began trading on the NYSE on May 29, 1998. Previously, the common units had traded on the NASDAQNational Market under the symbol “SGASZ.” The Partnership’s senior subordinated units began trading on the NYSE on March 29, 1999 under the symbol “SGH.” The Senior Subordinated Units becameeligible to receive distributions in February 2000, and the first distribution was made in August 2000. The following tables set forth the high and low closingprice ranges for the common and senior subordinated units and the cash distribution declared on each unit for the fiscal 2002 and 2003 quarters indicated. SGU - Common Unit Price Range Distributions High Low Declared Per UnitQuarter Ended FiscalYear2002 FiscalYear2003 FiscalYear2002 FiscalYear2003 FiscalYear2002 FiscalYear2003December 31, $21.99 $18.81 $19.41 $16.65 $0.575 $0.575March 31, $21.53 $20.75 $17.94 $18.75 $0.575 $0.575June 30, $19.95 $22.79 $18.38 $19.00 $0.575 $0.575September 30, $18.42 $22.97 $14.85 $20.91 $0.575 $0.575 SGH - Senior Subordinated UnitPrice Range Distributions High Low Declared Per UnitQuarter Ended FiscalYear2002 FiscalYear2003 FiscalYear2002 FiscalYear2003 FiscalYear2002 FiscalYear2003December 31, $24.10 $13.94 $17.85 $9.90 $0.575 $0.250March 31, $20.20 $15.35 $9.80 $12.35 $0.575 $0.250June 30, $13.90 $19.50 $10.35 $13.67 $0.250 $0.575September 30, $10.55 $20.90 $8.60 $18.55 $0.250 $0.575 As of September 30, 2003, there were approximately 887 holders of record of common units, and approximately 124 holders of record of senior subordinatedunits. There is no established public trading market for the Partnership’s 345,364 Junior Subordinated Units and 325,729 general partner units, and 100 commonshares of Star Gas Finance Company. In general, the Partnership distributes to its partners on a quarterly basis, all of its Available Cash in the manner described below. Available Cash is definedfor any of the Partnership’s fiscal quarters, as all cash on hand at the end of that quarter, less the amount of cash reserves that are necessary or appropriate inthe reasonable discretion of the general partner to (i) provide for the proper conduct of the business; (ii) comply with applicable law, any of its debtinstruments or other agreements; or (iii) provide funds for distributions to the common unitholders and the senior subordinated unitholders during the nextfour quarters, in some circumstances. The general partner may not establish cash reserves for distributions to the senior subordinated units unless the general partner has determined that theestablishment of reserves will not prevent it from distributing the minimum quarterly distribution on any common unit arrearages and for the next fourquarters. The full definition of Available Cash is set forth in the Agreement of Limited Partnership of the Partnership. The information concerning restrictionson distributions required in this section is incorporated herein by reference to the Partnership’s Consolidated Financial Statements, which begin on page F-1of this Form 10-K. 16 Table of Contents ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA The following table sets forth selected historical and other data of the Partnership and should be read in conjunction with the more detailed financialstatements included elsewhere in this report. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Selected Financial Data is derived from the financial information of the Partnership and should be read in conjunction therewith. Fiscal Year Ended September 30, (in thousands, except per unit data) 1999(c)(d) 2000(d) 2001(d) 2002(d) 2003 Statement of Operations Data: Sales $224,020 $744,664 $1,085,973 $1,025,058 $1,463,748 Costs and expenses: Cost of sales 131,649 501,589 771,317 661,978 1,010,347 Delivery and branch expenses 86,489 156,862 200,059 235,708 293,523 General and administrative expenses 11,717 22,593 40,954 41,999 58,111 Depreciation and amortization expenses 22,713 34,708 44,396 59,049 53,160 Operating income (loss) (28,548) 28,912 29,247 26,324 48,607 Interest expense, net 15,435 26,784 33,727 37,502 40,581 Amortization of debt issuance costs 347 534 737 1,447 2,232 Loss on redemption of debt — — — — 181 Income (loss) before income taxes, minority interest andcumulative effect of change in accounting principle (44,330) 1,594 (5,217) (12,625) 5,613 Minority interest in net loss of TG&E — 251 — — — Income tax expense (benefit) (14,780) 492 1,498 (1,456) 1,500 Income (loss) before cumulative change in accounting principle (29,550) 1,353 (6,715) (11,169) 4,113 Cumulative effect of change in accounting principles: Adoption of SFAS No. 133, net of income taxes — — 1,466 — — Adoption of SFAS No. 142, net of income taxes — — — — (3,901) Net income (loss) $(29,550) $1,353 $(5,249) $(11,169) $212 Weighted average number of limited partner units: Basic 11,447 18,288 22,439 28,790 32,659 Diluted 11,447 18,288 22,439 28,790 32,767 Per Unit Data: Basic and diluted net income (loss) per unit (a) $(2.53) $0.07 $(0.23) $(0.38) $0.01 Cash distribution declared per common unit $2.25 $2.30 $2.30 $2.30 $2.30 Cash distribution declared per senior sub. unit $— $0.25 $1.975 $1.65 $1.65 Balance Sheet Data (end of period): Current assets $86,868 $126,990 $185,262 $222,201 $211,109 Total assets 539,344 618,976 898,819 943,766 975,610 Long-term debt 276,638 310,414 457,086 396,733 499,341 Partners’ Capital 150,176 139,178 198,264 232,264 189,776 Summary Cash Flow Data: Net Cash provided by operating activities $10,795 $20,364 $63,144 $65,455 $57,221 Net Cash used in investing activities (2,977) (65,172) (256,134) (62,412) (101,157)Net Cash provided by (used in) financing activities (4,441) 51,226 199,308 41,210 (7,434)Other Data: Earnings (loss) before interest, taxes, depreciation andamortization (EBITDA) (b) $(5,835) $63,871 $75,109 $85,373 $97,685 Retail propane gallons sold 99,457 107,557 137,031 140,324 166,768 Heating oil gallons sold 74,039 345,684 427,168 457,749 567,024 17 Table of ContentsITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA (Continued) (a)Net income (loss) per unit is computed by dividing the limited partners’ interest in net income (loss) by the weighted average number of limited partnerunits outstanding. (b)EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as ameasure of liquidity or ability to service debt obligations), but provides additional information for evaluating the Partnership’s ability to make theMinimum Quarterly Distribution. The definition of “EBITDA” set forth above may be different from that used by other companies. EBITDA iscalculated for the fiscal years ended September 30 as follows: 1999 2000 2001 2002 2003Net income (loss) $(29,550) $1,353 $(5,249) $(11,169) $212Plus: Income tax expense (benefit) (14,780) 492 1,498 (1,456) 1,500Amortization of debt issuance cost 347 534 737 1,447 2,232Interest expense, net 15,435 26,784 33,727 37,502 40,581Depreciation and amortization 22,713 34,708 44,396 59,049 53,160 EBITDA $(5,835) $63,871 $75,109 $85,373 $97,685 (c)The results of operations for the year ended September 30, 1999 include Petro’s results of operations from March 26, 1999. Since Petro was acquiredafter the heating season, the results for the year ended September 30, 1999 include typical third and fourth fiscal quarters losses but do not include theprofits from the heating season. Accordingly, results of operations for the year ended September 30, 1999 presented are not indicative of the results tobe expected for a full year. (d)The Partnership’s results for fiscal years ended September 30, 1999, 2000, 2001 and 2002 do not reflect the impact of the provisions of SFAS No. 142. 18 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS Statement Regarding Forward-Looking Disclosure This Report includes “forward-looking statements” which represent the Partnership’s expectations or beliefs concerning future events that involve risks anduncertainties, including those associated with the effect of weather conditions on the Partnership’s financial performance, the price and supply of homeheating oil, propane, natural gas and electricity, the ability of the Partnership to obtain new accounts and retain existing accounts and the realization ofsavings from the business process redesign. All statements other than statements of historical facts included in this Report including, without limitation, thestatements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere herein, areforward-looking statements. Although the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it can giveno assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from thePartnership’s expectations (“Cautionary Statements”) are disclosed in this Report, including without limitation and in conjunction with the forward-lookingstatements included in this Report. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalfare expressly qualified in their entirety by the Cautionary Statements. Overview In analyzing the financial results of the Partnership, the following matters should be considered. The primary use of heating oil, propane and natural gas is for space heating in residential and commercial applications. As a result, weather conditions have asignificant impact on financial performance and should be considered when analyzing changes in financial performance. In addition, gross margins varyaccording to customer mix. For example, sales to residential customers generate higher profit margins than sales to other customer groups, such as agriculturalcustomers. Accordingly, a change in customer mix can affect gross margins without necessarily impacting total sales. The following is a discussion of the historical condition and results of operations of Star Gas Partners, L.P. and its subsidiaries, and should be read inconjunction with the historical Financial and Operating Data and Notes thereto included elsewhere in this annual report on Form 10K. 19 Table of ContentsFISCAL YEAR ENDED SEPTEMBER 30, 2003COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2002 Volume For fiscal 2003, retail volume of home heating oil and propane increased 135.7 million gallons, or 22.7%, to 733.8 million gallons, as compared to 598.1million gallons for fiscal 2002. This increase was due to a 109.3 million gallon increase in the heating oil segment and a 26.4 million gallon increase in thepropane segment. The increase in volume primarily reflects the impact of significantly colder temperatures and the impact of an additional 21.2 milliongallons provided by acquisitions. Customer attrition, largely in the home heating oil segment’s lower margin commercial business, partially offset thesevolume increases. The Partnership also believes that a planned shift in the delivery pattern at the heating oil segment, designed to increase efficiency,decreased volume for fiscal 2003 by an estimated 10.1 million gallons. Typical delivery patterns would have resulted in these gallons being delivered infiscal 2003 but were actually delivered in the three months ended September 30, 2002. Temperatures in the Partnership’s areas of operations were an averageof 29.8% colder than in the prior year’s comparable period and approximately 9.0% colder than normal as reported by the National Oceanic AtmosphericAdministration (“NOAA”). Sales For fiscal 2003, sales increased $438.7 million, or 42.8%, to $1,463.7 million, as compared to $1,025.1 million for fiscal 2002. This increase was due to$312.6 million higher home heating oil sales, $83.8 million higher propane segment sales and a $42.3 million increase in TG&E sales. Sales increasedlargely due to the higher retail volume sold and as a result of higher selling prices. Selling prices increased versus the prior year’s comparable period inresponse to higher supply costs. Sales of rationally related products, including heating and air conditioning equipment installation and service and watersofteners increased by $15.2 million in the heating oil segment and by $3.6 million in the propane segment from the prior year’s comparable period due toacquisitions, price increases and from colder temperatures. Cost of Product For fiscal 2003, cost of product increased $330.0 million, or 68.9%, to $809.2 million, as compared to $479.2 million for fiscal 2002. This increase was dueto $230.1 million of higher cost of product at the home heating oil segment, $60.8 million higher cost of product at the propane segment and a $39.2 millionincrease in TG&E cost of product. Cost of product increased largely due to the higher retail volume sold and from higher supply cost. While selling pricesand supply cost both increased on a per gallon basis, the increase in selling prices was equal to the increase in supply costs, which resulted in approximatelythe same per gallon margins. Cost of Installations, Service and Appliances For fiscal 2003, cost of installations, service and appliances increased $18.3 million, or 10.0%, to $201.2 million, as compared to $182.8 million for fiscal2002. This increase was due to an additional $17.0 million in the heating oil segment and by $1.4 million in the propane segment from the prior year’scomparable period due to the increase in sales of these products and from additional cost of service expenses resulting from the colder temperatures. Delivery and Branch Expenses For fiscal 2003, delivery and branch expenses increased $57.8 million, or 24.5%, to $293.5 million, as compared to $235.7 million for fiscal 2002. Thisincrease was due to an additional $43.2 million of delivery and branch expenses at the heating oil segment and a $14.6 million increase in delivery andbranch expenses for the propane segment. The period to period comparison was impacted by the purchase of weather insurance that allowed the Partnershipto record approximately $6.4 million of net weather insurance recoveries in the fiscal 2002 period versus a $3.6 million expense in the fiscal 2003 period forweather insurance premiums paid. The remaining increase in delivery and branch expenses of $47.8 million for fiscal 2003, was largely due to the additionaloperating cost associated with increased volumes delivered, higher marketing costs at the heating oil segment of $5.7 million, higher bad debt expense of$2.9 million at the heating oil segment, higher bad debt expense of $0.4 million at the propane segment and to the impact of operating expense and wageincreases. Depreciation and Amortization Expenses For fiscal 2003, depreciation and amortization expenses decreased $5.9 million, or 10.0%, to $53.2 million, as compared to $59.0 million for fiscal 2002.During fiscal 2002, approximately $8.3 million of goodwill amortization was included in depreciation and amortization expense. As of October 1, 2002,goodwill is no longer amortized in accordance to SFAS No. 142. Depreciation and amortization expense related to acquisitions and fixed asset additionsacquired after September 30, 2002, resulted in increases which partially offset the decrease attributable to goodwill amortization. 20 Table of ContentsGeneral and Administrative Expenses For fiscal 2003, general and administrative expenses increased $16.1 million, or 38.4%, to $58.1 million, as compared to $42.0 million for fiscal 2002. Thisincrease was largely due to the inclusion of $7.4 million of incremental expense related to the business process redesign project in the heating oil segment, a$9.9 million increase in the accrual for compensation earned for unit appreciation rights and restricted stock awards previously granted and for otherincreases of $6.8 million, largely due to increased bonus compensation based upon results for fiscal 2003 ($1.9 million), higher legal and professionalexpenses at the Partnership level ($2.4 million) and for increased expenses at the propane segment ($2.0 million) for its increased size. The increase in legaland professional expenses at the Partnership level largely were incurred for Sarbanes compliance, acquisitions and financing related issues. The increase waspartially offset by lower general and administrative expenses at TG&E of approximately $7.9 million, largely due to lower bad debt ($5.0 million) andcollection expenses. The heating oil segment continued to progress with its business reorganization project during fiscal 2003. The heating oil segment is seeking to takeadvantage of its large size to utilize technology to increase the efficiency and quality of services provided to its customers. The segment is seeking to create amore customer oriented service company to significantly differentiate itself from its competitive peers. A core business process redesign project began in fiscal 2002 with an exhaustive effort to identify customer expectations and document existing businessprocesses. These findings led to a conclusion that improved processes, consolidation of operations, technology investments and selective outsourcing wouldhave a meaningful impact on improving customer services while reducing annual operating costs. Consolidation of certain heating oil operational activities have been undertaken to create operating efficiencies and cost savings. Service technicians arebeing dispatched from two consolidated locations rather than 27 local offices. Oil delivery is now being managed from 11 regional locations rather than 27local offices. The organization continues to adjust to these significant operational changes. A transition to outsourcing in the area of customer relationship management has been undertaken as both a customer satisfaction and a cost reductionstrategy. The Partnership believes outsourcing customer inquiries will improve performance and leverage technology to eliminate system redundancyavailable from third party service organizations. In addition, an outsourcing partner has greater flexibility to manage extreme seasonal volume. Significantchallenges remain with this dramatic transition. The complexity of customer interactions combined with the Partnership’s goal for service excellence has ledto protracted training efforts. The heating oil segment has begun introducing call based technology enhancements including capabilities for customerinquiries via automated interactive telephone response and the web. While the physical transition is largely complete, the Partnership anticipates thatsupplementary training and support will be required through the 2003 - 2004 heating season. The $7.4 million incremental expense in fiscal 2003 ($9.4 million of actual fiscal 2003 expense) related to this redesign project largely consisted ofconsulting fees, employee termination benefits and separation cost and travel related expenditures. In connection with this plan, the Partnership reduced thesize of its work force and recognized a liability of approximately $2.0 million related to certain employee termination benefits and separation costs. By the completion of the program, total expenditures are estimated to be $28.1 million. Through September 30, 2003, total expenditures for the program were$26.5 million with the balance to be spent in fiscal 2004. It is anticipated that the program will improve operating income by approximately $15.0 millionannually of which $8.4 million is expected to be realized in fiscal 2004, with the remainder in fiscal 2005 and fiscal 2006. While the Partnership believes thatthese levels of savings will be realized, there can be no assurance that these amounts will actually be forthcoming, or that other events will not offset theexpected benefits. Interest Expense For fiscal 2003, interest expense increased $3.5 million, or 8.6%, to $44.4 million, as compared to $40.9 million for fiscal 2002. This increase was largely dueto additional interest expense of $1.5 million for higher average outstanding working capital borrowings and due to additional interest related to the higherinterest rate on the Partnership’s $200.0 million debt offering partially offset by interest expense related to the debt repaid with the offering. Income Tax Expense For fiscal 2003, income tax expense increased $3.0 million to $1.5 million, as compared to a tax benefit of $1.5 million for fiscal 2002. This increase was dueto higher state income taxes based upon the higher pretax earnings achieved for fiscal 2003 and the absence in fiscal 2003 of the tax benefit from a federaltax loss carryback of $2.2 million recorded in fiscal 2002. 21 Table of ContentsCumulative Effect of Change in Accounting Principle For fiscal 2003, the Partnership recorded a $3.9 million decrease in net income arising from the adoption of SFAS No. 142 to reflect the impairment of itsgoodwill for its TG&E segment. Net Income For fiscal 2003, net income increased $11.4 million, or 101.9%, to $0.2 million, as compared to a loss of $11.2 million for fiscal 2002. The increase was dueto a $17.1 million increase in net income at the heating oil segment, a $6.6 million increase in net income at the propane segment and by a $11.5 milliondecrease in the net loss at TG&E partially offset by a $23.8 million increase in the net loss at the Partnership level. The increase in net income was primarilydue to the impact of colder weather and lower depreciation and amortization partially offset by the $3.9 million decrease in net income at the TG&E segmentresulting from the adoption of SFAS No. 142. FISCAL YEAR ENDED SEPTEMBER 30, 2002COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2001 Volume For fiscal 2002, retail volume of home heating oil and propane increased 33.9 million gallons, or 6.0%, to 598.1 million gallons, as compared to 564.2million gallons for fiscal 2001. This increase was due to a 30.6 million gallon increase in the heating oil segment and a 3.3 million gallon increase in thepropane segment. The increase in volume reflects the impact of an additional 135.4 million gallons provided by acquisitions, which was largely offset by theimpact of significantly warmer temperatures and to a much lesser extent by customer attrition in the heating oil segment. The Partnership also believes that ashift in the delivery pattern at the heating oil segment increased volume in fiscal 2002 by an estimated 11.0 million gallons. Temperatures in thePartnership’s areas of operations were an average of 18.4% warmer than in the prior year’s comparable period and approximately 18% warmer than normal.The abnormally warm weather made the past heating season the warmest in over a hundred years with temperatures approximately 6% higher than the nextwarmest year in the century. Sales For fiscal 2002, sales decreased $60.9 million, or 5.6%, to approximately $1.0 billion, as compared to approximately $1.1 billion for fiscal 2001. Thisdecrease was due to $30.8 million lower propane segment sales and $52.5 million lower TG&E sales partially offset by a $22.4 million increase in sales at theheating oil segment. Sales decreased largely as a result of lower selling prices which were only partially offset by sales from the higher retail volume in theheating oil and propane segments. Selling prices, in all segments, decreased versus the prior year’s comparable period in response to lower productcommodity costs. Sales of rationally related products, including heating and air conditioning equipment installation and service and water softenersincreased in the heating oil segment by $40.6 million and by $3.8 million in the propane segment from the prior year’s comparable period due toacquisitions. TG&E’s sales also decreased as a result of lower electricity sales from the segment’s strategic decision made during fiscal 2001 to redirect itsresources toward the natural gas deregulated energy markets which TG&E believes offers greater potential for new opportunities and profitability. Cost of Product For fiscal 2002, cost of product decreased $149.0 million, or 23.7%, to $479.2 million, as compared to $628.2 million for fiscal 2001. This decrease was dueto $55.2 million of lower cost of product at the heating oil segment, $43.1 million lower propane segment cost of product and a $50.7 million lower cost ofproduct in TG&E. Cost of product decreased due to the impact of lower product commodity cost partially offset by the cost of product for the higher retailvolume sales. TG&E cost of product also decreased due to the lower electricity sales. While selling prices and supply cost decreased on a per gallon basis, thedecrease in selling prices was less than the decrease in supply costs, which resulted in an increase in per gallon margins. Cost of Installations, Service and Appliances For fiscal 2002, cost of installations, service and appliances increased $39.7 million or 27.7% to $182.8 million as compared to $143.1 million for fiscal2001. This increase was due to an additional $37.9 million in the heating oil segment and by $1.8 million in the propane segment from the prior yearscomparable period due to the increase in sales of these products. 22 Table of ContentsDelivery and Branch Expenses For fiscal 2002, delivery and branch expenses increased $35.6 million, or 17.8%, to $235.7 million, as compared to $200.1 million for fiscal 2001. Thisincrease was due to an additional $31.1 million of delivery and branch expenses at the heating oil segment and a $4.6 million increase in delivery and branchexpenses for the propane segment. Delivery and branch expenses increased both at the heating oil and propane segments largely due to additional operatingcosts associated with increased volumes delivered by acquired companies and due to the impact of price and wage increases. Due to the fixed component ofthe Partnership’s cost structure, the significant reduction in volume caused by the extremely warm weather conditions didn’t allow the Partnership tocompletely reduce operating expenses in direct proportion to the volume reduction. The heating oil segment’s delivery and branch expense also increased byapproximately $2.8 million due to an increase in the estimate of the accrual required to cover certain insurance reserves. The increase in delivery and branchexpenses was mitigated by the purchase of weather insurance that allowed the Partnership to record approximately $6.4 million of net weather insurancerecoveries. Depreciation and Amortization Expenses For fiscal 2002, depreciation and amortization expenses increased $14.7 million, or 33.0%, to $59.0 million, as compared to $44.4 million for fiscal 2001.This increase was primarily due to additional depreciation and amortization on fixed assets and intangibles (other than goodwill) related to heating oil andpropane acquisitions. Amortization expense would be approximately $3.4 million higher in fiscal 2002 if SFAS No. 141 was not implemented. See“Accounting Principles Not Yet Adopted” for a further discussion of the effects of SFAS No. 141. General and Administrative Expenses For fiscal 2002, general and administrative expenses increased $1.0 million, or 2.6%, to $42.0 million, as compared to $41.0 million for fiscal 2001. Theincrease was due to additional general and administration expenses for acquisitions of approximately $2.1 million, and for increased compensation expenseof approximately $1.7 million for TG&E. The increase was partially offset by lower general and administrative expenses at the Partnership level of $5.0million. The increased compensation for TG&E was incurred for professional staff additions, hiring of personnel for collection efforts and for severance paidto former employees in connection with the relocation of its corporate office to New Jersey. TG&E’s charge to bad debt expense was approximately $6million in both periods. Based upon TG&E’s implementation of new information systems and more stringent credit policies, the Partnership believes thatTG&E’s bad debt losses should approximate the experience of the Partnership’s other two operating segments going forward. General and administrativeexpenses were lower at the Partnership level due to a reduction in the accrual for compensation earned for unit appreciation rights previously granted as wellas for a $2.9 million decrease in unit compensation expense. The decrease in unit compensation expense was due to a reduction in the accrual for unitsexpected to be earned versus the prior year under the Partnership’s Unit Incentive Plan pursuant to which certain employees were granted senior subordinatedunits as an incentive for achieving specified objectives which were not achieved in fiscal 2002. The Partnership has determined that these contingent unitswill not vest for fiscal 2002. General and administrative expenses also included approximately $2.0 million of incremental expense related to an on-going business process redesignproject in the heating oil segment. The heating oil segment is seeking to take advantage of its large size and utilize modern technology to increase theefficiency and quality of services provided to its customers. The segment is seeking to create a more customer oriented service company to significantlydifferentiate itself from its competitive peers. A core business process redesign project began this past fiscal year with an exhaustive effort to identifycustomer expectations and document existing business processes. The customer remains the focal point for change, although significant improvement inoperational efficiency is also a goal. While the critical analysis and redesign of existing business processes continues, the segment has already documentednear term opportunities for productivity and cost improvement. Preliminary conclusions indicate that improved processes and related technologyinvestments could have a meaningful impact on reducing the heating oil segment’s annual operating costs. The $2.0 million incremental expense in the 2002fiscal year largely consisted of consulting fees and travel related expenditures. The expenses related to the on-going business process redesign project willcontinue into fiscal 2003. 23 Table of ContentsInterest Expense For fiscal 2002, interest expense, increased $3.6 million, or 9.7%, to $40.9 million, as compared to $37.3 million for fiscal 2001. This increase was due toadditional interest expense for the financing of propane and heating oil acquisitions partially offset by lower interest expense for working capital borrowings. Income Tax Expense (benefit) For fiscal 2002, income tax expense decreased $3.0 million, or 197.2%, to a tax benefit of $1.5 million, as compared to an expense of $1.5 million for fiscal2001. This decrease was due to the availability of carrying back certain Federal tax losses resulting from a change in the tax laws enacted during fiscal year2002 of approximately $2.2 million and due to lower state income taxes based upon the lower pretax earnings achieved for fiscal year 2002. Cumulative Effect of Adoption of Accounting Principle For fiscal 2001, the Partnership recorded a $1.5 million increase in net income arising from the adoption of SFAS No. 133. Net Loss For fiscal 2002, net loss increased $5.9 million, or 112.8%, to $11.2 million, as compared to $5.2 million for fiscal 2001. The increased net loss was due to a$9.7 million decrease in net income at the heating oil segment and a $3.0 million increase in the net loss at TG&E partially offset by a $0.3 million increasein net income at the propane segment and a $6.4 million reduction in the net loss at the Partnership level. The increase in the net loss was primarily due todecreased volume from the impact of the warmer weather, partially offset by a per gallon improvement in gross profit margins, net weather insurancerecoveries, the tax benefit of the tax loss carryback and by net income generated from acquisitions. 24 Table of ContentsLiquidity and Capital Resources The ability of Star Gas to satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial, business, andweather conditions, and other factors, most of which are beyond its control. Capital requirements of Star Gas are expected to be provided by cash flows fromoperating activities and cash on hand at September 30, 2003. To the extent for fiscal 2004, capital requirements exceed cash flows from operating activities: a)working capital will be financed by the Partnership’s working capital lines of credit and repaid from subsequent seasonal reductions in inventoryand accounts receivable; b)growth capital expenditures, mainly for customer tanks, will be financed in fiscal 2004 through the use of the Partnership’s credit facilities; and c)acquisition capital expenditures will be financed by the revolving acquisition lines of credit, long-term debt issuance, the issuance of additionalCommon Units or a combination thereof. See also “Financing and Sources of Liquidity” below for a discussion of the Partnership’s outstanding debt amortization requirements. Cash Flows Operating Activities. Cash provided by operating activities for the fiscal year ended September 30, 2003 was $57.2 million as compared to cash provided byoperating activities of $65.5 million for the fiscal year 2002. This decrease in cash provided by operating activities was largely due to an increase inoperating assets and liabilities in fiscal 2003 from fiscal 2002, primarily due to a $27.6 million increase in accounts receivable largely due to the colderweather experienced in fiscal 2003. The net cash provided by operations of $57.2 million for fiscal 2003 consisted of net income of $0.2 million, adjusted fornoncash charges of $70.8 million, primarily depreciation and amortization of $53.2 million, which were offset by an increase in operating assets andliabilities of $13.8 million largely due to an increase in receivables from the colder temperatures experienced in fiscal 2003. Investing Activities. Star Gas completed ten acquisitions during fiscal 2003, investing $84.4 million. This expenditure for acquisitions is included in the cashused in investing activities of $101.2 million along with the $18.5 million invested for capital expenditures. The $18.5 million for capital expenditures iscomprised of $7.1 million of capital additions needed to sustain operations at current levels and $11.4 million for capital expenditures incurred inconnection with the heating oil segment’s business process redesign program and for customer tanks and other capital expenditures to support growth ofoperations. The capital expenditures made for the business process redesign program were largely for the purchase of modern technology to increase theefficiency and quality of services provided to its customers. Investing activities also includes proceeds from the sale of fixed assets of $1.7 million. Financing Activities. During fiscal 2003, cash provided by financing activities, included $189.7 million of net proceeds from the Partnership’s $200 million10.25% Senior Note offering in February 2003, $34.2 million from a common unit offering in August 2003 and $12.3 million from the net increase inacquisition borrowings. Cash distributions paid to Unitholders of $72.6 million, debt repayments of $155.5 million, decreased working capital borrowings of$14.2 million and other financing activities of $1.3 million resulted in net cash used in financing activities of $7.4 million. As a result of the above activity, cash decreased by $51.4 million to $10.1 million as of September 30, 2003. 25 Table of ContentsEarnings before interest, taxes, depreciation and amortization (EBITDA) For the fiscal year ended September 30, 2003, EBITDA increased $12.3 million, or 14.4% to $97.7 million as compared to $85.4 million for fiscal 2002. Thisincrease was due to $13.8 million additional EBITDA generated by the heating oil segment, a $4.6 million additional EBITDA at the propane segment and a$7.2 million additional EBITDA at TG&E, partially offset by $13.3 million reduction in EBITDA at the Partnership level largely due to the increase in theaccrual for compensation earned for unit appreciation rights and restricted stock awards previously granted. The increase in EBITDA was largely due to theimpact of colder temperatures in our areas of operations as reported by NOAA. TG&E’s EBITDA was negatively impacted by the inclusion of a non-cash $3.9million decrease in net income for the cumulative effect of a change in accounting principle arising from the adoption of SFAS No. 142 to reflect theimpairment of its goodwill. EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternativeto cash flow (as a measure of liquidity or ability to service debt obligations), but provides additional information for evaluating the Partnership’s ability tomake the Minimum Quarterly Distribution. EBITDA is calculated for the fiscal years ended September 30 as follows: Fiscal Year EndedSeptember 30,(in thousands) 2002 2003Net income (loss) $(11,169) $212Plus: Income tax expense (benefit) (1,456) 1,500Amortization of debt issuance costs 1,447 2,232Interest expense, net 37,502 40,581Depreciation and amortization 59,049 53,160 EBITDA $85,373 $97,685 Financing and Sources of Liquidity The Partnership’s heating oil segment had a bank credit facility at September 30, 2003, which included a working capital facility, providing for up to $115.5million of borrowings to be used for working capital purposes, an acquisition facility, providing for up to $50.0 million of borrowings to be used foracquisitions and for capital expenditures and a $27.5 million insurance letter of credit facility. The working capital facility and letter of credit facility werescheduled to expire on June 30, 2004. The acquisition facility was also scheduled to convert to a term loan for any outstanding borrowings on June 30, 2004,which balance will be payable in eight equal quarterly principal payments. At September 30, 2003, $6.0 million of working capital borrowings and $33.0million of acquisition facility borrowings and $26.9 million of the insurance letters of credit were outstanding. On December 22, 2003, the heating oil segment entered into a new credit agreement consisting of three facilities totaling $235.0 million having a maturitydate of June 30, 2006. These facilities consist of a $150.0 million revolving credit facility, the proceeds of which are to be used for working capital purposes,a $35.0 million revolving credit facility, the proceeds of which are to be used for the issuance of standby letters of credit in connection with surety, worker’scompensation and other financial guarantees, and a $50.0 million revolving credit facility, the proceeds of which are to be used to finance or refinancecertain acquisitions and capital expenditures, for the issuance of letters of credit in connection with acquisitions and, to the extent that there is insufficientavailability under the working capital facility. These facilities will refinance and replace the existing credit agreements described in the preceding paragraph,which totaled $193.0 million. The Partnership’s propane segment has a bank credit facility, which consists of a $25.0 million acquisition facility, a $25.0 million parity debt facility thatcan be used to fund maintenance and growth capital expenditures and a $24.0 million working capital facility. The working capital facility expires onSeptember 30, 2006. Borrowings under the acquisition and parity debt facilities will revolve until September 30, 2006, after which time any outstandingloans thereunder, will amortize in quarterly principal payments with a final payment due on September 30, 2008. At September 30, 2003, $2.0 million ofparity debt facility borrowings, $12.6 million of acquisition facility borrowings and $6.0 million of working capital borrowings were outstanding. The Partnership’s bank credit facilities and debt agreements contain several financial tests and covenants restricting the various segments and Partnership’sability to pay distributions, incur debt and engage in certain other business transactions. In general these tests are based upon achieving certain debt to cashflow ratios and cash flow to interest expense ratios. In addition, amounts borrowed under the working capital facilities are subject to a requirement tomaintain a zero balance for at least forty-five consecutive days. Failure to comply with the various restrictive and affirmative covenants of the Partnership’svarious bank and note facility agreements could negatively impact the Partnership’s ability to incur additional debt and/or pay distributions and could causecertain debt to become currently payable. As of September 30, 2003, the Partnership was in compliance with all debt covenants. 26 Table of ContentsOn February 6, 2003, the Partnership and its wholly owned subsidiary, Star Gas Finance Company, jointly issued $200.0 million face value Senior Notes dueon February 15, 2013. These notes accrue interest at an annual rate of 10.25% and require semi-annual interest payments on February 15 and August 15 ofeach year commencing on August 15, 2003. These notes are redeemable at the option of the Partnership, in whole or in part, from time to time by payment ofa premium as defined. These notes were priced at 98.466% for total gross proceeds of $196.9 million. The Partnership also incurred $7.2 million of fees andexpenses in connection with the issuance of these notes resulting in net proceeds of $189.7 million. The Partnership used the proceeds to repay existing long-term debt and working capital facility borrowings in the amount of $169.0 million, $17.7 million for acquisitions and $3.0 million to finance capitalexpenditures. The Partnership has $522.2 million of debt outstanding as of September 30, 2003 (amount does not include working capital borrowings of $12.0 million),with significant maturities occurring over the next five years. The following summarizes the Partnership’s long-term debt maturities during fiscal yearsending September 30, exclusive of amounts that have been repaid through September 30, 2003: 2004 $22.8 million2005 $40.9 million2006 $94.1 million2007 $46.0 million2008 $22.9 millionThereafter $295.5 million The Partnership’s heating oil segment’s bank facilities allow for the refinancing of up to $20.0 million of existing senior debt and the Partnership’s propanesegment’s bank facilities allow for the refinancing of up to $25.0 million of existing senior debt. The refinancing capabilities are subject to capacity andother restrictions. Funding for future year’s debt maturities other than what could be refinanced with bank facilities will largely be dependent upon new debtor equity issuances. The Partnership continues to evaluate strategic alternatives for its TG&E business segment, including evaluating the possible sale of the business. Aninvestment advisor, Bovaro Partners, LLC, has been hired to assist the Partnership in this endeavor. The Partnership has not made a decision to sell the TG&Ebusiness but is currently evaluating preliminary interest expressed by potential buyers as well as evaluating other alternatives for the business. A majorconsideration in the Partnership’s evaluation process is the significant improvement that TG&E demonstrated in fiscal 2003 in becoming a more profitableoperation. The Partnership would not expect any potential sale to result in a significant gain or loss. In addition, the Partnership would also not expect thatany potential sale would have a significant impact on liquidity on a going forward basis. In general, the Partnership distributes to its partners on a quarterly basis, all of its Available Cash in the manner described in Note 3 (Quarterly Distribution ofAvailable Cash) of the Consolidated Financial Statements. Available Cash is defined for any of the Partnership’s fiscal quarters, as all cash on hand at the endof that quarter, less the amount of cash reserves that are necessary or appropriate in the reasonable discretion of the general partner to (i) provide for the properconduct of the business; (ii) comply with applicable law, any of its debt instruments or other agreements; or (iii) provide funds for distributions to thecommon unitholders and the senior subordinated unitholders during the next four quarters, in some circumstances. The Partnership believes that the purchase of weather insurance could be an important element in the Partnership’s ability to maintain the stability of its cashflows. In August 2002, the Partnership purchased weather insurance that could have provided up to $20.0 million of coverage for the impact of warm weatheron the Partnership’s operating results for the 2002 - 2003 heating season. No amounts were received under the policies during fiscal 2003 due to the colderthan normal temperatures. In addition, the Partnership purchased a base of $12.5 million of weather insurance coverage for each year from 2004 – 2007 andpurchased an additional $7.5 million of weather insurance coverage for fiscal 2004. The amount of insurance proceeds that could be realized under thesepolicies is calculated by multiplying a fixed dollar amount by the degree day deviation from an agreed upon cumulative degree day strike price. For fiscal 2004, the Partnership anticipates paying interest of approximately $44.8 million, and anticipates growth and maintenance capital additions ofapproximately $8.1 million. In addition, the Partnership plans to pay distributions on its units to the extent there is sufficient Available Cash in accordancewith the partnership agreement. The Partnership plans to fund acquisitions made through a combination of debt and equity. Based on its current cashposition, bank credit availability and anticipated net cash to be generated from operating activities, the Partnership expects to be able to meet all of its fiscal2004 obligations. 27 Table of ContentsCritical Accounting Policies and Estimates The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish accounting policiesand make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. Star Gasevaluates its policies and estimates on an on-going basis. The Partnership’s Consolidated Financial Statements may differ based upon different estimates andassumptions. The Partnership’s significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements. Star Gas believes the following are itscritical accounting policies: Goodwill and Other Intangible Assets The FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” in June 2001. SFAS No. 142 requires that goodwill no longer be amortized, butinstead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets withdefinite useful lives, such as customer lists, continue to be amortized over their respective estimated useful lives. The Partnership calculates amortization using the straight-line method over periods ranging from 5 to 15 years for intangible assets with definite useful lives.Star Gas uses amortization methods and determines asset values based on its best estimates using reasonable and supportable assumptions and projections.Star Gas assesses the useful lives of intangible assets based on the estimated period over which Star Gas will receive benefit from such intangible assets suchas historical evidence regarding customer churn rate. In some cases, the estimated useful lives are based on contractual terms. At September 30, 2003, thePartnership had $201.8 million of net intangible assets subject to amortization. If circumstances required a change in estimated useful lives of the assets, itcould have a material effect on results of operations. For example, if lives were shortened by one year, the Partnership estimates that amortization for theseassets for fiscal 2003 would have increased by approximately $2.8 million. SFAS No. 142 also requires the Partnership’s goodwill to be assessed annually for impairment. These assessments involve management’s estimates of futurecash flows, market trends and other factors to determine the fair value of the reporting unit, which includes the goodwill to be assessed. If goodwill isdetermined to be impaired, a loss is recorded in accordance with SFAS No. 142. At September 30, 2003, the Partnership had $278.9 million of goodwill.Intangible assets with finite lives must be assessed for impairment whenever changes in circumstances indicate that the assets may be impaired. Similar togoodwill, the assessment for impairment requires estimates of future cash flows related to the intangible asset. To the extent the carrying value of the assetsexceeds it future cash flows, an impairment loss is recorded based on the fair value of the asset. Depreciation of Property, Plant and Equipment Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from 3 to 30 years. Net property, plant andequipment was $262.3 million for the Partnership at September 30, 2003. If circumstances required a change in estimated useful lives of the assets, it couldhave a material effect on results of operations. For example, if lives were shortened by one year, the Partnership estimates that depreciation for fiscal 2003would have increased by approximately $2.8 million. Assumptions Used in the Measurement of the Partnership’s Defined Benefit Obligations SFAS No. 87, “Employers’ Accounting for Pensions” requires the Partnership to make assumptions as to the expected long-term rate of return that could beachieved on defined benefit plan assets and discount rates to determine the present value of the plans’ pension obligations. The Partnership evaluates thesecritical assumptions at least annually. The discount rate enables the Partnership to state expected future cash flows at a present value on the measurement date. The rate is required to represent themarket rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense.A 25 basis point decrease in the discount rated used for fiscal 2003 would have increased pension expense by approximately $0.1 million and would haveincreased the minimum pension liability by another $1.8 million. The Partnership assumed a discount rate of 6.00% as of September 30, 2003. 28 Table of ContentsThe Partnership considers the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets todetermine its expected long-term rate of return on pension plan assets. The expected long-term rate of return on assets is developed with input from thePartnership’s actuarial firm. The long-term rate of return assumption used for determining net periodic pension expense for fiscals 2002 and 2003 was 8.50percent. As of September 30, 2003, this assumption was reduced to 8.25 percent for determining fiscal 2004 net periodic pension expense. A further 25 basispoint decrease in the expected return on assets would have increased pension expense in fiscal 2003 by approximately $0.1 million. Over the life of the plans, both gains and losses have been recognized by the plans in the calculation of annual pension expense. As of September 30, 2003,$17.2 million of unrecognized losses remain to be recognized by the plans. These losses may result in increases in future pension expense as they arerecognized. Insurance Reserves The Partnership’s heating oil segment has in the past and is currently self-insuring a portion of workers’ compensation, auto and general liability claims. InFebruary 2003, the propane segment also began self-insuring a portion of its workers’ compensation claims. The Partnership establishes reserves based uponexpectations as to what its ultimate liability will be for these claims using developmental factors based upon historical claim experience. The Partnershipcontinually evaluates the potential for changes in loss estimates with the support of qualified actuaries. As of September 30, 2003, the heating oil segmenthad approximately $29.4 million of insurance reserves and the propane segment had $1.1 million of insurance reserves. The ultimate settlement of theseclaims could differ materially from the assumptions used to calculate the reserves which could have a material effect on results of operations. 29 Table of Contents ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership is exposed to interest rate risk primarily through its bank credit facilities. The Partnership utilizes these borrowings to meet its workingcapital needs and also to fund the short-term needs of its acquisition program. At September 30, 2003, the Partnership had outstanding borrowings totaling $534.2 million, of which approximately $59.6 million is subject to variableinterest rates under its Bank Credit Facilities. The Partnership also has interest rate swaps with a notional value of $55.0 million which swap fixed rateborrowings of 8.05% to variable rate borrowings based on the six month LIBOR interest rate plus 5.52%. In the event that interest rates associated with thesefacilities were to increase 100 basis points, the impact on future cash flows would be a decrease of approximately $1.1 million annually. The Partnership also selectively uses derivative financial instruments to manage its exposure to market risk related to changes in the current and futuremarket price of home heating oil, propane and natural gas. The value of market sensitive derivative instruments is subject to change as a result of movementsin market prices. Consistent with the nature of hedging activity, associated unrealized gains and losses would be offset by corresponding decreases orincreases in the purchase price the Partnership would pay for the home heating oil, propane or natural gas being hedged. Sensitivity analysis is a techniqueused to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at September 30, 2003,the potential impact on the Partnership’s hedging activity would be to increase the fair market value of these outstanding derivatives by $16.1 million to afair market value of $26.1 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of theseoutstanding derivatives by $8.9 million to a fair market value of $1.0 million. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASEE INDEX TO FINANCIAL STATEMENTS PAGE F-1 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURENONE ITEM 9A.CONTROLS AND PROCEDURES (a)Evaluation of disclosure controls and procedures. The General Partner’s principal executive officer and its principal financial officer evaluated the effectiveness of the Partnership’s disclosure controlsand procedures as of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financialofficer concluded that, the Partnership’s disclosure controls and procedures as of the end of the period covered by this report have been designed andare functioning effectively to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. TheGeneral Partner and the Partnership believe that a controls system, no matter how well designed and operated, can not provide absolute assurance thatthe objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances offraud, if any, within a company have been detected. (b)Change in Internal Control over Financial Reporting. No change in the Partnership’s internal control over financial reporting occurred during the Partnership’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect the Partnership’s internal control over financial reporting. 30 Table of ContentsPART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Partnership Management Star Gas LLC is the general partner of the Partnership. The membership interests in Star Gas LLC are owned by Audrey L. Sevin, Irik P. Sevin and HanseaticAmericas, Inc. The General Partner manages and operates the activities of the Partnership. Unitholders do not directly or indirectly participate in themanagement or operation of the Partnership. The General Partner owes a fiduciary duty to the Unitholders. However, the Partnership agreement containsprovisions that allow the General Partner to take into account the interest of parties other than the Limited Partners in resolving conflict of interest, therebylimiting such fiduciary duty. Notwithstanding any limitation on obligations or duties, the General Partner will be liable, as the general partner of thePartnership, for all debts of the Partnership (to the extent not paid by the Partnership), except to the extent that indebtedness or other obligations incurred bythe Partnership are made specifically non-recourse to the General Partner. William P. Nicoletti, Paul Biddelman and Stephen Russell, who are neither officers nor employees of the General Partner nor directors, officers or employeesof any affiliate of the General Partner, have been appointed to serve on the Audit Committee of the General Partner’s Board of Directors. The Partnership’sBoard of Directors adopted an Audit Committee Charter during fiscal 2003. The Audit Committee has the authority to review, at the request of the GeneralPartner, specific matters as to which the General Partner believes there may be a conflict of interest in order to determine if the resolution of such conflictproposed by the General Partner is fair and reasonable to the Partnership. Any matters approved by the Audit Committee will be conclusively deemed fair andreasonable to the Partnership, approved by all partners of the Partnership and not a breach by the General Partner of any duties it may owe the Partnership orthe holders of Limited Partnership Units. In addition, the Audit Committee reviews the external financial reporting of the Partnership, selects and engages thePartnership’s independent accountants and approves all non audit engagements of the independent accountants. With respect to the additional matters, theAudit Committee may act on its own initiative to question the General Partner and, absent the delegation of specific authority by the entire Board ofDirectors, its recommendations will be advisory. As is commonly the case with publicly traded limited partnerships, the Partnership does not directly employ any of the persons responsible for managing oroperating the Partnership. The management and workforce of Star Gas Propane and certain employees of Petro manage and operate the Partnership’s businessas officers of the General Partner and its Affiliates. See Item 1 - Business - Employees. 31 Table of ContentsDirectors and Executive Officers of the General Partner Directors are elected for one-year terms. The following table shows certain information for directors and executive officers of the general partner: Name Age Position with the General PartnerIrik P. Sevin (b) 56 Chairman of the Board and Chief Executive OfficerJoseph P. Cavanaugh 66 Chief Executive Officer - Propane and Member of the Office of PresidentAngelo J. Catania 54 Executive Vice President – Heating Oil and Member of the Office of PresidentAmi Trauber 64 Chief Financial OfficerRichard F. Ambury 46 Vice President and TreasurerJames Bottiglieri 47 Vice PresidentAudrey L. Sevin 77 SecretaryPaul Biddelman(b)(c) 57 DirectorThomas J. Edelman(a) 52 DirectorI. Joseph Massoud(a) 35 DirectorWilliam P. Nicoletti(c) 58 DirectorStephen Russell(c) 63 Director(a)Member of the Compensation Committee(b)Member of the Distribution Committee(c)Member of the Audit Committee Irik P. Sevin has been the Chairman of the Board of Directors of Star Gas LLC since March 1999. From December 1993 to March 1999, Mr. Sevin served asChairman of the Board of Directors of Star Gas Corporation, the predecessor general partner. Mr. Sevin has been a Director of Petro since its organization inOctober 1979, and Chairman of the Board of Petro since January 1993 and served as President of Petro from 1979 through January 1997. Mr. Sevin was anassociate in the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers Kuhn Loeb Incorporated from February 1975 to December1978. Joseph P. Cavanaugh has been Chief Executive Officer of the propane segment and member of the Office of the President of Star Gas LLC since March 1999.From December 1997 to March 1999 Mr. Cavanaugh served as President and Chief Executive Officer of Star Gas Corporation, the predecessor generalpartner. From October 1979 to December 1997, Mr. Cavanaugh held various financial and management positions with Petro. Prior to his current appointmentMr. Cavanaugh was also active in the Partnership’s management with the development of safety/compliance programs, assisting with acquisitions and theirsubsequent integration into the Partnership. Angelo J. Catania has been Executive Vice President of the heating oil segment and member of the Office of the President of Star Gas LLC since April 2002.From March 1999 to April 2002, he served as Vice President and General Manager of the heating oil segment’s Mid-Atlantic region. From 1990 to 1999, Mr.Catania was employed by Petro where he served in various capacities, including Vice President of Acquisitions, General Manager, Regional OperationsManager and Co-Director of Acquisitions. From 1984 to 1990 he served as Chief Financial Officer and Vice President of Acme Oil Co., Inc. Ami Trauber has been Chief Financial Officer of Star Gas LLC since November 2001. From 1996 to 2001, Mr. Trauber was the Chief Financial Officer ofSyratech Corporation, a consumer goods company. From 1991 to 1995, Mr. Trauber was the President, Chief Operating Officer and part owner of Ed’s West,Inc., an apparel company. From 1978 to 1990, Mr. Trauber was Corporate Vice President – Finance and Controller of Harcourt General, Inc., a fortune 500conglomerate. 32 Table of ContentsRichard F. Ambury has been Vice President and Treasurer of Star Gas LLC since March 1999. From February 1996 to March 1999, Mr. Ambury served asVice President - Finance of Star Gas Corporation, the predecessor general partner. Mr. Ambury was employed by Petro from June 1983 through February1996, where he served in various accounting/finance capacities. From 1979 to 1983, Mr. Ambury was employed by a predecessor firm of KPMG, a publicaccounting firm. Mr. Ambury has been a Certified Public Accountant since 1981. James J. Bottiglieri has been Vice President of Star Gas LLC since March 1999, and has served as Controller of Petro since 1994. Mr. Bottiglieri wasAssistant Controller of Petro from 1985 to 1994 and was elected Vice President in December 1992. From 1978 to 1984, Mr. Bottiglieri was employed by apredecessor firm of KPMG, a public accounting firm. Mr. Bottiglieri has been a Certified Public Accountant since 1980. Audrey L. Sevin has been a Director of Star Gas LLC since March 1999 and was a Director of Star Gas Corporation, the predecessor general partner fromDecember 1993 to March 1999. Mrs. Sevin served as the Secretary of Star Gas Corporation from June 1994 to March 1999. Mrs. Sevin had been a Directorand Secretary of Petro since its organization in October 1979. Mrs. Sevin was a Director, executive officer and principal shareholder of A. W. Fuel Co., Inc.from 1952 until its purchase by Petro in May 1981. Paul Biddelman has been a Director of Star Gas LLC since March 1999 and was a Director of Star Gas Corporation, the predecessor general partner fromDecember 1993 to March 1999. Mr. Biddelman was a director of Petro from October 1994 until March 1999. Mr. Biddelman has been President of HanseaticCorporation since December 1997. From April 1992 through December 1997, he was Treasurer of Hanseatic Corporation. Mr. Biddelman is a director ofCeladon Group, Inc., Insituform Technologies, Inc., Six Flags, Inc. and System One Technologies, Inc. Thomas J. Edelman has been a Director of Star Gas LLC since March 1999 and was a Director of Star Gas Corporation, the predecessor general partner fromDecember 1993 to March 1999. Mr. Edelman was a Director of Petro from October 1983 until March 1999. Mr. Edelman has been Chairman of Patina Oil &Gas Corporation since its formation in May 1996. Mr. Edelman also serves as Chairman of Range Resources Corporation and Bear Cub Energy, LLC. He co-founded Snyder Oil Corporation and was its President and a Director from 1981 through February 1997. From 1975 to 1981, he was a Vice President of TheFirst Boston Corporation. I. Joseph Massoud has been a Director of Star Gas LLC since October 1999. Since 1998 he has been President of The Compass Group International LLC, aprivate equity investment firm based in Westport, CT. From 1995 to 1998, Mr. Massoud was employed by Petro as a Vice President. From 1993 to 1995, Mr.Massoud was a Vice President of Colony Capital, Inc., a Los Angeles based private equity firm specializing in acquiring distressed real estate and corporateassets. Mr. Massoud is also a director of CBS Personnel, CPM Acquisition Corp. and World Business Capital, Inc. William P. Nicoletti has been a Director of Star Gas LLC since March 1999 and was a Director of Star Gas Corporation, the predecessor general partner fromNovember 1995 until March 1999. He is Managing Director of Nicoletti & Company, Inc., a private investment banking firm. Mr. Nicoletti was formerly asenior officer and head of Energy Investment Banking for E. F. Hutton & Company, Inc., PaineWebber Incorporated and McDonald Investments, Inc. He isnon-executive Chairman of the Board of Directors of Russell-Stanley Holdings, Inc. and is also a director of MarkWest Energy Partners, L.P. and SouthwestRoyalties, Inc. Stephen Russell has been a Director of Star Gas LLC since October 1999 and was a director of Petro from July 1996 until March 1999. He has been Chairmanof the Board and Chief Executive Officer of Celadon Group Inc., an international transportation company, since its inception in July 1986. Mr. Russell hasbeen a member of the Board of Advisors of the Johnson Graduate School of Management, Cornell University since 1983. Audrey Sevin is the mother of Irik P. Sevin. There are no other familial relationships between any of the directors and executive officers. 33 Table of ContentsMeetings and Compensation of Directors During fiscal 2003, the Board of Directors met six times. All Directors attended each meeting except that Mr. Biddelman did not attend one meeting and Mr.Russell did not attend another meeting. Star Gas LLC pays each director including the chairman, an annual fee of $27,000. Effective July 1, 2003, theChairman of the Audit Committee will also receive an annual retainer of $12,000 while the other Audit Committee members will receive $6,000 annualretainers. In addition, each member of the Audit Committee will receive $1,000 for every regular meeting attended and $500 for every telephonic meetingattended. Also effective July 1, 2003, the Chairman of the Compensation Committee and Distribution Committee will also receive an annual retainer of$6,000 while the other members of these committees will receive $3,000 annual retainers. The members of the Compensation and Distribution Committeeswill also receive $1,000 for every regular meeting attended and $500 for every telephonic meeting attended. Messrs. Biddelman, Edelman, Massoud, Nicoletti and Russell each had 1,700 previously granted Restricted Senior Subordinated Units vest for fiscal 2003under the Partnership’s Director and Employee Unit Incentive Plan. The value as of September 30, 2003 of these Senior Subordinated Units was $34,867 foreach director. As of September 30, 2003, each director had 1,700 Restricted Senior Subordinated Units still outstanding that could vest under this plan ifcertain vesting targets are met in fiscal 2004. Messrs. Biddelman, Edelman, Massoud, Nicoletti and Russell were each granted 2,709 Senior Subordinated Unit Appreciation Rights during fiscal 2003.Each of these directors forfeited $4,200 of director fees to obtain these rights. The Unit Appreciation Rights vest in three equal installments on October 1,2002, October 1, 2003 and October 1, 2004. The grantee will be entitled to receive payment in cash for these UAR’s equal to the excess of the fair marketvalue (as defined) of a Senior Subordinated Unit on October 1, 2005 (subject to deferral to a date no later than October 1, 2007) over the strike price of$10.70. These units were granted under the same program as units granted to the Chief Executive Officer and other certain named executives – see Item 11 –Executive Compensation. Committees of the Board of Directors Star Gas LLC’s Board of Directors has an Audit Committee, a Compensation Committee and a Distribution Committee. The members of each committee areappointed by the Board of Directors for a one-year term and until their respective successors are elected. Audit Committee The duties of the Audit Committee are described above under “Partnership Management.” The current members of the Audit Committee are William P. Nicoletti, Paul Biddelman and Stephen Russell. During fiscal 2003, the audit committee meteight times. Members of the Audit Committee may not be employees of Star Gas LLC or its affiliated companies and must otherwise meet the New York StockExchange and SEC independence requirements for service on the Audit Committee. The Partnership’s Board of Director’s has determined that Mr. Nicoletti,the Chairman of the Audit Committee, meets the definition of an Audit Committee financial expert under applicable SEC and NYSE regulations and has alsodetermined that all of the members of the Audit Committee, including Mr. Nicoletti meet the independence requirements of the NYSE and the SEC. Compensation Committee The current members of the Compensation Committee are Thomas J. Edelman and I. Joseph Massoud. The duties of the Compensation Committee are (i) todetermine the annual salary, bonus and other benefits, direct and indirect, of any and all named executive officers (as defined under Regulation S-Kpromulgated by the Securities and Exchange Commission) and (ii) to review and recommend to the full Board any and all matters related to benefit planscovering the foregoing officers and any other employees. During fiscal 2003, the Compensation Committee met one time. Distribution Committee The current members of the Distribution Committee are Irik Sevin and Paul Biddelman. The duties of the Distribution Committee are to discuss and reviewthe Partnership’s distributions. During fiscal 2003, the Distribution Committee met four times. 34 Table of ContentsReimbursement of Expenses of the General Partner The General Partner does not receive any management fee or other compensation for its management of Star Gas Partners. The General Partner is reimbursed atcost for all expenses incurred on the behalf of Star Gas Partners, including the cost of compensation, which is properly allocable to Star Gas Partners. Thepartnership agreement provides that the General Partner shall determine the expenses that are allocable to Star Gas Partners in any reasonable mannerdetermined by the General Partner in its sole discretion. In addition, the General Partner and its affiliates may provide services to Star Gas Partners for which areasonable fee would be charged as determined by the General Partner. Adoption of Code of Ethics The Partnership has adopted a written code of ethics that applied to the Partnership’s principal executive officer, principal financial officer, controller as wellas for other key employees. The code of ethics is attached as an exhibit to this Form 10-K. 35 Table of Contents ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the annual salary, bonuses and all other compensation awards and payouts to the Chief Executive Officer and to certainnamed executive officers for services rendered to Star Gas Partners and its subsidiaries during the fiscal years ended September 30, 2003, 2002 and 2001. Summary Compensation Table Annual Compensation Long-TermCompensationName and Principal Position Year Salary Bonus OtherAnnualCompensation RestrictedStockAwards SecuritiesUnderlyingUARsIrik P. Sevin,Chairman of the Board andChief Executive Officer 200320022001 $$$505,000596,250550,000(3) $$$985,200— 1,137,200(4) (5) $$$12,00014,6007,966(6)(6)(6) $— 495,000(9) (8) 77,419Joseph P. Cavanaugh,Executive Vice President 200320022001 $$$267,800257,100245,200 $$$268,06095,000300,150(4) (5) $$$18,76818,75518,768(7)(7)(7) — (9) Angelo J. CataniaExecutive Vice President of theHeating Oil Segment (1) 20032002 $$276,250272,880(3) $$576,580— (4) $$11,52114,661(6)(6) — (9) 31,452Ami Trauber,Chief Financial Officer(2) 20032002 $$298,800327,000(3) $$272,550— (4) $11,762(6) 46,45254,472Richard F. AmburyVice President and Treasurer 200320022001 $$$207,941187,812183,950(3) $$$162,55035,000169,375(4) (5) $$$14,18527,65727,657(6)(7)(7) — (9) 9,917(1)Mr. Catania assumed the position of Executive Vice President effective March 1, 2002.(2)Mr. Trauber assumed the position of the Chief Financial Officer effective November 1, 2001.(3)Fiscal 2003 salary amounts reflects the reduction in salary that each named executive forfeited to obtain his respective fiscal 2003 grant of restrictedunit appreciation rights as follows: Irik P. Sevin - $120,000, Angelo J. Catania - $48,750, Ami Trauber - $72,000 and Richard F. Ambury - $15,375.(4)Fiscal 2003 bonus amount includes the value as of September 30, 2003 of Senior Subordinated Units vested in fiscal 2003 under the Partnership’sDirector and Employee Unit Incentive Plan as follows: Irik P. Sevin - $410,200, Joseph P. Cavanaugh - $123,060, Angelo J. Catania - $164,080 andRichard F. Ambury - $102,550. Mr. Trauber was also granted 5,000 Senior Subordinated Units for his 2003 bonus performance at a value of $102,550as of September 30, 2003.(5)Fiscal 2001 bonus amount includes the value as of the vesting date of Senior Subordinated Units vested in fiscal 2001 under the Partnership’s Directorand Employee Unit Incentive Plan as follows: Irik P. Sevin - $400,000, Joseph P. Cavanaugh - $120,000 and Richard F. Ambury - $100,000. Mr. Sevinwas also granted 8,250 Common Units in lieu of cash compensation for his 2001 bonus performance at a value of $165,000 on the date of the grant.(6)These amounts represent company paid contributions under Petro’s 401-K defined contribution retirement plan.(7)These amounts represent funds paid in lieu of company paid contributions to the Partnership’s retirement plans.(8)This award represents the granting of 24,750 Restricted Common Units that vest equally in three installments on January 1, 2003, January 1, 2004 andJanuary 1, 2005. Distribution on these units will accrue to the extent declared.(9)As of September 30, 2003, the following Restricted grants of Senior Subordinated Units granted under the Partnership’s Employee Unit Incentive Planvalued at the September 30, 2003 closing price were outstanding and not yet vested as follows: Irik P. Sevin - $410,200 (20,000 units), Joseph P.Cavanaugh - $123,060 (6,000 units), Angelo J. Catania - $164,080 (8,000 units) and Richard F. Ambury $102,550 (5,000 units). Option/UAR Grants in Last Fiscal Year Name Number ofSecuritiesUnderlyingUAR’s Granted Percent of TotalUAR’s GrantedtoEmployees inFiscal Year ExercisePrice Potential Realizable Value at AssumedAnnual Rates of Unit Price Appreciationfor Option Term Expiration Date 5% 10%Irik P. Sevin 77,419 30.1% $10.70 (a) $130,574 $274,195Ami Trauber 46,452 18.1% $10.70 (a) $78,345 $164,519Angelo J. Catania 31,452 12.2% $10.70 (a) $53,047 $111,394Richard F. Ambury 9,917 3.9% $10.70 (a) $16,726 $35,123(a)The Restricted Unit Appreciation Rights vest in three equal installments on October 1, 2002, October 1, 2003 and October 1, 2004. The grantee will beentitled to receive payment in cash for these UARs equal to the excess of the fair market value (as defined) of a Senior Subordinated Unit on October 1,2005 over the exercise price (subject to deferral to a date no later than October 1, 2007). 36 Table of ContentsAggregated Option/UAR Exercises in Last Fiscal Yearand Fiscal Year End Option/UAR Values Name Number of Unexercised UARs atSeptember 30, 2003Exercisable(E)/Unexercisable(U) Value of In the Money UARsat September 30, 2003Irik P. Sevin 513,438 (U) $6,290,375Ami Trauber 100,242 (U) $455,694Angelo Catania 31,452 (U) $308,544Richard F. Ambury 9,917 (U) $97,286 Long-Term Incentive Plans – Awards in Last Fiscal None Equity Compensation Plan Information (a) (b) (c) Plan category Number of securities to beissued upon exercise ofoutstanding options, warrantsand rights Weighted-average exerciseprice of outstanding options,warrants and rights Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securitiesreflected in column (a)) Equity compensation plansapproved by securityholders — — — Equity compensation plansnot approved by securityholders 107,000 — 139,000(1) Total 107,000 — 139,000 1.Represents senior subordinated units that could vest under the Partnership’s Employee and Director Unit Incentive Plan during fiscal 2004. Employment Contracts Agreement with Irik Sevin The Partnership entered into an employment agreement (the “Employment Agreement”) with Mr. Sevin effective October 1, 2001. Mr. Sevin’s EmploymentAgreement has an initial term of five years, and automatically renews for successive one-year periods, unless earlier terminated by the Partnership or by Mr.Sevin or otherwise terminated in accordance with the Employment Agreement. The Employment Agreement for Mr. Sevin provides for an annual base salaryof $600,000 which shall increase at the rate of $25,000 per year commencing in fiscal 2003. In addition, Mr. Sevin may earn a bonus of up to 80% of hisannual base salary (the “Targeted Bonus”) for services rendered based upon certain performance criteria. Mr. Sevin can also earn certain equity incentives ifthe Partnership meets certain performance criteria specified in the Employment Agreement. In addition, Mr. Sevin is entitled to certain supplementalexecutive retirement benefits (“SERP”) if he retires after age 65. If a “change of control” (as defined in the Employment Agreement) of the Partnership occursand prior thereto or at any time within two years subsequent to such change of control the Partnership terminates the Executive’s employment without“cause” or the Executive resigns with “good reason” or the Executive terminates his employment during the thirty day period commencing on the firstanniversary of a change of control, then Mr. Sevin will be entitled to (i) a lump sum payment equal to Mr. Sevin’s anticipated annual base salaries, TargetedBonuses and equity incentives for the three years following the termination date; (ii) the continuation of Mr. Sevin’s group insurance benefits for two yearsfollowing the termination date; (iii) a cash payment equal to the value of 325,000 senior subordinated units; and (iv) the acceleration of Mr. Sevin’s SERPbenefits. The Employment Agreement provides that if any payment received by Mr. Sevin is subject to a federal excise tax under Section 4999 of the InternalRevenue Code, the payment will be grossed up to permit Mr. Sevin to retain a net amount on an after-tax basis equal to what he would have received had theexcise tax not been payable. 37 Table of ContentsAgreement with Angelo Catania The Partnership entered into an employment agreement (the “Employment Agreement”) with Mr. Catania effective April 1, 2002. Mr. Catania’s EmploymentAgreement has an initial term of five years, and automatically renews for successive one-year periods, unless earlier terminated by the Partnership or by Mr.Catania or otherwise terminated in accordance with the Employment Agreement. The Employment Agreement for Mr. Catania provides for an initial annualbase salary of $325,000. In addition, Mr. Catania may earn a bonus of up to $100,000 (the “Targeted Bonus”) for services rendered based upon certainperformance criteria. Mr. Catania can also earn certain equity incentives if the Partnership meets certain performance criteria specified under the Partnership’sEmployee and Director Unit Incentive Plan. In addition, Mr. Catania is entitled to a success bonus of $300,000 upon the successful completion of the heatingoil segment’s business reorganization project. The Employment Agreement provides for up to $480,000 of termination pay if Mr. Catania’s employment isterminated without cause or by Mr. Catania for good reason. 401(k) Plans Mr. Sevin, Mr. Catania, Mr. Trauber and Mr. Ambury are covered under a 401(k) defined contribution plan maintained by Petro. Participants in the plan mayelect to contribute a sum not to exceed 17% of a participant’s compensation or $12,000. Under this plan, Petro makes a 4% core contribution of aparticipant’s compensation up to $200,000 and matches 2/3 of each amount that a participant contributes with a maximum employer match of 2%. 38 Table of Contents ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the beneficial ownership as of December 15, 2003 of common units, senior subordinated units, junior subordinated units andgeneral partner units by: (1) Star Gas LLC and certain beneficial owners and all of the directors and executive officers of Star Gas LLC; (2) each of the named executive officers of Star Gas LLC; and (3) all directors and executive officers of Star Gas LLC as a group. The address of each person is c/o Star Gas Partners, L.P. at 2187 Atlantic Street, Stamford, Connecticut 06902-0011. An asterisk in the percentage columnrefers to a percentage less than one percent. Common Units SeniorSubordinated Units(e) JuniorSubordinated Units General Partner Units(a) Name Number Percentage Number Percentage Number Percentage Number Percentage Star Gas LLC — — % 29,133 *% — — % 325,729 100%Irik P. Sevin — — 51,691(b) 1.6 53,426 15.5 325,729(b) 100 Audrey L. Sevin 6,000 * 42,829(b) 1.4 153,131 44.3 325,729(b) 100 Hanseatic Americas, Inc. — — 29,133(b) * 138,807 40.2 325,729(b) 100 Paul Biddelman — — 6,357 * — — — — Thomas Edelman — * 109,501(c)(d) 3.5 — — — — I. Joseph Massoud 555 * 6,552 * — — — — William P. Nicoletti — — 3,552 * — — — — Stephen Russell — — 3,552 * — — — — Richard F. Ambury 2,125 * — — — — — — Ami Trauber — — — — — — — — James Bottiglieri 1,500 * 634 * — — — — Joseph P. Cavanaugh 1,000 * 7,669 * — — — — Angelo J. Catania — — 1,447 * — — — — All officers and directorsand Star Gas LLC as agroup (13 persons) 11,180 * 204,651 6.5% 206,557 59.8% 325,729 100%(a)For purpose of this table, the number of General Partner Units is deemed to include the 0.01% General Partner interest in Star Gas Propane.(b)Assumes each of Star Gas LLC owners may be deemed to beneficially own all of Star Gas LLC’s general partner units and senior subordinated units,however, they disclaim beneficial ownership of these units.(c)Includes senior subordinated units owned by Mr. Edelman’s wife and trust for the benefit of his minor children.(d)Includes 6,536 senior subordinated units owned by trusts for the benefit of Mr. Edelman’s siblings for which Mr. Edelman serves as Trustee. Mr.Edelman disclaims beneficial ownership of these units.(e)Does not reflect the issuance of units vested, for fiscal 2003, under the Director and Employees Incentive Plan that will be issued after December 15,2003. *Amount represents less than 1%. Section 16(a) of the Securities Exchange Act of 1934 requires the General Partner’s officers and directors, and persons who own more than 10% of a registeredclass of the Partnership’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership with the Securities and ExchangeCommission (“SEC”). Officers, directors and greater than 10 percent unitholders are required by SEC regulation to furnish the General Partner with copies ofall Section 16(a) forms. Based solely on its review of the copies of such forms received by the General Partner, or written representations from certain reporting persons that no Form5’s were required for those persons, the General Partner believes that during fiscal year 2003 all filing requirements applicable to its officers, directors, andgreater than 10 percent beneficial owners were met in a timely manner. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership and the General Partner have certain ongoing relationships with Petro and its affiliates. Affiliates of the General Partner, including Petro,perform certain administrative services for the General Partner on behalf of the Partnership. Such affiliates do not receive a fee for such services, but arereimbursed for all direct and indirect expenses incurred in connection therewith. Mrs. Audrey Sevin, a Director of the General Partner, also serves as the Secretary of the General Partner. As a full time employee of the Partnership, Mrs.Audrey Sevin provides employee and unitholder relations services for which she receives a salary of $199,000 per annum. Mrs. Sevin was the beneficiary of aretirement plan for her late husband, Mr. Malvin Sevin. Petro Inc., a subsidiary of the Partnership, paid Mrs. Sevin $300,000 per annum from January 1993until December 2002 as the beneficiary of his retirement plan. 39 Table of Contents ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table presents the aggregate fees for professional audit services rendered by KPMG LLP including fees for the audit of the Partnership’s annualfinancial statements for the fiscal years 2002 and 2003, and for fees billed for other services rendered by KPMG LLP (in thousands). 2002 2003Audit Fees (1) $750 $877Audit-Related Fees (2) 194 171 Audit and Audit-Related Fees 944 1,048Tax Fees (3) 355 335 Total Fees $1,299 $1,383 1)Audit fees were for professional services rendered in connection with audits and quarterly reviews of the consolidated financial statements of thePartnership, review of and preparation of consents for registration statements filed with the Securities and Exchange Commission, for review of thePartnership’s tax provision and for subsidiary statutory audits. Audit fees incurred in connection with registration statements was $170 and $227 forfiscal years 2002 and 2003, respectively.2)Audit-related fees were principally for audits of financial statements of certain employee benefit plans and other services related to financialaccounting and reporting standards.3)Tax fees related to services for tax consultation and tax compliance. Audit Committee: Pre-Approval Policies and Procedures. At its regularly scheduled and special meetings, the Audit Committee of the Board of Directorsconsiders and pre-approves any audit and non-audit services to be performed by the Partnership’s independent accountants. The Audit Committee hasdelegated to its chairman, an independent member of the Partnership’s Board of Directors, the authority to grant pre-approvals of non-audit services providedthat the service(s) shall be reported to the Audit Committee at its next regularly scheduled meeting. Promptly after the effective date of the Sarbanes-Oxley Act of 2002, the Audit Committee approved all non-audit services being performed at that time by thePartnership’s principal accountant. On June 18, 2003, the Audit Committee adopted its pre-approval policies and procedures as set forth above. Since thisdate, there were no non-audit services rendered by the Partnership’s principal accountants that were not pre-approved. 40 Table of ContentsPART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1. 2.Financial Statement Schedule. See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1. 3.Exhibits. See “Index to Exhibits” set forth on page 42. (b)Reports on Form 8-K. August 6, 2003 - Star Gas Partners, L.P., a Delaware partnership (the “Partnership”), issued a press release describing its financial results for the threeand nine-month periods ended June 30, 2003. A copy of the Partnership’s press release was furnished as Exhibit 99.1 to this Report on Form 8-K. August 14, 2003 - This Form 8-K consists of a copy of the underwriting agreement for a firm commitment public offering of up to 1,700,000 commonunits (plus a 15% over-allotment option) of the registrant that were previously registered pursuant to a shelf registration statement on Form S-3 (SECFile No. 333-100976), together with an opinion of counsel relating thereto. 41 Table of ContentsINDEX TO EXHIBITS ExhibitNumber Description 4.2 Amended and Restated Agreement of Limited Partnership of Star Gas Partners, L.P.(2) 4.3 Amended and Restated Agreement of Limited Partnership of Star Gas Propane, L.P.(2) 4.4 Amendment No. 1 dated as of April 17, 2001 to Amended and Restated Agreement of Limited Partnership of Star Gas Partners, L.P. (11) 4.5 Unit Purchase Rights Agreement dated April 17, 2001(12) 4.6 Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Star Gas Partners, L.P.(16)10.2 Form of Conveyance and Contribution Agreement among Star Gas Corporation, the Partnership and the Operating Partnership.(3)10.3 Form of First Mortgage Note Agreement among certain insurance companies, Star Gas Corporation and Star Gas Propane L.P.(3)10.4 Intercompany Debt(3)10.5 Form of Non-competition Agreement between Petro and the Partnership(3)10.6 Form of Star Gas Corporation 1995 Unit Option Plan(3)(10)10.7 Amoco Supply Contract(3)10.11 Note Agreement, dated as of January 22, 1998, by and between Star Gas and The Northwestern Mutual Life Insurance Company(6)10.14 Agreement and Plan of Merger by and among Petroleum Heat and Power Co., Inc., Star Gas Partners, L.P., Petro/Mergeco, Inc., and Star GasPropane, L.P.(2)10.15 Exchange Agreement (2)10.16 Amendment to the Exchange Agreement dated as of February 10, 1999(2).10.19 $12,500,000 8.67% First Mortgage Notes, Series A, due March 30, 2012. $15,000,000 8.72% First Mortgage Notes, Series B, due March 30, 2015 dated as of March 30, 2000(5)10.21 June 2000 Star Gas Employee Unit Incentive Plan(6) (10)10.22 $40,000,000 Senior Secured Note Agreement(7)10.23 Note Purchase Agreement for $7,500,000 – 7.62% First Mortgage Notes, Series A, due April 1, 2008 and $22,000,000 – 7.95% First MortgageNotes, Series B, due April 1, 2011(8)10.25 Credit Agreement dated as of June 15, 2001 by Petroleum Heat and Power Co., Inc., and Bank of America N.A. as agent.(9)10.26 Note Agreement dated as of July 30, 2001 for $103,000,000 by Star Gas Partners, L.P., Petro Holdings, Inc., Petroleum Heat and Power Co.,Inc., and the agents Bank of America, N.A. and First Union Securities, Inc.(14)10.27 Employment agreement dated as of September 30, 2001 between Star Gas LLC, and Irik P. Sevin.(10)(14)10.28 Meenan Equity Purchase Agreement dated July 31, 2001(13)10.29 Parity debt credit agreement, dated as of February 22, 2002 between Star Gas Propane, L.P., Fleet National Bank, as Administrative Agent, andBank of America, N.A., as Documentation Agent.(15)10.30 Waiver and third amendment to second amended and restated credit agreement, dated as of April 25, 2002 between Petroleum Heat and PowerCo., Inc., and Bank of America, N.A., as Agent.(15)10.32 Amended and restated credit agreement dated September 23, 2003, between Star Gas Propane, LP and the agents, JPMorgan Chase Bank andWachovia Bank, N.A. (1)10.33 Parity debt agreement, dated September 30, 2003, between Star Gas Propane, LP, and the agents, Fleet National Bank, Wachovia Bank, N.A.and JPMorgan Chase Bank (1)10.34 Employment agreement between Petro Holdings, Inc. and Angelo J. Catania (1)14 Code of ethics(1)21 Subsidiaries of the Registrant(1)23.1 Consent of KPMG LLP(1)31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).(1)31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).(1)32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 (1)32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 (1) 42 Table of ContentsINDEX TO EXHIBITS (continued) (1) Filed herewith.(2) Incorporated by reference to an Exhibit to the Registrant’s Registration Statement on Form S-4, File No. 333-103873, filed with the CommissionMarch 17, 2003.(3) Incorporated by reference to the same Exhibit to Registrant’s Registration Statement on Form S-1, File No. 33-98490, filed with the Commissionon December 13, 1995.(4) Incorporated by reference to the same Exhibit to Registrant’s Registration Statement on Form S-3, File No. 333-47295, filed with the Commissionon March 4, 1998.(5) Incorporated by reference to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on April 26, 2000.(6) Incorporated by reference to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 10, 2000.(7) In Accordance with item 601(B)(4)(iii) of Regulation S-K, the Partnership will provide a copy of this document to the SEC upon request.(8) Incorporated by reference to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2001.(9) Incorporated by reference to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 13, 2001.(10) Management compensation agreement.(11) Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated April 16, 2001.(12) Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 8-A filed with the Commission on April 18, 2001.(13) Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 31, 2001.(14) Incorporated by reference to the same Exhibit to Registrant’s Annual Report on Form 10-K filed with the Commission on December 20, 2001.(15) Incorporated by reference to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q with the Commission on April 30, 2002.(16) Incorporated by referenced to the same Exhibit to Registrant’s Quarterly Report on Form 10-Q with the Commission on June 30, 2003. 43 Table of ContentsSIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the General Partner has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized: Star Gas Partners, L.P.By: Star Gas LLC (General Partner) /s/ Irik P. Sevin By: Irik P. Sevin Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dateindicated: Signature Title Date/s/ Irik P. Sevin Irik P. Sevin Chairman of the Board, Chief Executive Officer andDirectorStar Gas LLC December 22, 2003/s/ Ami Trauber Ami Trauber Chief Financial Officer(Principal Financial and Accounting Officer)Star Gas LLC December 22, 2003/s/ Audrey L. Sevin Audrey L. Sevin DirectorStar Gas LLC December 22, 2003/s/ Paul Biddelman Paul Biddelman DirectorStar Gas LLC December 22, 2003/s/ Thomas J. Edelman Thomas J. Edelman DirectorStar Gas LLC December 22, 2003/s/ I. Joseph Massoud I. Joseph Massoud DirectorStar Gas LLC December 22, 2003/s/ William P. Nicoletti William P. Nicoletti DirectorStar Gas LLC December 22, 2003/s/ Stephen Russell Stephen Russell DirectorStar Gas LLC December 22, 2003 44 Table of ContentsSIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized: Star Gas Finance CompanyBy: (Registrant) /s/ Irik P. Sevin By: Irik P. Sevin Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dateindicated: Signature Title Date/s/ Irik P. Sevin Irik P. Sevin Chairman of the Board, Chief Executive Officer andDirector (Principle Executive Officer)Star Gas Finance Company December 22, 2003/s/ Ami Trauber Ami Trauber Chief Financial Officer(Principal Financial and Accounting Officer)Star Gas Finance Company December 22, 2003/s/ Audrey L. Sevin Audrey L. Sevin DirectorStar Gas Finance Company December 22, 2003 45 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE PagePart II Financial Information: Item 8 - Financial Statements Independent Auditors’ Report F-2 Consolidated Balance Sheets as of September 30, 2002 and 2003 F-3 Consolidated Statements of Operations for the years ended September 30, 2001, 2002and 2003 F-4 Consolidated Statements of Comprehensive Income (Loss) for the years endedSeptember 30, 2001, 2002 and 2003 F-5 Consolidated Statements of Partners’ Capital for the years ended September 30, 2001,2002 and 2003 F-6 Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2002and 2003 F-7 Notes to Consolidated Financial Statements F-8 - F-31 Schedule for the years ended September 30, 2001, 2002 and 2003 II. Valuation and Qualifying Accounts F-32 All other schedules are omitted because they are not applicable or the required information is shown in theconsolidated financial statements or the notes therein. F-1 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESINDEPENDENT AUDITORS’ REPORT The Partners of Star Gas Partners, L.P.: We have audited the consolidated financial statements of Star Gas Partners, L.P. and Subsidiaries as listed in the accompanying index. In connectionwith our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. Theseconsolidated financial statements and financial statement schedule are the responsibility of the Partnership’s management. Our responsibility is to express anopinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Star Gas Partners,L.P. and Subsidiaries as of September 30, 2002 and 2003 and the results of their operations and their cash flows for each of the years in the three-year periodended September 30, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the relatedfinancial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein. As discussed in Notes 2 and 8 to the consolidated financial statements, Star Gas Partners, L.P. adopted the provisions of Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets,” as of October 1, 2002. KPMG LLPStamford, ConnecticutDecember 4, 2003 F-2 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (in thousands) September 30, 2002 2003 ASSETS Current assets Cash and cash equivalents $61,481 $10,111 Receivables, net of allowance of $8,282 and $9,560, respectively 83,452 105,639 Inventories 39,453 42,391 Prepaid expenses and other current assets 37,815 52,968 Total current assets 222,201 211,109 Property and equipment, net 241,892 262,301 Long-term portion of accounts receivables 6,672 7,145 Goodwill 264,551 278,857 Intangibles, net 193,370 201,784 Deferred charges and other assets, net 15,080 14,414 Total Assets $943,766 $975,610 LIABILITIES AND PARTNERS’ CAPITAL Current liabilities Accounts payable $20,360 $31,026 Working capital facility borrowings 26,195 12,000 Current maturities of long-term debt 72,113 22,847 Accrued expenses 69,444 83,197 Unearned service contract revenue 30,549 32,036 Customer credit balances 70,583 77,558 Total current liabilities 289,244 258,664 Long-term debt 396,733 499,341 Other long-term liabilities 25,525 27,829 Partners’ capital (Deficit) Common unitholders 242,696 210,636 Subordinated unitholders 3,105 (57)General partner (2,710) (3,082)Accumulated other comprehensive loss (10,827) (17,721) Total Partners’ capital 232,264 189,776 Total Liabilities and Partners’ Capital $943,766 $975,610 See accompanying notes to consolidated financial statements. F-3 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data) Years Ended September 30, 2001 2002 2003 Sales: Product $958,846 $853,523 $1,273,384 Installations, service and appliances 127,127 171,535 190,364 Total sales 1,085,973 1,025,058 1,463,748 Cost and expenses: Cost of product 628,215 479,169 809,194 Cost of installations, service and appliances 143,102 182,809 201,153 Delivery and branch expenses 200,059 235,708 293,523 Depreciation and amortization expenses 44,396 59,049 53,160 General and administrative expenses 40,954 41,999 58,111 Operating income 29,247 26,324 48,607 Interest expense (37,293) (40,927) (44,449)Interest income 3,566 3,425 3,868 Amortization of debt issuance costs (737) (1,447) (2,232)Loss on redemption of debt — — (181) Income (loss) before income taxes and cumulative effect of change in accountingprinciple (5,217) (12,625) 5,613 Income tax expense (benefit) 1,498 (1,456) 1,500 Income (loss) before cumulative effect of change in accounting principle (6,715) (11,169) 4,113 Cumulative effect of change in accounting principles: Adoption SFAS No. 133, net of income taxes 1,466 — — Adoption SFAS No. 142, net of income taxes — — (3,901) Net income (loss) $(5,249) $(11,169) $212 General Partner’s interest in net income (loss) $(75) $(116) $2 Limited Partners’ interest in net income (loss) $(5,174) $(11,053) $210 Basic and diluted net income (loss) per Limited Partner unit $(.23) $(.38) $.01 Weighted average number of Limited Partner units outstanding: Basic 22,439 28,790 32,659 Diluted 22,439 28,790 32,767 See accompanying notes to consolidated financial statements. F-4 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Years Ended September 30, 2001 2002 2003 Net income (loss) $(5,249) $(11,169) $212 Other comprehensive income (loss): Unrealized gain (loss) on derivative instruments (18,594) 12,968 (5,425)Unrealized loss on pension plan obligations (4,149) (11,596) (1,469) Comprehensive loss $(27,992) $(9,797) $(6,682) Reconciliation of Accumulated Other Comprehensive Income (Loss)(in thousands) Pension PlanObligations DerivativeInstruments Total Balance as of September 30, 2000 $— $— $— Cumulative effect of the adoption of SFAS No. 133 — 10,544 10,544 Reclassification to earnings — (2,473) (2,473)Unrealized loss on pension plan obligations (4,149) — (4,149)Unrealized loss on derivative instruments — (16,121) (16,121) Other comprehensive loss (4,149) (18,594) (22,743)Balance as of September 30, 2001 (4,149) (8,050) (12,199)Reclassification to earnings — 16,252 16,252 Unrealized loss on pension plan obligations (11,596) — (11,596)Unrealized loss on derivative instruments — (3,284) (3,284) Other comprehensive income (loss) (11,596) 12,968 1,372 Balance as of September 30, 2002 (15,745) 4,918 (10,827)Reclassification to earnings — (8,074) (8,074)Unrealized loss on pension plan obligations (1,469) — (1,469)Unrealized gain on derivative instruments — 2,649 2,649 Other comprehensive loss (1,469) (5,425) (6,894)Balance as of September 30, 2003 $(17,214) $(507) $(17,721) See accompanying notes to consolidated financial statements. F-5 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF PARTNERS’ CAPITALYears Ended September 30, 2001, 2002 and 2003 (in thousands, except per unit amounts) Number of Units Common SeniorSub. JuniorSub. GeneralPartner AccumulativeOtherComprehensiveIncome (Loss) TotalPartners’Capital Common SeniorSub. JuniorSub. GeneralPartner Balance as of September 30, 2000 16,045 2,587 345 326 $134,672 $6,125 $(35) $(1,584) $— $139,178 Issuance of units: Common 7,349 123,846 123,846 Senior Subordinated 130 3,319 3,319 Net Loss (4,475) (620) (79) (75) (5,249)Other Comprehensive Loss, net (12,199) (12,199)Distributions: ($2.300 per unit) (44,132) (44,132)($1.975 per unit) (5,341) (5,341)($1.725 per unit) (597) (561) (1,158) Balance as of September 30, 2001 23,394 2,717 345 326 209,911 3,483 (711) (2,220) (12,199) 198,264 Issuance of units: Common 5,576 100,409 100,409 Senior Subordinated 417 6,742 6,742 Net Loss (9,815) (1,115) (123) (116) (11,169)Other Comprehensive Income, net 1,372 1,372 Unit Compensation Expense: Common 201 201 Senior Subordinated 166 166 Distributions: ($2.30 per unit) (58,010) (58,010)($1.65 per unit) (4,939) (4,939)($1.15 per unit) (398) (374) (772) Balance as of September 30, 2002 28,970 3,134 345 326 242,696 4,337 (1,232) (2,710) (10,827) 232,264 Issuance of units 1,701 8 34,180 34,180 Net Income 189 20 1 2 212 Other Comprehensive Loss, net (6,894) (6,894)Unit Compensation Expense: Common 204 204 Senior Subordinated 2,402 2,402 Distributions: ($2.30 per unit) (66,633) (66,633)($1.65 per unit) (5,188) (5,188)($1.15 per unit) (397) (374) (771) Balance as of September 30, 2003 30,671 3,142 345 326 $210,636 $1,571 $(1,628) $(3,082) $(17,721) $189,776 See accompanying notes to consolidated financial statements. F-6 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2001 2002 2003 Cash flows provided by (used in) operating activities: Net income (loss) $(5,249) $(11,169) $212 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 44,396 59,049 53,160 Amortization of debt issuance cost 737 1,447 2,232 Loss on redemption of debt — — 181 Unit compensation expense 3,315 367 2,606 Provision for losses on accounts receivable 10,624 10,459 8,899 (Gain) loss on sales of fixed assets, net 26 336 (156)Cumulative effect of change in accounting principles: For the adoption of SFAS No. 133 (1,466) — — For the adoption of SFAS No. 142 — — 3,901 Changes in operating assets and liabilities: Decrease (increase) in receivables (44,905) 11,314 (27,572)Decrease (increase) in inventories (3,824) 2,805 (224)Increase in other assets (15,066) (16,167) (12,964)Increase (decrease) in accounts payable 10,942 (15,591) 10,262 Increase in other current and long-term liabilities 63,614 22,605 16,684 Net cash provided by operating activities 63,144 65,455 57,221 Cash flows provided by (used in) investing activities: Capital expenditures (17,687) (15,070) (18,473)Proceeds from sales of fixed assets 596 1,882 1,707 Cash acquired in acquisitions 5 — — Acquisitions (239,048) (49,224) (84,391) Net cash used in investing activities (256,134) (62,412) (101,157) Cash flows provided by (used in) financing activities: Working capital facility borrowings 114,250 90,123 178,000 Working capital facility repayments (124,784) (77,794) (192,195)Acquisition facility borrowings 70,700 74,250 94,600 Acquisition facility repayments (95,600) (56,950) (82,300)Repayment of debt (8,980) (22,931) (155,543)Proceeds from issuance of debt 175,923 — 197,333 Distributions (50,631) (63,721) (72,592)Debt issuance costs (5,527) (2,103) (8,917)Proceeds from issuance of Common Units 123,846 100,244 34,180 Other 111 92 — Net cash provided by (used in) financing activities 199,308 41,210 (7,434) Net increase (decrease) in cash 6,318 44,253 (51,370)Cash at beginning of period 10,910 17,228 61,481 Cash at end of period $17,228 $61,481 $10,111 See accompanying notes to consolidated financial statements. F-7 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1)Partnership Organization Star Gas Partners, L.P. (“Star Gas” or the “Partnership”) is a diversified home energy distributor and services provider, specializing in heating oil,propane, natural gas and electricity. Star Gas is a master limited partnership, which at September 30, 2003 had outstanding 30.7 million common units(NYSE: “SGU” representing an 88.9% limited partner interest in Star Gas Partners) and 3.1 million senior subordinated units (NYSE: “SGH”representing a 9.1% limited partner interest in Star Gas Partners) outstanding. Additional Partnership interests include 0.3 million junior subordinatedunits (representing a 1.0% limited partner interest) and 0.3 million general partner units (representing a 1.0% general partner interest). The Partnership is organized as follows: •Star Gas Propane, L.P. (“Star Gas Propane”) is the Partnership’s operating subsidiary and, together with its direct and indirect subsidiaries, accountsfor substantially all of the Partnership’s assets, sales and earnings. Both the Partnership and Star Gas Propane are Delaware limited partnerships thatwere formed in October 1995 in connection with the Partnership’s initial public offering. The Partnership is the sole limited partner of Star GasPropane with a 99% limited partnership interest. •The general partner of both the Partnership and Star Gas Propane is Star Gas LLC, a Delaware limited liability company. The Board of Directors ofStar Gas LLC is appointed by its members. Star Gas LLC owns an approximate 1% general partner interest in the Partnership and also owns anapproximate 1% general partner interest in Star Gas Propane. •The Partnership’s propane operations (the “propane segment”) are conducted through Star Gas Propane and its direct subsidiaries. Star GasPropane markets and distributes propane gas and related products to approximately 345,000 customers in the Midwest, Northeast, Florida andGeorgia. •The Partnership’s heating oil operations (the “heating oil segment”) are conducted through Petro Holdings, Inc. (“Petro”) and its direct andindirect subsidiaries. Petro is a Minnesota corporation that is an indirect wholly owned subsidiary of Star Gas Propane. Petro is a retail distributorof home heating oil and serves over 535,000 customers in the Northeast and Mid-Atlantic. •The Partnership’s electricity and natural gas operations (the “natural gas and electric reseller segment”) are conducted through Total Gas &Electric, Inc. (“TG&E”), a Florida corporation, that is an indirect wholly-owned subsidiary of Petro. TG&E is an energy reseller that marketsnatural gas and electricity to residential households in deregulated energy markets in New York, New Jersey, Florida and Maryland and servesover 64,000 residential customers. •Star Gas Finance Company is a direct wholly-owned subsidiary of the Partnership. Star Gas Finance Company serves as the co-issuer, jointly andseverally with the Partnership, of the Partnership’s $200 million 10 1/4% Senior Notes issued February 6, 2003, which are due in 2013. The SeniorNotes have a direct and unconditional guarantee by the Partnership. The Partnership is dependent on distributions from its subsidiaries to servicethe Partnership’s debt obligations. The distributions from the Partnership’s subsidiaries are not guaranteed and are subject to certain loanrestrictions. Star Gas Finance Company has nominal assets and conducts no business operations. 2)Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include the accounts of Star Gas Partners, L.P. and its subsidiaries. All material intercompany items andtransactions have been eliminated in consolidation. As of September 30, 2001 the Partnership owned 80.0% of TG&E. Revenue and expenses were consolidated with the Partnership with a deduction forthe net loss allocable to the minority interest, which amount was limited based upon the equity of the minority interest. In June 2002, the Partnershipentered into an agreement that resolved certain disputes between the Partnership and the minority interest shareholders of TG&E relating to the initialpurchase of TG&E by the Partnership. This agreement provided for the transfer of the entire minority shareholders’ equity interest in TG&E and thesurrender to the Partnership of certain notes payable to the minority shareholders in the amount of $0.6 million. This transaction was accounted for asthe acquisition of a minority interest and the result was to reduce recorded goodwill by $0.6 million. The book value of all other assets and liabilitiesof TG&E approximated their fair values. F-8 Table of Contents2)Summary of Significant Accounting Policies – (continued) Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results coulddiffer from those estimates. Revenue Recognition Sales of propane, heating oil, natural gas, electricity, propane/heating oil and air conditioning equipment are recognized at the time of delivery of theproduct to the customer or at the time of sale or installation. Revenue from repairs and maintenance service is recognized upon completion of theservice. Payments received from customers for heating oil equipment service contracts are deferred and amortized into income over the terms of therespective service contracts, on a straight-line basis, which generally do not exceed one year. Basic and Diluted Net Income (Loss) per Limited Partner Unit Net Income (Loss) per Limited Partner Unit is computed by dividing net income (loss), after deducting the General Partner’s interest, by the weightedaverage number of Common Units, Senior Subordinated Units and Junior Subordinated Units outstanding. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Inventories Inventories are stated at the lower of cost or market and are computed on a first-in, first-out basis. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method. Goodwill and Intangible Assets Goodwill and intangible assets include goodwill, customer lists and covenants not to compete. Goodwill is the excess of cost over the fair value of net assets in the acquisition of a company. The Partnership amortized goodwill using the straight-line method over a twenty-five year period for goodwill acquired prior to July 1, 2001. In accordance with the provisions of SFAS No. 141 “BusinessCombinations”, goodwill acquired after June 30, 2001 was not amortized. On October 1, 2002, the Partnership adopted the provisions of SFAS No. 142“Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized,but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires intangible assetswith definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” On October 1, 2002, under the provisions of SFASNo. 142, the Partnership ceased amortization of all goodwill. The Partnership also recorded a non-cash charge of $3.9 million in its first fiscal quarter of2003 to reduce the carrying value of the TG&E segment’s goodwill. This charge is reflected as a cumulative effect of change in accounting principle inthe Partnership’s consolidated statement of operations for the year ended September 30, 2003. The Partnership performed its annual impairment reviewduring its fiscal fourth quarter and it concluded that there was no impairment to the carrying value of goodwill, as of August 31, 2003. Customer lists are the names and addresses of the acquired company’s patrons. Based on the historical retention experience of these lists, Star GasPropane amortizes customer lists on a straight-line basis over fifteen years, Petro amortizes customer lists on a straight-line basis over seven to ten yearsand TG&E amortizes customer lists on an accelerated method over six years. Covenants not to compete are non-compete agreements established with the owners of an acquired company and are amortized over the respectivelives of the covenants on a straight-line basis, which are generally five years. F-9 Table of Contents2)Summary of Significant Accounting Policies – (continued) Impairment of Long-lived Assets It is the Partnership’s policy to review intangible assets and other long-lived assets, in accordance with SFAS No. 144, for impairment whenever eventsor changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Partnership determines that the carryingvalues of such assets are recoverable over their remaining estimated lives through undiscounted future cash flow analysis. If such a review shouldindicate that the carrying amount of the assets is not recoverable, it is the Partnership’s policy to reduce the carrying amount of such assets to fair value. Deferred Chargess Deferred charges represent the costs associated with the issuance of debt instruments and are amortized over the lives of the related debt instruments. Advertising Expense Advertising costs are expensed as they are incurred. Advertising expenses were $4.6 million, $6.8 million and $8.2 million in 2001, 2002 and 2003,respectively. Customer Credit Balances Customer credit balances represent pre-payments received from customers pursuant to a budget payment plan (whereby customers pay their estimatedannual usage on a fixed monthly basis) and the payments made have exceeded the charges for deliveries. Environmental Costs The Partnership expenses, on a current basis, costs associated with managing hazardous substances and pollution in ongoing operations. ThePartnership also accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has beenincurred and the amount can be reasonably estimated. Insurance Reserves The Partnership accrues for workers’ compensation, general liability and auto claims not covered under its insurance policies based upon expectationsas to what its ultimate liability will be for these claims. TG&E Customer Acquisition Expense TG&E customer acquisition expense represents the purchase of new accounts from a third party direct marketing company for the Partnership’s naturalgas and electric reseller segment. Such costs are expensed as incurred upon acquisition of new customers. Employee Unit Incentive Plan When applicable, the Partnership accounts for stock-based compensation arrangements in accordance with APB No. 25. Compensation costs for fixedawards on pro-rata vesting are recognized straight-line over the vesting period. The Partnership adopted an employee and director unit incentive planto grant certain employees and directors senior subordinated limited partner units (“incentive units”), as an incentive for increased efforts duringemployment and as an inducement to remain in the service of the Partnership. Grants of incentive units vest twenty percent immediately, with theremaining amount vesting over four consecutive installments if the Partnership achieves annual targeted distributable cash flow. The Partnershiprecords an expense for the incentive units granted, which require no cash contribution, over the vesting period for those units which are probable ofbeing issued. Income Taxes The Partnership is a master limited partnership. As a result, for Federal income tax purposes, earnings or losses are allocated directly to the individualpartners. Except for the Partnership’s corporate subsidiaries, no recognition has been given to Federal income taxes in the accompanying financialstatements of the Partnership. While the Partnership’s corporate subsidiaries will generate non-qualifying Master Limited Partnership revenue,dividends from the corporate subsidiaries to the Partnership are generally included in the determination of qualified Master Limited Partnershipincome. In addition, a portion of the dividends received by the Partnership from the corporate subsidiaries will be taxable to the partners. Net earningsfor financial statement purposes will differ significantly from taxable income reportable to partners as a result of differences between the tax basis andfinancial reporting basis of assets and liabilities and due to the taxable income allocation requirements of the Partnership agreement. For most corporate subsidiaries of the Partnership, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized forthe future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective taxbases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recovered or settled. F-10 Table of Contents2)Summary of Significant Accounting Policies—(continued) Concentration of Revenue with Price Plan Customers During fiscal 2003, approximately 27% of the heating oil volume sold in the Partnership’s heating oil segment was sold to individual customers underan agreement pre-establishing a fixed or maximum sales price of home heating oil over a twelve month period. The fixed or maximum price at whichhome heating oil is sold to these price plan customers is generally renegotiated prior to the heating season of each year based on current marketconditions. The heating oil segment currently enters into derivative instruments (futures, options, collars and swaps) for a substantial majority of theheating oil it sells to these price plan customers in advance and at a fixed cost. Should events occur after a price plan customer’s price is establishedthat increases the cost of home heating oil above the amount anticipated, margins for the price plan customers whose heating oil was not purchased inadvance would be lower than expected, while those customers whose heating oil was purchased in advance would be unaffected. Conversely, shouldevents occur during this period that decrease the cost of heating oil below the amount anticipated, margins for the price plan customers whose heatingoil was purchased in advance could be lower than expected, while those customers whose heating oil was not purchased in advance would beunaffected or higher than expected. Derivatives and Hedging The Partnership primarily uses derivative financial instruments to manage its exposure to market risk related to changes in the current and futuremarket price of home heating oil, propane, and natural gas. The Partnership believes it is prudent to minimize the variability and price risk associatedwith the purchase of home heating oil and propane, accordingly, it is the Partnership’s objective to hedge the cash flow variability associated withforecasted purchases of its inventory held for resale through the use of derivative instruments when appropriate. To a lesser extent, the Partnership alsohedges the fair value of inventory on hand or firm commitments to purchase inventory. To meet these objectives, it is the Partnership’s policy to enterinto various types of derivative instruments to (i) manage the variability of cash flows resulting from the price risk associated with forecasted purchasesof home heating oil, propane, and natural gas and (ii) hedge the downside price risk of firm purchase commitments and in some cases physicalinventory on hand. In October 2000, the Partnership adopted the provisions of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (SFAS No.133) as amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, includingcertain derivative instruments embedded in other contracts, and hedging activities. It requires the recognition of all derivative instruments as assets orliabilities in the Partnership’s balance sheet and measurement of those instruments at fair value and requires that a company formally document,designate and assess the effectiveness and ineffectiveness of transactions that receive hedge accounting. Derivatives that are not designated as hedgesmust be adjusted to fair value through income. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as afair value hedge, along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the hedged item that is attributable tothe hedged risk are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability in cash flows of the designatedhedged item. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. Upon adoption of SFAS No. 133 on October 1, 2000, the Partnership recognized current assets of $12.0 million, a $1.5 million increase in net incomeand a $10.5 million increase in accumulated other comprehensive income all of which were recorded as a cumulative effect of a change in accountingprinciple. All derivative instruments are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, the Partnershipdesignates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge),or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).The Partnership formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective andstrategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedgesto specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Partnership also formally assesses,both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsettingchanges in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that is has ceased to bea highly effective hedge, the Partnership discontinues hedge accounting prospectively. When hedge accounting is discontinued because it isdetermined that the derivative no longer qualifies as an effective hedge, the Partnership continues to carry the derivative on the balance sheet at its fairvalue, and recognized changes in the fair value of the derivative through current-period earnings. F-11 Table of Contents3)Quarterly Distribution of Available Cash In general, the Partnership distributes to its partners on a quarterly basis all “Available Cash.” Available Cash generally means, with respect to anyfiscal quarter, all cash on hand at the end of such quarter less the amount of cash reserves that are necessary or appropriate in the reasonable discretionof the General Partner to (1) provide for the proper conduct of the Partnership’s business, (2) comply with applicable law or any of its debt instrumentsor other agreements or (3) in certain circumstances provide funds for distributions to the common unitholders and the senior subordinated unitholdersduring the next four quarters. The General Partner may not establish cash reserves for distributions to the senior subordinated units unless the GeneralPartner has determined that in its judgment the establishment of reserves will not prevent the Partnership from distributing the Minimum QuarterlyDistribution (“MQD”) on all common units and any common unit arrearages thereon with respect to the next four quarters. Certain restrictions ondistributions on senior subordinated units, junior subordinated units and general partner units could result in cash that would otherwise be AvailableCash being reserved for other purposes. Cash distributions will be characterized as distributions from either Operating Surplus or Capital Surplus asdefined in the Partnership agreement. The senior subordinated units, the junior subordinated units, and general partner units are each a separate class of interest in Star Gas Partners, and therights of holders of those interests to participate in distributions differ from the rights of the holders of the common units. The Partnership intends to distribute to the extent there is sufficient Available Cash, at least a MQD of $0.575 per common unit, or $2.30 per commonunit on a yearly basis. In general, Available Cash will be distributed per quarter based on the following priorities: • First, to the common units until each has received $0.575, plus any arrearages from prior quarters. • Second, to the senior subordinated units until each has received $0.575. • Third, to the junior subordinated units and general partner units until each has received $0.575. • Finally, after each has received $0.575, available cash will be distributed proportionately to all units until target levels are met. If distributions of Available Cash exceed target levels greater than $0.604, the senior subordinated units, junior subordinated units and general partnerunits will receive incentive distributions. In August 2000, the Partnership commenced quarterly distributions on its senior subordinated units at an initial rate of $0.25 per unit. From February2001 to July 2002, the Partnership increased the quarterly distributions on its senior subordinated units, junior subordinated units and general partnerunits to $0.575 per unit. In August 2002, the Partnership announced that it would decrease distributions to its senior subordinated units to $0.25 perunit and would eliminate the distributions to its junior subordinated units and general partner units. In April 2003, the Partnership announced that itwould increase the distributions to its senior subordinated units to $0.575 per unit and that it would resume distributions of $0.575 per unit to itsjunior subordinated units and general partner units. The subordination period will end once the Partnership has met the financial tests stipulated in the partnership agreement, but it generally cannot endbefore March 31, 2006. However, if the general partner is removed under some circumstances, the subordination period will end. When thesubordination period ends, all senior subordinated units and junior subordinated units will convert into Class B common units on a one-for-one basis,and each common unit will be redesignated as a Class A common unit. The main difference between the Class A common units and Class B commonunits is that the Class B common units will continue to have the right to receive incentive distributions and additional units. The subordination period will generally extend until the first day of any quarter after each of the following three events occur: (1)distributions of Available Cash from Operating Surplus on the common units, senior subordinated units, junior subordinated units andgeneral partner units equal or exceed the sum of the minimum quarterly distributions on all of the outstanding common units, seniorsubordinated units, junior subordinated units and general partner units for each of the three non-overlapping four-quarter periodsimmediately preceding that date; (2)the Adjusted Operating Surplus generated during each of the three immediately preceding non-overlapping four-quarter periods equaledor exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, senior subordinated units, juniorsubordinated units and general partner units during those periods on a fully diluted basis for employee options or other employeeincentive compensation. This includes all outstanding units and all common units issuable upon exercise of employee options that have,as of the date of determination, already vested or are scheduled to vest before the end of the quarter immediately following the quarter forwhich the determination is made. It also includes all units that have as of the date of determination been earned by but not yet issued toour management for incentive compensation; and (3)there are no arrearages in payment of the minimum quarterly distribution on the common units. F-12 Table of Contents4)Segment Reporting The Partnership has three reportable operating segments: retail distribution of heating oil, retail distribution of propane, reselling of natural gas andelectricity. The administrative expenses for the public master limited partnership, Star Gas Partners, have not been allocated to the segments.Management has chosen to organize the enterprise under these three segments in order to leverage the expertise it has in each industry, allow eachsegment to continue to strengthen its core competencies and provide a clear means for evaluation of operating results. The heating oil segment is primarily engaged in the retail distribution of home heating oil, related equipment services, and equipment sales toresidential and commercial customers. It operates primarily in the Northeast and Mid-Atlantic states. Home heating oil is principally used by thePartnership’s residential and commercial customers to heat their homes and buildings, and as a result, weather conditions have a significant impact onthe demand for home heating oil. The propane segment is primarily engaged in the retail distribution of propane and related supplies and equipment to residential, commercial,industrial, agricultural and motor fuel customers, in the Midwest, Northeast, Florida and Georgia. Propane is used primarily for space heating, waterheating and cooking by the Partnership’s residential and commercial customers and as a result, weather conditions also have a significant impact onthe demand for propane. The natural gas and electric reseller segment is primarily engaged in offering natural gas and electricity to residential consumers in deregulated energymarkets. In deregulated energy markets, customers have a choice in selecting energy suppliers to power and / or heat their homes; as a result, asignificant portion of this segment’s revenue is directly related to weather conditions. TG&E operates in the New York, New Jersey, Maryland andFlorida, where competitors range from independent resellers, like TG&E, to large public utilities. The public master limited partnership includes the office of the Chief Executive Officer and has the responsibility for maintaining investor relationsand investor reporting for the Partnership. F-13 Table of Contents4)Segment Reporting – (continued) The following are the statements of operations and balance sheets for each segment as of and for the periods indicated. There were no inter-segmentsales. (in thousands)Statements ofOperations Years Ended September 30, 2002 2003 HeatingOil Propane TG&E Partners& Other Consol. HeatingOil Propane TG&E Partners& Other Consol. Sales $790,378 $195,517 $39,163 $— $1,025,058 $1,102,968 $279,300 $81,480 $— $1,463,748 Cost of sales 546,495 82,865 32,618 — 661,978 793,543 145,015 71,789 — 1,010,347 Delivery and branch 174,030 61,678 — — 235,708 217,244 76,279 — — 293,523 Deprec. and amort 40,437 16,783 1,822 7 59,049 35,535 16,958 667 — 53,160 G & A expense 13,630 8,526 15,728 4,115 41,999 22,356 10,568 7,780 17,407 58,111 Operating income (loss) 15,786 25,665 (11,005) (4,122) 26,324 34,290 30,480 1,244 (17,407) 48,607 Net interest expense (income) 24,087 13,227 3,530 (3,342) 37,502 22,391 11,037 383 6,770 40,581 Amortization of debt issuancecosts 1,197 250 — — 1,447 1,655 194 — 383 2,232 (Gain) loss on redemption of debt — — — — — (212) 393 — — 181 Income (loss) before income taxes (9,498) 12,188 (14,535) (780) (12,625) 10,456 18,856 861 (24,560) 5,613 Income tax expense (benefit) (1,700) 244 — — (1,456) 1,200 300 — — 1,500 Income (loss) beforecumulative change inaccounting principle (7,798) 11,944 (14,535) (780) (11,169) 9,256 18,556 861 (24,560) 4,113 Cumulative change inaccounting principle — — — — — — — (3,901) — (3,901) Net income (loss) $(7,798) $11,944 $(14,535) $(780) $(11,169) $9,256 $18,556 $(3,040) $(24,560) $212 Capital Expenditures $9,105 $5,235 $730 $— $15,070 $12,856 $5,521 $96 $— $18,473 Total Assets $619,742 $442,318 $17,570 $(135,864) $943,766 $608,509 $451,778 $17,390 $(102,067) $975,610 (in thousands)Statements of Operations Year Ended September 30, 2001 HeatingOil Propane TG&E Partners& Other Consol. Sales $767,959 $226,340 $91,674 $— $1,085,973 Cost of sales 563,803 124,164 83,350 — 771,317 Delivery and branch 142,968 57,091 — — 200,059 Deprec. and amort. 28,586 13,867 1,934 9 44,396 G & A expense 10,240 6,992 14,588 9,134 40,954 Operating income (loss) 22,362 24,226 (8,198) (9,143) 29,247 Net interest expense (income) 20,891 11,863 2,934 (1,961) 33,727 Amortization of debt issuance costs 506 231 — — 737 Income (loss) before income taxes 965 12,132 (11,132) (7,182) (5,217)Income tax expense 1,200 297 1 — 1,498 Income (loss) before cumulative change in accountingprinciple (235) 11,835 (11,133) (7,182) (6,715)Cumulative change in accounting principle 2,093 (229) (398) — 1,466 Net income (loss) $1,858 $11,606 $(11,531) $(7,182) $(5,249) Capital Expenditures $11,979 $5,390 $318 $— $17,687 Total Assets $591,625 $380,826 $28,756 $(102,388) $898,819 F-14 Table of Contents4)Segment Reporting - (continued) (in thousands)Balance Sheets September 30, 2002 September 30, 2003 HeatingOil Propane TG&E Partners&Other (1) Consol. HeatingOil Propane TG&E Partners&Other (1) Consol.ASSETS Current assets: Cash and cash equivalents $49,474 $8,904 $474 $2,629 $61,481 $4,244 $5,788 $67 $12 $10,111Receivables, net 70,063 10,669 2,720 — 83,452 84,814 15,697 5,128 — 105,639Inventories 27,301 10,156 1,996 — 39,453 24,146 14,415 3,830 — 42,391Prepaid expenses and other currentassets 34,817 2,793 1,009 (804) 37,815 48,168 3,736 1,498 (434) 52,968 Total current assets 181,655 32,522 6,199 1,825 222,201 161,372 39,636 10,523 (422) 211,109Property and equipment, net 66,854 174,298 740 — 241,892 75,715 186,152 434 — 262,301Long-term portion of accountsreceivable 6,672 — — — 6,672 6,108 1,037 — — 7,145Investment in subsidiaries — 137,689 — (137,689) — 3,894 104,024 — (107,918) — Goodwill 219,031 35,502 10,018 — 264,551 232,602 40,138 6,117 — 278,857Intangibles, net 132,628 60,129 613 — 193,370 123,415 78,053 316 — 201,784Deferred charges and other assets, net 12,902 2,178 — — 15,080 5,403 2,738 — 6,273 14,414 Total assets $619,742 $442,318 $17,570 $(135,864) $943,766 $608,509 $451,778 $17,390 $(102,067) $975,610 LIABILITIES AND PARTNERS’CAPITAL Current Liabilities: Accounts payable $11,070 $5,725 $3,565 $— $20,360 $19,428 $7,712 $3,886 $— $31,026Working capital Facility borrowings 23,000 — 3,195 — 26,195 6,000 6,000 — — 12,000Current maturities of long-term debt 60,787 10,626 700 — 72,113 12,597 10,250 — — 22,847Accrued expenses and other currentliabilities 53,754 12,633 1,170 1,887 69,444 60,582 9,222 841 12,552 83,197Due to affiliate (293) (3,321) 2,855 759 — (8,732) (7,600) 6,348 9,984 — Unearned service contract revenue 30,549 — — — 30,549 31,023 1,013 — — 32,036Customer credit balances 49,346 16,487 4,750 — 70,583 49,258 25,458 2,842 — 77,558 Total current liabilities 228,213 42,150 16,235 2,646 289,244 170,156 52,055 13,917 22,536 258,664Long-term debt 230,384 166,349 — — 396,733 191,380 110,850 — 197,111 499,341Due to affiliate — — — — — 116,417 — — (116,417) — Other long-term liabilities 23,456 2,069 — — 25,525 26,532 1,297 — — 27,829Partners’ Capital: Equity Capital 137,689 231,750 1,335 (138,510) 232,264 104,024 287,576 3,473 (205,297) 189,776 Total liabilities and Partners’ Capital $619,742 $442,318 $17,570 $(135,864) $943,766 $608,509 $451,778 $17,390 $(102,067) $975,610 (1)The Partner and Other amounts include the balance sheets of the Public Master Limited Partnership, as well as the necessary consolidation entries toeliminate the investment in Petro Holdings, Star Gas Propane and TG&E. F-15 Table of Contents5)Costs Associated with Exit or Disposal Activities The heating oil segment is seeking to take advantage of its large size and utilize modern technology to increase the efficiency and quality of servicesprovided to its customers. The segment is seeking to create a more customer oriented service company to significantly differentiate itself from itscompetitive peers. A core business process redesign project began in fiscal 2002 with an exhaustive effort to identify customer expectations anddocument existing business processes. As part of the business process redesign project, in fiscal 2003, the heating oil segment consolidated certain heating oil operational activities and alsooutsourced the area of customer relationship management as both a business improvement and cost reduction strategy. The heating oil segmentrecognized $2.0 million of general and administrative expenses, which related to employee termination benefits and separation costs for its businessimplementation redesign project during the fiscal 2003. The following table sets forth the components of the heating oil segment’s accruals and activity for the year ended September 30, 2003: (in millions) EmployeeSeparationCosts Balance at September 30, 2002 $— Fiscal 2003 employee termination benefits and separation costs 2.0 Cash payments (1.3) Balance at September 30, 2003 $0.7 The employee termination benefits and separation costs related to the business redesign project totaled $2.0 million. The heating oil segment recordedthese costs during fiscal 2003 in general and administrative expenses. F-16 Table of Contents6)Inventories The components of inventory were as follows: September 30,(in thousands) 2002 2003Propane gas and other fuels $6,175 $9,262Propane appliances and equipment 3,981 5,153Heating oil and other fuels 15,555 11,294Fuel oil parts and equipment 11,746 12,852Natural gas 1,996 3,830 $39,453 $42,391 Inventory Derivative Instruments The Partnership periodically hedges a portion of its home heating oil, propane and natural gas purchases and sales through futures, options, collars andswap agreements. To hedge a substantial portion of the purchase price associated with heating oil gallons anticipated to be sold to its price plan customers, thePartnership at September 30, 2003 had outstanding 67.1 million gallons of futures contracts to buy heating oil with a notional value of $51.5 millionand a fair value of $1.2 million; 140.1 million gallons of option contracts to buy heating oil with a notional value of $106.8 million and a fair value of$9.2 million. The contracts expire at various times with no contract expiring later than June 30, 2004. The Partnership recognizes the fair value of thesederivative instruments as assets. To hedge a substantial portion of the purchase price associated with propane gallons anticipated to be sold to its fixed price customers, the Partnershipat September 30, 2003 had outstanding swap contracts to buy 17.2 million gallons of propane with a notional value of $9.4 million and a fair valuetotaling a negative $0.5 million; 3.9 million gallons of option contracts to buy propane with a notional value of $2.3 million and a fair value of $0.1million and 7.7 million gallons of option contracts to sell propane with a notional value of $3.9 million and a fair value of $0.2 million. The contractsexpire at various times with no contracts expiring later than June 30, 2004. The Partnership recognizes the fair value of these derivative instruments asassets. For the year ended September 30, 2002, the Partnership has recognized the following for derivative instruments designated as cash flow hedges: $29.3million loss in earnings due to instruments expiring during the current year, $4.9 million gain in accumulated other comprehensive income due to theeffective portion of derivative instruments outstanding at September 30, 2002, and less than $0.1 million gain in earnings due to hedge ineffectivenessfor derivative instruments outstanding during the year ended September 30, 2002. For derivative instruments accounted for as fair value hedges, thePartnership recognized a $2.2 million gain in earnings due to instruments expiring during the current year, and a $0.1 million loss in earnings for thechange in the fair value of derivative instruments outstanding at September 30, 2002. For derivative instruments not designated as hedginginstruments, the Partnership recognized a $0.4 million gain in earnings due to instruments expiring during the year, and a $0.1 million gain for thechange in fair value of derivative instruments outstanding at September 30, 2002. For the year ended September 30, 2003, the Partnership had recognized the following for derivative instruments designated as cash flow hedges: $14.3million gain in earnings due to instruments which expired during the fiscal year ended September 30, 2003, $0.5 million loss in accumulated othercomprehensive income due to the effective portion of derivative instruments outstanding at September 30, 2003, $0.3 million loss due to hedgeineffectiveness for derivative instruments outstanding during the year ended September 30, 2003. For derivative instruments accounted for as fair valuehedges, the Partnership recognized a $0.2 million loss in earnings due to instruments which expired during the fiscal year ended September 30, 2003,and a $0.2 million loss in earnings for the change in the fair value of derivative instruments outstanding during the year ended September 30, 2003. Forderivative instruments not designated as hedging instruments, the Partnership recognized a $2.5 million loss in earnings due to instruments whichexpired during the fiscal year ended September 30, 2003, and a $0.3 million loss for the change in fair value of derivative instruments outstanding atSeptember 30, 2003. The Partnership recorded $9.9 million for the fair value of its derivative instruments, to other current assets, at September 30, 2003. The balance inaccumulated other comprehensive income for effective cash flow hedges is expected to be reclassified into earnings, through cost of goods sold, overthe next 12 months. F-17 Table of Contents7)Property, Plant and Equipment The components of property, plant and equipment and their estimated useful lives were as follows: September 30, EstimatedUseful Lives(in thousands) 2002 2003 Land $20,620 $22,820 Buildings and leasehold improvements 32,427 39,227 4 - 30 yearsFleet and other equipment 61,194 71,648 3 - 30 yearsTanks and equipment 178,612 191,060 8 - 30 yearsFurniture and fixtures 38,309 50,340 3 - 12 years Total 331,162 375,095 Less accumulated depreciation 89,270 112,794 Property and equipment, net $241,892 $262,301 8)Goodwill and Other Intangibles Assets On October 1, 2002, Star Gas adopted the provisions of SFAS No. 142, which required the Partnership to discontinue amortizing goodwill. SFAS No.142 also requires that goodwill be reviewed for impairment upon adoption of SFAS No. 142 and annually thereafter. The Partnership performed itsannual impairment review during its fourth fiscal quarter of 2003, and it will continue to perform this annual review each year during its fourth fiscalquarter. Under SFAS No. 142, goodwill impairment is deemed to exist if the carrying amount of a reporting unit exceeds its estimated fair value. If goodwill of areporting unit is determined to be impaired, the amount of impairment is measured based on the excess of the net book value of the goodwill over theimplied fair value of the goodwill. The Partnership’s reporting units are consistent with the operating segments identified in Note 4 – SegmentReporting. Upon adoption of SFAS No. 142 in the first fiscal quarter of 2003, the Partnership recorded a non-cash charge of approximately $3.9 million to reducethe carrying value of its goodwill for its TG&E segment. This charge is reflected as a cumulative effect of change in accounting principle in thePartnership’s consolidated statement of operations for the fiscal year ended September 30, 2003. In calculating the impairment charge, the fair value ofthe reporting units were estimated using a discounted cash flow methodology. A summary of changes in the Partnership’s goodwill during the year ended September 30, 2003, by business segment is as follows (in thousands): Heating OilSegment PropaneSegment TG&ESegment Total Balance as of October 1, 2002 $219,031 $35,502 $10,018 $264,551 Fiscal 2003 acquisitions 13,571 4,636 — 18,207 Fiscal 2003 impairment charge — — (3,901) (3,901) Balance as of September 30, 2003 $232,602 $40,138 $6,117 $278,857 Intangible assets subject to amortization consist of the following (in thousands): September 30, 2002 September 30, 2003 GrossCarryingAmount AccumulatedAmortization Net GrossCarryingAmount AccumulatedAmortization NetCustomer lists $257,284 $70,332 $186,952 $292,213 $95,451 $196,762Covenants not to compete 12,343 5,925 6,418 12,959 7,937 5,022 $269,627 $76,257 $193,370 $305,172 $103,388 $201,784 F-18 Table of Contents8)Goodwill and Other Intangibles Assets (continued) The Partnership’s results for the fiscal years ended September 30, 2001 and 2002 on a historic basis did not reflect the impact of the provisions of SFASNo. 142. Had the Partnership adopted SFAS No. 142 on October 1, 2000, the unaudited pro forma effect on Basic and Diluted net income (loss) andLimited Partners’ interest in net income (loss) would have been as follows: Net Income (Loss) Basic and Diluted NetIncome (Loss) Per Unit 2001 2002 2003 2001 2002 2003(in thousands, except per unit data) As reported: Net Income (loss) $(5,249) $(11,169) $212 $(0.23) $(0.39) $0.01Add: Goodwill amortization 7,887 8,275 — 0.35 0.29 — Income tax impact — — — — — — Adjusted: Net Income (loss) 2,638 (2,894) 212 0.12 (0.10) 0.01General Partner’s interest in net income (loss) 38 (30) 2 — — — Adjusted: Limited Partners’ interest in net income $ 2,600 $ (2,864) $ 210 $0.12 $ (0.10) $ 0.01 Amortization expense for intangible assets was $18.2 million, $26.4 million and $27.1 million for the fiscal years ended September 30, 2001, 2002 and2003, respectively. Total estimated annual amortization expense related to other intangible assets subject to amortization, for the year endedSeptember 30, 2004 and the four succeeding fiscal years ended September 30, is as follows (in thousands of dollars): Amount2004 $29,7332005 29,2982006 28,1052007 27,4532008 25,514 F-19 Table of Contents9)Long-Term Debt and Bank Facility Borrowings Long-term debt consisted of the following at the indicated dates: September 30. (in thousands) 2002 2003 Star Gas 10.25% Senior Notes (a) $— $197,111 Propane Segment: 8.04% First Mortgage Notes (b) 74,375 61,500 7.17% First Mortgage Notes (b) 11,000 — 8.70% First Mortgage Notes (b) 27,500 27,500 7.89% First Mortgage Notes (b) 29,500 17,500 Acquisition Facility Borrowings (c) 20,400 12,600 Parity Debt Facility Borrowings (c) 14,200 2,000 Working Capital Facility Borrowings (c) — 6,000 Heating Oil Segment: 7.92% Senior Notes (d) 90,000 61,000 9.0% Senior Notes (e) 45,273 — 8.25% Senior Notes (f) 109,068 77,292 8.96% Senior Notes (g) 40,000 30,000 Working Capital Facility Borrowings (h) 23,000 6,000 Acquisition Facility Borrowings (h) — 33,000 Acquisition Notes Payable (i) 3,815 931 Subordinated Debentures (j) 3,015 1,754 TG&E Segment: Working Capital Facility Borrowings (k) 3,195 — Acquisition Facility Borrowings (k) 700 — Total debt 495,041 534,188 Less current maturities (72,113) (22,847)Less working capital facility borrowings (26,195) (12,000) Total long-term portion debt $396,733 $499,341 (a)On February 6, 2003, the Partnership and its wholly owned subsidiary, Star Gas Finance Company, jointly issued $200.0 million face value SeniorNotes due on February 15, 2013. These notes accrue interest at an annual rate of 10.25% and require semi-annual interest payments on February 15 andAugust 15 of each year commencing on August 15, 2003. These notes are redeemable at the option of the Partnership, in whole or in part, from time totime by payment of a premium, as defined. These notes were priced at 98.466% for total gross proceeds of $196.9 million. The Partnership also incurred$7.2 million of fees and expenses in connection with the issuance of these notes resulting in net proceeds of $189.7 million. During the year endedSeptember 30, 2003, the Partnership used $169.0 million from the proceeds of the 10.25% Senior Notes to repay existing long-term debt and workingcapital facility borrowings, $17.7 million for acquisitions, $3.0 million for capital expenditures, and recognized a $0.2 million loss on redemption ofdebt. The debt discount related to the issuance of the 10.25% Senior Notes was $3.1 million and will be amortized and included in interest expensethrough February 2013.(b)In December 1995, Star Gas Propane assumed $85.0 million of first mortgage notes (the “First Mortgage Notes”) with an annual interest rate of 8.04%in connection with the initial Partnership formation. In January 1998, Star Gas Propane issued an additional $11.0 million of First Mortgage Notes withan annual interest rate of 7.17%. In March 2000, Star Gas Propane issued $27.5 million of 8.70% First Mortgage Notes. In March 2001, Star Gas issued$29.5 million of First Mortgage Notes with an average annual interest rate of 7.89% per year. Obligations under the First Mortgage Note Agreementsare secured, on an equal basis with Star Gas Propane’s obligations under the Star Gas Propane Bank Credit Facilities, by a mortgage on substantially allof the real property and liens on substantially all of the operating facilities, equipment and other assets of Star Gas Propane. The First Mortgage Notesrequires semiannual payments, without premium on the principal thereof, which began on March 15, 2001 and have a final maturity of March 30,2015. Interest on the First Mortgage Notes is payable semiannually in March and September. The First Mortgage Note Agreements contain variousrestrictive and affirmative covenants applicable to Star Gas Propane; the most restrictive of these covenants relate to the incurrence of additionalindebtedness and restrictions on dividends, certain investments, guarantees, loans, sales of assets and other transactions. In fiscal 2003, the Propanesegment repaid $11.0 million of its 7.17% First Mortgage Notes, $12.9 million of its 8.04% First Mortgage Notes and $12.0 million of its 7.89% FirstMortgage Notes from the net proceeds of the $200.0 million Senior Note issuance. F-20 Table of Contents9)Long-Term Debt and Bank Facility Borrowings (continued) (c)The Star Gas Propane Bank Credit Facilities currently consist of a $25.0 million Acquisition Facility, a $25.0 million Parity Debt Facility and a $24.0million Working Capital Facility. At September 30, 2003, there was $12.6 million of borrowings outstanding under its Acquisition Facility, $6.0million borrowed under the Working Capital Facility and $2.0 million of borrowings outstanding under its Parity Debt Facility. The agreementgoverning the Bank Credit Facilities contains covenants and default provisions generally similar to those contained in the First Mortgage NoteAgreements. The Bank Credit Facilities bear interest at a rate based upon the London Interbank Offered Rate plus a margin (as defined in the BankCredit Facilities). The Partnership is required to pay a fee for unused commitments which amounted to $0.1 million, $0.2 million and $0.2 millionduring fiscal 2001, 2002 and 2003, respectively. For fiscal 2002 and 2003, the weighted average interest rate on borrowings under these facilities was4.2% and 4.0%, respectively. At September 30, 2003, the interest rate on the borrowings outstanding was 4.6%. Borrowings under the Working CapitalFacility requires a minimum period of 30 consecutive days during each fiscal year that the facility will have no amount outstanding. This facility willexpire on September 30, 2006. Borrowings under the Acquisition and Parity Debt Facilities will revolve until September 30, 2006, after which time anyoutstanding loans thereunder, will amortize in eight equal quarterly principal payments with a final payment due on September 30, 2008.(d)The Petro 7.92% Senior Secured Notes were issued in six separate series in a private placement to institutional investors as part of its acquisition by thePartnership. The Senior Secured Notes are guaranteed by Star Gas Partners and are secured equally and ratably with Petro’s existing senior debt andbank credit facilities by Petro’s cash, accounts receivable, notes receivable, inventory and customer list. Each series of Senior Secured Notes willmature between April 1, 2003 and April 1, 2014. Only interest on each series is due semiannually. On the last interest payment date for each series, theoutstanding principal amount is due and payable in full. The note agreements for the senior secured notes contain various negative and affirmativecovenants. The most restrictive of the covenants include restrictions on payment of dividends or other distributions by Star Gas Partners if certain ratiotests as defined in the note agreement are not achieved. On February 6, 2003 and April 1, 2003, the heating oil segment repaid $18.0 million and $11.0million, of its 7.92% Senior Notes from the net proceeds of the $200.0 million Senior Note issuance, respectively.(e)The Petro 9.0% Senior Secured Notes, which pay interest semiannually, were issued under agreements that are substantially identical to the agreementsunder which the $90.0 million of Senior Secured Notes were issued, including negative and affirmative covenants. The 9.0% Senior Notes wereguaranteed by Star Gas Partners. The notes had a final maturity payment of $45.3 million which was paid on October 1, 2002.(f)The Petro Senior Notes bear an average interest rate of 8.25%. These Senior Notes pay interest semiannually and were issued under agreements that aresubstantially identical to the agreement under which the 7.92% and 9.0% Senior Notes were issued. These notes are also guaranteed by Star GasPartners. The largest series has an annual interest rate of 8.05% and a maturity date of August 1, 2006 in the amount of $73.0 million. The remainingseries bear an annual interest rate of 8.73% and are due in equal annual sinking fund payments due August 1, 2009 and ending on August 1, 2013. In March 2002, the heating oil segment entered into two interest rate swap agreements designed to hedge $73.0 million in underlying fixed rate seniornote obligations. The swap agreements required the counterparties to pay an amount based on the stated fixed interest rate (annual rate 8.05%)pursuant to the senior notes for an aggregate $2.9 million due every six months on August 1 and February 1. In exchange, the heating oil segment wasrequired to make semi-annual floating interest rate payments on August 1st and February 1st based on an annual interest rate equal to the 6 monthLIBOR interest rate plus 2.83% applied to the same notional amount of $73.0 million. The swap agreements were recognized as fair value hedges.Amounts to be paid or received under the interest rate swap agreements were accrued and recognized over the life of the agreements as an adjustment tointerest expense. At September 30, 2002, Petro recognized a $6.1 million increase in the fair value of its interest rate swaps which is recorded in otherassets with the fair value of long-term debt increasing by a corresponding amount at that date. On October 17, 2002, Petro signed mutual terminationagreements of its interest rate swap transactions and received $4.8 million which was reflected as a basis adjustment to the fair values of the related debtand is being amortized using the effective yield over the remaining lives of the swap agreements as a reduction of interest expense. On February 6, 2003, the Heating Oil segment repaid $26.0 million, of its 8.25% Senior Notes from the net proceeds of the $200.0 million Senior Noteissuance. In September 2003, the heating oil segment entered into an interest rate swap agreement designed to hedge $55.0 million in underlying fixed ratesenior note obligations. The swap agreement, which will expire on August 1, 2006, requires the counterparty to pay an amount based on the statedfixed interest rate (annual rate 8.05%) pursuant to the senior notes for $2.2 million due every six months on August 1 and February 1. In exchange, theheating oil segment is required to make semi-annual floating interest rate payments on August 1 and February 1 based on an annual interest rate equalto the 6 month LIBOR interest rate plus 5.52% applied to the same notional amount of $55.0 million. The swap agreements are recognized as fair valuehedges. Amounts to be paid or received under the interest rate swap agreements are accrued and recognized over the life of the agreements as anadjustment to interest expense. At September 30, 2003, Petro recognized a $0.3 million increase in the fair value of its interest rate swaps which isrecorded in other assets with the fair value of long term debt increasing by a corresponding amount. F-21 Table of Contents9)Long-Term Debt and Bank Facility Borrowings (continued) (g)The Petro 8.96% Senior Notes which pay interest semiannually, were issued under agreements that are substantially identical to the agreements underwhich the Partnership’s other Senior Notes were issued. These notes are also guaranteed by Star Gas Partners. These notes were issued in three separateseries. The largest series has annual sinking fund payments of $2.9 million due beginning November 1, 2004 and ending November 1, 2010. The othertwo series are due on November 1, 2004 and November 1, 2005. On February 6, 2003, the Heating Oil segment repaid $10.0 million, of these SeniorNotes that was due on November 1, 2004, from the net proceeds of the $200.0 million Senior Note issuance.(h)The Petro Bank Facilities consist of three separate facilities; a $115.5 million working capital facility, a $27.5 million insurance letter of credit facilityand a $50.0 million acquisition facility. At September 30, 2003, there was $6.0 million of borrowings under the working capital facility, $26.9 millionof the insurance letter of credit facility was used, and $33.0 million outstanding under the acquisition facility. The working capital facility and letter ofcredit facility will expire on June 30, 2004. Amounts outstanding under the acquisition facility on June 30, 2004 will convert to a term loan which willbe payable in eight equal quarterly principal payments with a final payment due on June 30, 2006. Amounts borrowed under the working capitalfacility are subject to a requirement to maintain a zero balance for 45 consecutive days during the period from April 1 to September 30 of each year. Inaddition, each facility will bear an interest rate that is based on either the LIBOR or another base rate plus a set percentage. The bank facilitiesagreement contains covenants and default provisions generally similar to those contained in the note agreement for the Senior Secured Notes withadditional covenants. The Partnership is required to pay a commitment fee, which amounted to $1.0 million and $0.9 million for the years endedSeptember 30, 2002 and 2003, respectively. For the years ended September 30, 2002 and 2003, the weighted average interest rate for borrowings underthese facilities was 4.09% and 3.4%, respectively. As of September 30, 2003, the interest rate on the borrowings outstanding was 2.9%(i)These Petro notes were issued in connection with the purchase of fuel oil dealers and other notes payable and are due in monthly and quarterlyinstallments. Interest is at various rates ranging from 5% to 15% per annum, maturing at various dates through 2007.(j)These Petro Subordinated Debentures consist of $1.3 million 10 1/8% subordinated notes due April 1, 2003, $0.7 million of 9 3/8% SubordinatedNotes due February 1, 2006, and $1.1 million of 12 1/4% subordinated notes due February 1, 2005. In October 1998, the indentures under which the 10/18%, 9 3/8% and 12 1/4% subordinated notes were issued were amended to eliminate substantially all of the covenants provided by the indentures.On April 1, 2003, the heating oil segment repaid $1.3 million of 10 1/8% subordinated debentures that was due on April 1, 2003 from the net proceedsof the $200.0 million senior note issuance.(k)At September 30, 2002, TG&E’s Bank Facilities consisted of a $3.0 million Acquisition Facility and a $15.4 million Working Capital Facility andwere secured by substantially all of the assets of TG&E. At September 30, 2002, $0.7 million and $3.2 million was borrowed under the AcquisitionFacility and Working Capital Facility, respectively. The Partnership was required to pay a fee for unused commitments, which amounted to less than$0.1 million for fiscal 2002. For fiscal 2002, the weighted average interest rate on borrowings under these facilities was 5.1%. At September 30, 2002,the interest rate on the borrowings outstanding was 4.8%. In October 2002, TG&E repaid the Bank Facility borrowings. On October 31, 2002, thePartnership contributed the stock of TG&E to Petro, thus making TG&E a wholly owned subsidiary of Petro. As of October 31, 2002, all of TG&E’sbank facility borrowing agreements were terminated. As of September 30, 2003, the Partnership was in compliance with all debt covenants. As of September 30, 2003, the maturities including working capitalborrowings during fiscal years ending September 30 are set forth in the following table: (in thousands) 2004 $34,8472005 40,9212006 94,0672007 45,9922008 22,900Thereafter 295,461 F-22 Table of Contents10)Acquisitions In August 2001, the Partnership completed the purchase of Meenan Oil Co., Inc., believed to be the third largest home heating oil dealer in the UnitedStates for $131.8 million. During fiscal 2001, the Partnership also purchased twelve other heating oil dealers for $52.2 million. In addition to thesethirteen unaffiliated oil dealers, acquired during fiscal 2001, the Partnership also acquired nine retail propane dealers for $60.8 million. During fiscal 2002, the Partnership acquired four retail heating oil dealers and seven retail propane dealers. The aggregate purchase price wasapproximately $48.4 million. During fiscal 2003, the Partnership acquired three retail heating oil dealers and seven retail propane dealers. The aggregate purchase price wasapproximately $84.4 million. The following table indicates the allocation of the aggregate purchase price paid and the respective periods of amortization assigned for the fiscal2001, fiscal 2002 and fiscal 2003 acquisitions. (in thousands) 2001 2002 2003 Useful LivesLand $7,002 $1,466 $2,062 — Buildings 8,816 1,950 5,844 30 yearsFurniture and equipment 2,236 750 1,321 10 yearsFleet 14,995 2,919 10,064 3-30 yearsTanks and equipment 30,753 10,583 9,251 5-30 yearsCustomer lists 84,976 20,603 34,937 6-15 yearsRestrictive covenants 4,742 650 616 5 yearsGoodwill 84,401 8,429 18,207 0-25 yearsWorking capital 6,911 1,024 2,089 — Total $244,832 $48,374 $84,391 The acquisitions were accounted for under the purchase method of accounting. Purchase prices have been allocated to the acquired assets andliabilities based on their respective fair values on the dates of acquisition. The purchase prices in excess of the fair values of net assets acquired wereclassified as goodwill in the Consolidated Balance Sheets. Sales and net income have been included in the Consolidated Statements of Operationsfrom the respective dates of acquisition. The weighted average useful lives of customer lists acquired in fiscal 2001, fiscal 2002 and fiscal 2003 are 10years, 14 years and 12 years, respectively. The following unaudited pro forma information presents the results of operations of the Partnership, including the acquisitions previously described, asif the acquisitions had been acquired on October 1, of the year preceding the year of purchase. This pro forma information is presented forinformational purposes; it is not indicative of future operating performance. Years Ended September 30,in thousands (except per unit data) 2001 2002 2003Sales $1,502,271 $1,163,455 $1,596,760 Net income (loss) $20,859 $(8,536) $11,938General Partner’s interest in net income (loss) 262 (88) 112 Limited Partners’ interest in net income (loss) $20,597 $(8,448) $11,826 Basic net income (loss) per limited partner unit $0.63 $(0.25) $0.36 Diluted net income (loss) per limited partner unit $0.63 $(0.25) $0.36 F-23 Table of Contents11)Employee Benefit Plans Propane Segment The propane segment has a 401(k) plan, which covers certain eligible non-union and union employees. Subject to IRS limitations, the 401(k) planprovides for each employee to contribute from 1.0% to 15.0% of compensation. The propane segment contributes to non-union participants a matchingamount up to a maximum of 3.0% of compensation. Aggregate matching contributions made to the 401(k) plan during fiscal 2001, 2002 and 2003were $0.4 million, $0.5 million and $0.6 million, respectively. For the fiscal years 2001, 2002 and 2003 the propane segment made contributions onbehalf of its union employees to union sponsored defined benefit plans of $0.5 million, $0.8 million and $0.9 million, respectively. Heating Oil Segment The heating oil segment has a 401(k) plan, which covers certain eligible non-union and union employees. Subject to IRS limitations, the 401(k) planprovides for each employee to contribute from 1.0% to 17.0% of compensation. The Partnership makes a 4% core contribution of a participant’scompensation and matches 2/3 of each amount a participant contributes up to a maximum of 2.0% of a participant’s compensation. The Partnership’saggregate contributions to the heating oil segment’s 401(k) plan during fiscal 2001, 2002 and 2003 were $3.4 million, $4.6 million and $5.2 million,respectively. As a result of the Petro acquisition, the Partnership assumed Petro’s pension liability. Effective December 31, 1996, the heating oil segmentconsolidated all of its defined contribution pension plans and froze the benefits for non-union personnel covered under defined benefit pension plans.In 1997, the heating oil segment froze the benefits of its New York City union defined benefit pension plan as a result of operation consolidations.Benefits under the frozen defined benefit plans were generally based on years of service and each employee’s compensation. As part of the Meenanacquisition, the Partnership assumed the pension plan obligations and assets for Meenan’s company sponsored plan. This plan was frozen and mergedinto the Partnership’s defined benefit pension for non-union personnel as of January 1, 2002. The Partnership’s pension expense for all defined benefitplans during fiscal 2001, 2002 and 2003 were $0.2 million, $0.1 million and $1.6 million, respectively. F-24 Table of Contents11)Employee Benefit Plans (continued) The following tables provide a reconciliation of the changes in the heating oil segment’s plan benefit obligations, fair value of assets, and a statementof the funded status at the indicated dates: Years Ended September 30, (in thousands) 2002 2003 Reconciliation of Benefit Obligations Benefit obligations at beginning of year $57,143 $58,164 Service cost — — Interest cost 3,893 3,810 Actuarial loss 5,579 5,796 Benefit payments (4,452) (5,681)Settlements (22) (85)Meenan’s benefit obligations assumed (3,977) — Benefit obligation at end of year $58,164 $62,004 Reconciliation of Fair Value of Plan Assets Fair value of plan assets at beginning of year $47,373 $42,847 Actual return on plan assets (3,025) 6,207 Employer contributions 2,973 9,107 Benefit payments (4,452) (5,681)Settlements (22) (85) Fair value of plan assets at end of year $42,847 $52,395 Funded Status Benefit obligation $58,164 $62,004 Fair value of plan assets 42,847 52,395 Amount included in accumulated other comprehensive income (15,745) (17,214)Unrecognized net actuarial loss 15,745 17,214 Accrued benefit cost $(15,317) $(9,609) Years Ended September 30, (in thousands) 2001 2002 2003 Components of Net Periodic Benefit Cost Service cost $36 $— $— Interest cost 1,720 3,893 3,810 Expected return on plan assets 1,795 4,085 3,542 Net amortization 240 291 1,288 Settlement loss — 22 4 Net periodic benefit cost $201 $121 $1,560 Weighted-Average Assumptions Used in the Measurement of the Partnership’sBenefit Obligation as of the period indicated Discount rate 7.25% 6.75% 6.00%Expected return on plan assets 8.50% 8.50% 8.25%Rate of compensation increase N/A N/A N/A The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market–related value of planassets determined using fair value. The Partnership recorded an additional minimum pension liability for underfunded plans of $15.7 million and $17.2 million as of September 30, 2002,and September 30, 2003, respectively, representing the excess of unfunded accumulated benefit obligations over plan assets. A corresponding amountis recognized as a reduction of partner’s capital through a charge to accumulated other comprehensive income. In addition, the heating oil segment made contributions to union-administered pension plans of $4.6 million for fiscal 2001, $5.4 million for fiscal2002 and $5.8 million for fiscal 2003. F-25 Table of Contents12)Income Taxes Income tax expense (benefit) was comprised of the following for the indicated periods: Years Ended September 30,(in thousands) 2001 2002 2003Current: Federal $— $(2,200) $— State 1,498 744 1,500Deferred — — — $1,498 $(1,456) $1,500 The passage of the “Job Creation and Worker Assistance Act of 2002”, increased the Alternative Minimum Tax Net Operating Loss Deductionlimitation from 90% to 100% for net operating losses generated in 2001 and 2002. The tax law change resulted in the recovery of alternative minimumtaxes previously paid in the amount of approximately $2.2 million. The sources of the deferred income tax expense (benefit) and the tax effects of each were as follows: Years Ended September 30, (in thousands) 2002 2003 Depreciation $1,071 $(1,712)Amortization expense (3,379) (1,267)Vacation expense (47) 63 Restructuring expense 81 41 Bad debt expense 1,030 1,800 Hedge accounting (772) (132)Supplemental benefit expense 120 127 Pension contribution 973 2,628 Other, net 6 (36)Recognition of tax benefit of net operating loss to the extent of current and previousrecognized temporary differences (13,570) (4,422)Change in valuation allowance 14,487 2,910 $— $— The components of the net deferred taxes and the related valuation allowance for the years ended September 30, 2002 and September 30, 2003 usingcurrent rates are as follows: Years Ended September 30, (in thousands) 2002 2003 Deferred Tax Assets: Net operating loss carryforwards $41,903 $46,325 Vacation accrual 2,074 2,011 Restructuring accrual 173 132 Bad debt expense 4,591 2,791 Supplemental benefit expense 127 — Amortization 1,233 2,500 Excess of book over tax hedge accounting — 122 Other, net 81 117 Total deferred tax assets 50,182 53,998 Valuation allowance (38,820) (41,730) Net deferred tax assets $11,362 $12,268 Deferred Tax Liabilities: Depreciation $8,125 $6,413 Pension contribution 3,227 5,855 Hedge accounting 10 — Total deferred tax liabilities $11,362 $12,268 Net deferred taxes $— $— F-26 Table of Contents12)Income Taxes - (continued) In order to fully realize the net deferred tax assets the Partnership’s corporate subsidiaries will need to generate future taxable income. A valuationallowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Based upon the level of currenttaxable income and projections of future taxable income of the Partnership’s corporate subsidiaries over the periods which the deferred tax assets aredeductible, management believes it is more likely than not that the Partnership will not realize the full benefit of its deferred tax assets, at September30, 2003 and 2002. At September 30, 2003, the Partnership had net income tax loss carryforwards for Federal income tax reporting purposes of approximately $115.8million of which approximately $39.9 million are limited in accordance with Federal income tax law. The losses are available to offset future Federaltaxable income through 2023. 13)Lease Commitments The Partnership has entered into certain operating leases for office space, trucks and other equipment. The future minimum rental commitments at September 30, 2003, under operating leases having an initial or remaining non-cancelable term of one yearor more are as follows: (in thousands) Heating OilSegment PropaneSegment Total2004 $7,839 $925 $8,7642005 6,897 745 7,6422006 5,748 677 6,4252007 4,049 636 4,6852008 1,671 488 2,159Thereafter 22,182 1,975 24,157 Total minimum lease payments $48,386 $5,446 $53,832 The propane segment leased its Seymour, Indiana underground storage facility to TEPPCO Partners, L.P. effective May 2003. This agreement providesTEPPCO Partners, L.P. storage capacity of 21 million gallons at any one time in this facility. This agreement provides the propane segment storagecapacity of 21 million gallons at any one time in TEPPCO Partners, L.P.’s pipeline system. The agreement also requires TEPPCO Partners, L.P., to paythe propane segment $0.2 million annually. This lease agreement will expire on December 31, 2005. The Partnership’s rent expense for the fiscal years ended September 30, 2001, 2002 and 2003 was $9.0 million, $13.0 million and $14.4 million,respectively. 14)Unit Grants In June 2000, the Partnership granted 565 thousand restricted senior subordinated units to management and outside directors. These units were grantedunder the Partnership’s Employee and Director Incentive Unit Plans. One-fifth of the units immediately vested with the remaining units vestingannually in four equal installments if the Partnership achieves specified performance objectives for each of the respective fiscal years. The units forfiscal 2001 and 2003 were vested while the units for fiscal 2002 were not vested since the Partnership did not meet its specified objectives for that year. In September 2000, the Partnership granted 436 thousand senior subordinated unit appreciation rights (“UARs”) and 87 thousand restricted seniorsubordinated units to Irik P. Sevin. The unit appreciation rights are fully vested as of December 1, 2003. Mr. Sevin will be entitled to receive paymentin cash for these rights equal to the excess of the fair market value of a senior subordinated unit on the date exercisable over the exercise price. Thegrant of restricted senior subordinated units will vest in four equal installments on December 1 of 2001 through 2004. Distributions on the restrictiveunits will accrue to the extent declared. In December 2001, the Partnership granted 25 thousand restricted common units to Mr. Sevin. The grant of restricted common units will vest in fourequal installments on January 1 of 2002 through 2005. Distributions on the restrictive units will accrue to the extent declared. In fiscal 2002, the Partnership granted an additional 54 thousand restricted senior subordinated unit appreciation rights to a certain member ofmanagement. One-quarter of these units immediately vested with the remaining units vesting annually in three equal installments. In fiscal 2003, the Partnership granted an additional 257 thousand restricted senior subordinated unit appreciation rights to management and outsidedirectors. One-third of these units immediately vested with the remaining units vesting annually in two equal installments. F-27 Table of Contents14)Unit Grants - (continued) The following table summarizes information concerning Common and Senior Subordinated Unit Appreciation Rights of the Partnership outstanding atSeptember 30, 2003: Price Number ofUnitsOutstanding AveragePeriod toPaymentDate $7.6259 54,715 1.3 years $7.8536 381,304 1.3 years $ 10.1800 4,500 1.1 years $ 10.7000 217,341 2.0 years $ 11.0500 10,000 1.6 years $ 20.9000 54,472 2.0 years $ 21.0000 25,000 1.6 years Total/Average $ 10.1122 747,332 1.6 years The Partnership recorded $3.3 million, $0.4 million and $2.6 million of general and administrative expense for restricted unit grants during fiscal yearsended September 30, 2001, September 30, 2002 and September 30, 2003, respectively. The Partnership recorded expense of $2.2 million, income of$1.3 million and expense of $6.4 million of general and administrative expense for unit appreciation rights during fiscal years 2001, 2002 and 2003,respectively. 15)Supplemental Disclosure of Cash Flow Information Years Ended September 30, (in thousands) 2001 2002 2003 Cash paid during the period for: Income taxes $1,298 $1,869 $1,326 Interest 31,145 36,962 41,973 Non-cash investing activities: Acquisitions: Increase in property and equipment, net — (95) — (Increase) decrease in intangibles and other asset (12,526) 945 — Increase (decrease) in assumed pension obligation 5,784 (3,977) — Increase (decrease) in accrued expense 6,742 (3,615) — Increase of subordinated unitholders capital — 6,742 — Non-cash financing activities: Decrease (increase) in other asset for interest rate swaps — (6,068) 748 Increase (decrease) in long-term debt for interest rate swaps — 6,068 (927)Increase in long-term debt for amortization of debt discount — — 179 Decrease in long-term debt in connection with TG&E’s minority interest transfer — (563) — Decrease in intangibles in connection with TG&E’s minority interest transfer — 563 — F-28 Table of Contents16)Commitments and Contingencies In the ordinary course of business, the Partnership is threatened with, or is named in, various lawsuits. In the opinion of management, the Partnership isnot a party to any litigation, which individually or in the aggregate could reasonably be expected to have a material adverse effect on the Partnership’sresult of operations, financial position or liquidity. 17)Disclosures About the Fair Value of Financial Instruments Cash, Accounts Receivable, Notes Receivable, Inventory Derivative Instruments, Interest Rate Swaps, Working Capital Facility Borrowings, andAccounts Payable The carrying amount approximates fair value because of the short maturity of these instruments. Long-Term Debt The fair values of each of the Partnership’s long-term financing instruments, including current maturities, are based on the amount of future cash flowsassociated with each instrument, discounted using the Partnership’s current borrowing rate for similar instruments of comparable maturity. The estimated fair value of the Partnership’s long-term debt is summarized as follows: At September 30, 2002 At September 30, 2003(in thousands) CarryingAmount EstimatedFair Value CarryingAmount EstimatedFair ValueLong-term debt $468,846 $475,795 $522,188 $555,832 Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Theseestimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.Changes in assumptions could significantly affect the estimates. 18)Subsequent Events Cash Distribution On October 31, 2003, the Partnership announced that it would pay cash distributions of $0.575 on all units for the quarter ended September 30, 2003.The distributions, totaling $19.8 million, were paid on November 14, 2003 to holders of record as of November 10, 2003. Petro -Bank Credit Facilities On December 22, 2003, the heating oil segment entered into a new credit agreement consisting of three facilities totaling $235.0 million having amaturity date June 30, 2006. These facilities consist of a $150.0 million revolving credit facility, the proceeds of which are to be used for workingcapital purposes, a $35.0 million revolving credit facility, the proceeds of which are to be used for the issuance of standby letters of credit inconnection with surety, worker’s compensation and other financial guarantees, and a $50.0 million revolving credit facility, the proceeds of which areto be used to finance or refinance certain acquisitions and capital expenditures, for the issuance of letters of credit in connection with acquisitions and,to the extent that there is insufficient availability under the working capital facility. These facilities will refinance and replace the existing creditagreements, which totaled $193.0 million. The former facilities consisted of a working capital facility and an insurance letter of credit facility that weredue to expire on June 30, 2004. These new facilities also replaced the heating oil segments acquisition facility that was due to convert to a term loanon June 30, 2004. F-29 Table of Contents19)Earnings Per Limited Partner Units Years Ended September 30, (in thousands, except per unit data) 2001 2002 2003 Income (loss) before cumulative effect of change in accounting principle per Limited Partner unit: Basic $(.30) $(.38) $.12 Diluted $(.30) $(.38) $.12 Cumulative effect of change in accounting principle per Limited Partner unit: Basic $.07 $— $(.12)Diluted $.07 $— $(.12)Net income (loss) per Limited Partner unit: Basic $(.23) $(.38) $.01 Diluted $(.23) $(.38) $.01 Basic Earnings Per Unit: Net income (loss) $(5,249) $(11,169) $212 Less: General Partners’ interest in net income (loss) (75) (116) 2 Limited Partner’s interest in net income (loss) $(5,174) $(11,053) $210 Common Units 19,406 25,342 29,175 Senior Subordinated Units 2,688 3,103 3,139 Junior Subordinated Units 345 345 345 Weighted average number of Limited Partner units outstanding 22,439 28,790 32,659 Basic earnings (losses) per unit $(.23) $(.38) $.01 Diluted Earnings Per Unit: Effect of dilutive securities $— $— $— Limited Partners’ interest in net income (loss) $(5,174) $(11,053) $210 Effect of dilutive securities — — 108 Weighted average number of Limited Partner units outstanding 22,439 28,790 32,767 Diluted earnings (losses) per unit $(.23) $(.38) $.01 For fiscal 2001 and 2002, fully diluted per unit does not include any amount prior to the date of issuance of 24 thousand common units granted to Mr.Sevin in December 2001 as well as the 110 thousand subordinated units that vested pursuant to the employee incentive plan in December 2001 and the303 thousand senior subordinated units distributed in November 2001 pursuant to the heating oil segment achieving certain financial test because theimpact of these issuances were antidilutive. F-30 Table of Contents20)Selected Quarterly Financial Data (unaudited) The seasonal nature of the Partnership’s business results in the sale by the Partnership of approximately 30% of its volume in the first fiscal quarter and45% of its volume in the second fiscal quarter of each year. The Partnership generally realizes net income in both of these quarters and net lossesduring the quarters ending June and September. Three Months Ended Total (in thousands - except per unit data) December 31,2002 March 31,2003 June 30,2003 September 30,2003 Sales $384,980 $668,820 $235,220 $174,728 $1,463,748 Operating income (loss) 29,422 95,996 (26,432) (50,379) 48,607 Income (loss) before income taxes and cumulative effect ofchange in accounting principle 20,615 84,623 (37,752) (61,873) 5,613 Net income (loss) 16,039 83,163 (37,852) (61,138) 212 Limited Partner interest in net income (loss) 15,880 82,331 (37,474) (60,527) 210 Net income (loss) per Limited Partner unit: Basic (a) $0.49 $2.54 $(1.15) $(1.82) $.01 Diluted (a) $0.49 $2.53 $(1.15) $(1.82) $.01 Three Months Ended Total (in thousands – except per unit data) December 31,2001 March 31,2002 June 30,2002 September 30,2002 Sales $286,223 $411,285 $188,725 $138,825 $1,025,058 Operating income (loss) 22,106 68,328 (20,656) (43,454) 26,324 Income (loss) before income taxes and cumulative effect ofchange in accounting principle 11,650 58,264 (29,840) (52,699) (12,625)Net income (loss) 11,503 60,216 (29,938) (52,950) (11,169)Limited Partner interest in net income (loss) 11,364 59,535 (29,607) (52,345) (11,053)Net income (loss) per Limited Partner unit: Basic (a) $0.42 $2.09 $(1.02) $(1.70) $(0.38)Diluted (a) $0.42 $2.09 $(1.02) $(1.70) $(0.38)(a)The sum of the quarters do not add-up to the total due to the weighting of Limited Partner Units outstanding. F-31 Table of ContentsSchedule II STAR GAS PARTNERS, L.P. AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTSYears Ended September 30, 2001, 2002 and 2003(in thousands) Year Description Balance atBeginningof Year Additions Balance atEnd of Year Charged toCosts &Expenses OtherChangesAdd(Deduct) 2001 Allowance for doubtful accounts $1,956 $10,624 $2,203(3,419(b))(a) $11,364 2002 Allowance for doubtful accounts $11,364 $10,459 $ (13,541)(a) $8,282 2003 Allowance for doubtful accounts $8,282 $8,899 $472(8,093(c))(a) $9,560 (a)Bad debts written off (net of recoveries).(b)Amount acquired as part of the Meenan and Midwest Bottle Gas acquisitions.(c)Amount acquired as part of the Ultramar acquisition. F-32 Exhibit 10.32 EXECUTION COPY-------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 23, 2003 among STAR GAS PROPANE, L.P., THE LENDERS NAMED HEREIN, WACHOVIA BANK, N.A., as Documentation Agent, FLEET NATIONAL BANK, as Syndication Agent, and JPMORGAN CHASE BANK as Administrative Agent-------------------------------------------------------------------------------- J.P. MORGAN SECURITIES INC. and FLEET SECURITIES INC., as Co-Lead Arrangers and Joint Bookrunners TABLE OF CONTENTS Page ---- Article I DEFINITIONS ......................................................................1 Section 1.01. Defined Terms ...........................................................1 Section 1.02. Terms Generally ........................................................40 Section 1.03. Types of Borrowings ....................................................41Article II THE CREDITS ....................................................................41 Section 2.01. Commitment to Make Loans ...............................................41 Section 2.02. Loans ..................................................................43 Section 2.03. Notice of Borrowings ...................................................44 Section 2.04. Notes; Repayment of Loans ..............................................45 Section 2.05. Fees ...................................................................45 Section 2.06. Interest on Loans ......................................................46 Section 2.07. Default Interest .......................................................47 Section 2.08. Alternate Rate of Interest .............................................47 Section 2.09. Termination and Reduction of Commitments ...............................48 Section 2.10. Conversion and Continuation of Borrowings ..............................49 Section 2.11. Mandatory Repayments and Prepayments ...................................51 Section 2.12. Optional Prepayments ...................................................54 Section 2.13. Reserve Requirements; Certain Changes in Circumstances .................55 Section 2.14. Change in Legality .....................................................57 Section 2.15. Indemnity ..............................................................57 Section 2.16. Pro Rata Treatment .....................................................58 Section 2.17. Sharing of Setoffs .....................................................58 Section 2.18. Payments ...............................................................59 Section 2.19. Taxes ..................................................................59 Section 2.20. Assignment of Commitments Under Certain Circumstances ..................61 Section 2.21. Letters of Credit ......................................................61Article III REPRESENTATIONS AND WARRANTIES ................................................66 Section 3.01. Organization; Powers ...................................................66 Section 3.02. Authorization ..........................................................67 Section 3.03. Enforceability .........................................................67 Section 3.04. Consents and Governmental Approvals ....................................68 Section 3.05. Business; Financial Statements .........................................68 Section 3.06. No Material Adverse Change .............................................69 Section 3.07. Title to Properties; Possession Under Leases ...........................69 Section 3.08. Subsidiaries ...........................................................70 Section 3.09. Litigation; Compliance with Laws .......................................70 Section 3.10. Agreements .............................................................70 Section 3.11. Federal Reserve Regulations ............................................70 Section 3.12. Investment Company Act; Public Utility Holding Company Act .............70 Section 3.13. Use of Proceeds ........................................................71 -i- Page ---- Section 3.14. Tax Returns ............................................................71 Section 3.15. No Material Misstatements ..............................................71 Section 3.16. Employee Benefit Plans .................................................72 Section 3.17. Environmental and Safety Matters .......................................73 Section 3.18. Security Interests .....................................................74 Section 3.19. Solvency ...............................................................74 Section 3.20. Transactions with Affiliates ...........................................74 Section 3.21. Ownership ..............................................................74 Section 3.22. Insurance ..............................................................75 Section 3.23. Labor Relations ........................................................75 Section 3.24. Changes, etc ...........................................................75 Section 3.25. Indebtedness ...........................................................75 Section 3.26. Assets and Business ....................................................75 Section 3.27. Chief Executive Office .................................................76 Section 3.28. Fixed Price Supply Contracts ...........................................76 Section 3.29. Trading and Inventory Policies .........................................76Article IV CONDITIONS OF LENDING ..........................................................77 Section 4.01. Effectiveness ..........................................................77 Section 4.02. All Extensions of Credit ...............................................83 Section 4.03. Tranche B Extensions of Credit .........................................85Article V ACCOUNTING; FINANCIAL STATEMENTS; INSPECTION ....................................87 Section 5.01. Accounting .............................................................87 Section 5.02. Financial Statements ...................................................87 Section 5.03. Inspection .............................................................92Article VI BUSINESS AND FINANCIAL COVENANTS ...............................................93 Section 6.01. Indebtedness ...........................................................93 Section 6.02. Liens, etc .............................................................97 Section 6.03. Investments, Guaranties, etc ...........................................99 Section 6.04. Restricted Payments ...................................................100 Section 6.05. Transactions with Affiliates ..........................................101 Section 6.06. Prohibited Stock and Indebtedness .....................................101 Section 6.07. Consolidation, Merger, Sale of Assets, etc ............................102 Section 6.08. Partnership or Corporate Existence etc.; Business .....................105 Section 6.09. Payment of Taxes and Claims ...........................................105 Section 6.10. Compliance with ERISA .................................................105 Section 6.11. Maintenance of Properties; Insurance ..................................106 Section 6.12. Operative Agreements; Collateral Documents ............................107 Section 6.13. Chief Executive Office ................................................107 Section 6.14. Covenant to Secure Notes Equally ......................................107 Section 6.15. Compliance with Laws ..................................................108 Section 6.16. Further Assurances ....................................................108 Section 6.17. Subsidiaries ..........................................................109 Section 6.18. Use of Proceeds .......................................................110 Section 6.19. Accounting Changes ....................................................110 -ii- Page ---- Section 6.20. Certain Real Property .................................................111 Section 6.21. Sale and Lease-Back Transactions ......................................112 Section 6.22. Acquisitions ..........................................................112 Section 6.23. Impairment of Security Interests ......................................112 Section 6.24. Limitation on Restrictions on Subsidiary Dividends, etc ...............112 Section 6.25. No Other Negative Pledges .............................................112 Section 6.26. Sales of Receivables ..................................................113 Section 6.27. Fixed Price Supply Contracts; Certain Policies ........................113 Section 6.28. Certain Operations ....................................................113 Section 6.29. Funded Debt to Cash Flow ..............................................114 Section 6.30. Independent Corporate Existence .......................................114Article VII EVENTS OF DEFAULT ............................................................115 Section 7.01. Events of Default .....................................................115 Section 7.02. Remedies ..............................................................119Article VIII THE AGENTS AND ISSUING BANK .................................................120 Section 8.01. Appointment and Authorization .........................................120 Section 8.02. Liability of Agents ...................................................120 Section 8.03. Action by Agents ......................................................121 Section 8.04. Notice of Default .....................................................121 Section 8.05. Successor Agents ......................................................121 Section 8.06. Agent and Affiliate ...................................................122 Section 8.07. Indemnification .......................................................122 Section 8.08. Credit Decision .......................................................123 Section 8.09. Intercreditor Agreement ...............................................123Article IX MISCELLANEOUS .................................................................123 Section 9.01. Notices ...............................................................123 Section 9.02. Survival of Agreement .................................................125 Section 9.03. Binding Effect ........................................................125 Section 9.04. Successors and Assigns; Participations and Assignments ................126 Section 9.05. Expenses; Indemnity ...................................................129 Section 9.06. Right of Setoff .......................................................131 Section 9.07. Applicable Law ........................................................131 Section 9.08. Waivers; Amendment ....................................................131 Section 9.09. Interest Rate Limitation ..............................................133 Section 9.10. Entire Agreement ......................................................133 Section 9.11. Severability ..........................................................133 Section 9.12. Counterparts ..........................................................134 Section 9.13. Headings ..............................................................134 Section 9.14. Jurisdiction; Consent to Service of Process; Waiver of Jury Trial .........................................................134 Section 9.15. LEGEND ................................................................134 Section 9.16. Effect of Amendment and Restatement of the Existing Credit Agreement ..........................................................135 Section 9.17. Special Provisions ....................................................135 -iii-SchedulesSchedule 1.01A Lenders and CommitmentsSchedule 1.01B Restricted SubsidiariesSchedule 3.07(a) Real Property Not Owned or LeasedSchedule 3.07(b) Real Property Owned or LeasedSchedule 3.08 SubsidiariesSchedule 3.09 LitigationSchedule 3.14 State TaxesSchedule 3.16 Employee Benefit PlansSchedule 3.17 Environmental MattersSchedule 3.18 Security InterestsSchedule 3.20 Transactions with Affiliates Schedule 3.28 Fixed Price Supply ContractsSchedule 6.30 Independent Corporate ExistenceExhibitsExhibit A-1 Form of Tranche A Revolving Credit NoteExhibit A-2 Form of Tranche B NoteExhibit B-1 Form of General Partner Consent and AgreementExhibit B-2 Form of Public Partnership Consent and AgreementExhibit C Form of Subsidiaries Consent and AgreementExhibit D Form of Intercompany NoteExhibit E Form of Assignment and AcceptanceExhibit F-1 Form of Opinion of Phillips Nizer LLPExhibit F-2 Form of Opinion of Local Counsel to BorrowerExhibit G Form of Perfection CertificateExhibit H Form of Supplemental AgreementExhibit I-1 Form of Notice of BorrowingExhibit I-2 Form of Borrowing CertificateExhibit J Form of Agreement of Lenders and Supplement to Intercreditor AgreementExhibit K Form of Compliance CertificateExhibit L Form of Exemption CertificateExhibit M Form of Solvency CertificateExhibit N Form of Cash Collateral AgreementExhibit O Form of Lockbox AgreementExhibit P Form of MortgageExhibit Q Form of Borrowing Base Certificate -iv- AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 23, 2003,among STAR GAS PROPANE, L.P., a Delaware limited partnership (the "Borrower"),the Lenders (as defined herein), WACHOVIA BANK, N.A., as documentation agent (insuch capacity, the "Documentation Agent"), FLEET NATIONAL BANK, as syndicationagent (in such capacity, the "Syndication Agent"), and JPMORGAN CHASE BANK, asadministrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower is a party to that certain Credit Agreement,dated as of December 13, 1995 (as amended, the "Existing Credit Agreement"),together with the lenders named therein, The First National Bank of Boston, asadministrative agent, and Nationsbank, N.A., as documentation agent; WHEREAS, the Borrower has requested that the Lenders amend and restatethe Existing Credit Agreement; and WHEREAS, the Lenders have agreed to amend and restate the ExistingCredit Agreement subject to the terms and conditions as set forth herein; NOW, THEREFORE, in consideration of the premises and mutual agreementscontained herein, the parties hereto agree that on the Closing Date, as providedin Section 9.16, the Existing Credit Agreement shall be amended and restated inits entirety as follows: ARTICLE I DEFINITIONS Section 1.01. Defined Terms. As used in this Agreement, the followingterms shall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any ABR Revolving Loan or ABR Tranche B TermLoan. "ABR Revolving Loan" shall mean any Revolving Loan bearing interest ata rate determined by reference to the Alternate Base Rate in accordance with theprovisions of Article II. "ABR Tranche A Revolving Loan" shall mean any Tranche A Revolving Loanbearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "ABR Tranche B Revolving Loan" shall mean any Tranche B Revolving Loanbearing interest at a rate determined by reference to the Alternate Base Rate inaccordance with the provisions of Article II. 2 "ABR Tranche B Term Loan" shall mean any Tranche B Term Loan bearinginterest at a rate determined by reference to the Alternate Base Rate inaccordance with the provisions of Article II. "Account Debtor" shall mean any Person who is obligated to theBorrower or any Restricted Subsidiary under, with respect to or on account ofany Receivable. "Acquired Business Entity" means (i) any business entity the capitalstock or assets of which have been acquired substantially as an entirety by theBorrower by purchase, merger or, consolidation, and (ii) any other assets whichwere operated as an identifiable business unit, i.e., a branch or division of abusiness entity and which have been acquired substantially as an entirety by theBorrower. "Adjusted LIBO Rate" shall mean, with respect to any EurodollarBorrowing for any Interest Period, the rate, rounded upwards to the nearest1/100%, obtained by dividing (a) the LIBO Rate for such Interest Period by (b)an amount equal to 1 minus the Statutory Reserves, if any; provided, however,that if at any time during such Interest Period the Statutory Reservesapplicable to such Eurodollar Borrowing changes, the Adjusted LIBO Rate shallautomatically be adjusted to reflect such change, effective as of the date ofsuch change. "Administrative Agent" shall mean JPMorgan Chase Bank, together withits affiliates, in its capacity as administrative agent for the Lenders underthis Agreement and the other Loan Documents, together with any of its successorsin such capacity. "Affiliate", as applied to any Person, shall mean any other Persondirectly or indirectly controlling or controlled by or under common control withsuch Person, provided that (i) for purposes of this definition, "control"(including, with correlative meanings, the terms "controlled by" and "undercommon control with") as used with respect to any Person shall mean thepossession, directly or indirectly, of the power to direct or cause thedirection of the management and policies of such Person, whether as a generalpartner or through the ownership of voting securities or by contract orotherwise, (ii) as applied to the Borrower, the term "Affiliate" shall includePetro Holdings, Petro, all Subsidiaries of Petro, the General Partner and thePublic Partnership, and (iii) no Person which is an institution shall be deemedto be an Affiliate of the Borrower solely by reason of ownership of theFacilities Obligations or other securities issued in exchange for the FacilitiesObligations or by reason of having the benefits of any agreements or covenantscontained in this Agreement or the other Loan Documents. "After Acquired Property" shall have the meaning assigned to such termin Section 6.20. "Agents" shall mean the Administrative Agent, the Syndication Agentand the Documentation Agent. "Aggregate Cost of Unmortgaged Property" shall have the meaningassigned to such term in Section 6.20. "Agreement" shall mean this Amended and Restated Credit Agreement, asamended, supplemented, restated or otherwise modified from time to time. 3 "Agreement of Lenders and Supplement to Intercreditor Agreement" shallmean the Agreement of Lenders and Supplement to Intercreditor Agreement, datedas of the date hereof among the Borrower, the Lenders and the Trustee,substantially in the form of Exhibit J hereto. "Agreement of Parity Lenders and Supplement to IntercreditorAgreement" shall mean the Agreement of Parity Lenders and Supplement toIntercreditor Agreement, dated as of the date hereof among the Borrower, theLenders party to the Parity Debt Credit Agreement and the Trustee. "Alternate Base Rate" shall mean, for any day, a rate per annum(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of(a) the Federal Funds Effective Rate in effect on such day plus 0.50% and (b)the Prime Rate in effect on such day. If the Administrative Agent shall havedetermined (which determination shall be conclusive absent manifest error) thatit is unable to ascertain the Federal Funds Effective Rate for any reason,including the inability or failure of the Administrative Agent to obtainsufficient quotations in accordance with the terms hereof, the Alternate BaseRate shall be determined without regard to clause (a) of the first sentence ofthis definition until the circumstances giving rise to such inability no longerexist. Any change in the Alternate Base Rate due to a change in the Prime Rateor the Federal Funds Effective Rate shall be effective on the effective date ofsuch change in the Prime Rate or the Federal Funds Effective Rate, respectively,without notice to the Borrower. "Applicable Margin" shall mean (a) with respect to any ABR Tranche ARevolving Loan, the Applicable Tranche A ABR Margin, (b) with respect to anyEurodollar Tranche A Revolving Loan, the Applicable Tranche A Eurodollar Margin,(c) with respect to any ABR Tranche B Revolving Loan or ABR Tranche B Term Loan,the Applicable Tranche B ABR Margin and (d) with respect to any EurodollarTranche B Revolving Loan or Eurodollar Tranche B Term Loan, the ApplicableTranche B Eurodollar Margin. "Applicable Tranche A ABR Margin" shall mean, with respect to anyTranche A Revolving Loan outstanding on any day: (i) 0.625%, if such day falls within a Level I Pricing Period; (ii) 0.875%, if such day falls within a Level II Pricing Period; and (iii) 1.125%, if such day falls within a Level III Pricing Period. "Applicable Tranche A Eurodollar Margin" shall mean, with respect toany Tranche A Revolving Loan outstanding on any day: (i) 1.625%, if such day falls within a Level I Pricing Period; (ii) 1.875%, if such day falls within a Level II Pricing Period; and (iii) 2.125%, if such day falls within a Level III Pricing Period. 4 "Applicable Tranche B ABR Margin" shall mean, with respect to anyTranche B Revolving Loan or Tranche B Term Loan outstanding on any day: (i) 0.625%, if such day falls within a Level I Pricing Period; (ii) 0.875%, if such day falls within a Level II Pricing Period; and (iii) 1.125%, if such day falls within a Level III Pricing Period. "Applicable Tranche B Eurodollar Margin" shall mean, with respect toany Tranche B Revolving Loan or Tranche B Term Loan outstanding on any day: (i) 1.625%, if such day falls within a Level I Pricing Period; (ii) 1.875%, if such day falls within a Level II Pricing Period; and (iii) 2.125%, if such day falls within a Level III Pricing Period. "Assets" shall mean the productive assets of the Borrower and itsRestricted Subsidiaries which are used and useful in their business andoperations and are pledged as Collateral to the Trustee. "Assignee" shall have the meaning set forth in Section 9.04(b). "Assignment and Acceptance" shall mean an assignment and acceptanceentered into by a Lender and an assignee, and accepted by the AdministrativeAgent, in the form of Exhibit E or such other form as shall be approved by theAdministrative Agent. "Audited Financial Statements" shall have the meaning assigned to suchterm in Section 3.05(c). "Available Cash", with respect to any calendar quarter, shall mean (a)the sum of (i) all cash of the Borrower and the Restricted Subsidiaries on handat the end of such quarter and (ii) all additional cash of the Borrower and theRestricted Subsidiaries on hand through available borrowings made after the endof such quarter (provided that such borrowings shall in no event exceedavailable borrowings as of the end of such quarter) at the date of determinationof Available Cash with respect to such quarter, less (b) any cash reserves thatthe General Partner shall determine to be necessary or appropriate in itsreasonable discretion to (A) provide for the proper conduct of the business ofthe Borrower and the Restricted Subsidiaries (including cash reserves for futurecapital expenditures) or (B) provide funds for distributions under Sections5.4(a)(i), (ii), and (iii) or 5.4(b)(i) of the MLP Agreement in respect of anyone or more of the next four quarters or (C) comply with applicable law or anyloan agreement (including this Agreement and the Note Agreements), mortgage,security agreement, debt instrument or other agreement or obligation to whichthe Borrower or any Restricted Subsidiary is a party or its assets are subject(including the payment of principal, Make Whole Amount (as defined in the 1995Note Agreement), if applicable, and interest in respect of the Mortgage Notes,the 2000 Parity Notes, the 2001 Parity Notes, the Notes and the notes under theParity Debt Credit Agreement Facility); provided that Available Cash shallexclude, without duplication, (w) in 5each calendar quarter, a reserve equal to the Specified Percentage of theaggregate amount of all interest in respect of all Indebtedness of the Borrowerand the Restricted Subsidiaries to be paid or to accrue in the next quarter(assuming, in the case of Indebtedness incurred hereunder, that suchIndebtedness will bear interest at the then prevailing rate for Eurodollar Loansof the applicable Class for one-month's duration, plus the Applicable Margin forsuch Loans, and assuming in the case of other Indebtedness bearing interest atfluctuating interest rates which cannot be determined in advance, that theinterest rate in effect on the last Business Day of the immediately precedingcalendar quarter will remain in effect until such Indebtedness is due to bepaid), (x) with respect to any Indebtedness of which principal and/or interestis payable annually (provided, in the case of principal, that such Indebtednessis secured equally and ratably with the Mortgage Notes), in the third calendarquarter immediately preceding each calendar quarter in which any scheduledprincipal and/or interest payment is due with respect to such Indebtedness (a"payment quarter"), a reserve equal to at least 25% of the aggregate amount ofall principal and interest to be paid in respect of such Indebtedness securedequally and ratably with the Mortgage Notes in such payment quarter; in thesecond calendar quarter immediately preceding a payment quarter, a reserve equalto at least 50% of the aggregate amount of all principal and interest to be paidin respect of such Indebtedness in such payment quarter; and in the calendarquarter immediately preceding a payment quarter, a reserve equal to at least 75%of the aggregate amount of all principal and interest to be paid in respect ofsuch Indebtedness in such payment quarter, (y) with respect to the MortgageNotes and any other Indebtedness of which principal and/or interest is payablesemi-annually or otherwise less frequently than quarterly (provided, in the caseof principal, that such Indebtedness is secured equally and ratably with theMortgage Notes), in each calendar quarter a reserve equal to at least 50% of theaggregate amount of all principal and interest to be paid in respect of theMortgage Notes and such other Indebtedness in the next quarter; provided,further, that the amount of such reserve specified in clauses (x) and (y) ofthis definition for principal amounts to be paid shall be reduced by theaggregate principal amount of all binding, irrevocable letters of creditestablished to refinance such principal amounts, and (z) any assets of anyUnrestricted Subsidiary. "Average Life" shall mean, as of the date of determination, withrespect to any Indebtedness, the quotient obtained by dividing (i) the sum ofthe products of (A) the numbers of years from the date of determination to thedates of each successive scheduled principal payment of such Indebtednessmultiplied by (B) the amount of such payment by (ii) the sum of all such payments. "Board" shall mean the Board of Governors of the Federal ReserveSystem of the United States. "Borrower" shall have the meaning assigned to such term in thepreamble hereto. "Borrower Security Agreement" shall mean the Pledge and SecurityAgreement dated as of December 13, 1995 among the Borrower, the General Partner,the Restricted Subsidiaries and the Trustee, as amended, supplemented orotherwise modified from time to time. "Borrowing" shall mean a group of Loans of a single Class and Typemade by the Lenders on a single date and as to which a single Interest Period isin effect. For purposes of 6Section 4.02, a "Borrowing" does not include a conversion of any previouslyoutstanding Tranche B Revolving Loan into a Tranche B Term Borrowing pursuant toSection 2.01(c). "Borrowing Base" shall mean an amount equal to the Loan Value ofEligible Receivables, Eligible Commodities Inventory and EligibleNon-Commodities Inventory, determined by reference to the most recent BorrowingBase Certificate delivered to the Administrative Agent as required by Section4.01(k)(v) or Section 5.02(k). "Borrowing Base Certificate" shall mean a certificate of the FinancialOfficer of the Borrower, substantially in the form of Exhibit Q hereto,delivered to the Administrative Agent pursuant to Section 4.01(k)(v) or Section5.02(k). "Business" shall mean the operation by the Borrower and itsSubsidiaries (other than Petro Holdings or its Subsidiaries) of the wholesaleand retail sale, distribution and storage of propane gas, heating oil, dieselfuel and gasoline and related petroleum derivative products and the provision ofservices to customers, and the related retail sale of supplies and equipment,including home appliances. "Business Day" shall mean any day (other than a day which is aSaturday, Sunday or legal holiday in the State of New York) on which banks areopen for business in New York, New York; provided, however, that when used inconnection with a Eurodollar Loan, the term "Business Day" shall also excludeany day on which banks are not open for dealings in dollar deposits in theapplicable interbank market. "Capital Contribution" shall mean the net cash proceeds received bythe Borrower from the General Partner or from the Public Partnership as acapital contribution or as consideration for the issuance by the Borrower ofadditional partnership interests, in each case for the sole purpose of fundingthe expenditures referred to in Section 6.01(b). "Capital Expenditures" shall mean, for any period, all amounts(whether paid in cash or accrued as a liability) which would, in accordance withGAAP, be included on a consolidated statement of cash flows of the Borrower andits Restricted Subsidiaries for such period as additions to property, plant andequipment, Capital Lease Obligations or other capital expenditures; providedthat it is agreed that the Capital Expenditures of Unrestricted Subsidiariesshall not be consolidated with those of the Borrower and its RestrictedSubsidiaries for purposes of calculating "Capital Expenditures". "Capital Lease Obligations" of any Person shall mean the obligationsof such Person to pay rent or other amounts under any lease of (or otherarrangement conveying the right to use) real or personal property, or acombination thereof, which obligations are required to be classified andaccounted for as capital leases on a balance sheet of such Person under GAAP (asopposed to being accounted for as operating lease expenses on an incomestatement of such Person under GAAP) and, for the purposes of this Agreement,the amount of such obligations at any time shall be the capitalized amountthereof at such time determined in accordance with GAAP. "Capital Stock" of any Person shall mean any and all shares,partnership, limited liability company and other interests (general or limited),rights to purchase, warrants, options, 7participations or other equivalents of or interests in (however designated) theequity of such Person. "Cash Collateral Agreement" shall mean the Cash Collateral Agreementdated as of the date hereof among the Borrower, the Administrative Agent and theTrustee in the form of Exhibit N, as amended, supplemented or otherwise modifiedfrom time to time. "Cash Equivalents" shall mean: (a) marketable obligations issued or unconditionally guaranteed by the United States of America, or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at any date of determination the highest generic rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c) commercial paper maturing no more than 270 days from the date of creation thereof and having as at any date of determination one of the two highest generic ratings obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (d) certificates of deposit maturing one year or less from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States of America or any state thereof or the District of Columbia or Canada, (I) the commercial paper or other short-term unsecured debt obligations of which are rated either A-2 or better (or comparably if the rating system is changed) by Standard & Poor's Ratings Group or Prime-2 or better (or comparably if the rating system is changed) by Moody's Investors Service, Inc. or (II) the long-term debt obligations of which are rated either AA- or better (or comparably if the rating system is changed) by Standard & Poor's Ratings Group or Aa3 or better (or comparably if the rating system is changed) by Moody's Investors Service, Inc. ("Permitted Banks"); (e) bankers' acceptances eligible for rediscount under requirements of the Board and accepted by Permitted Banks; and (f) obligations of the type described in clause (a), (b), (c) or (d) above purchased from a securities dealer designated as a "primary dealer" by the Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Borrower or a Subsidiary by a custodian which is a Permitted Bank and which is not a counterparty to the repurchase agreement in question. 8 "CERCLA" shall mean the Federal Comprehensive Environmental Response,Compensation and Liability Act, as amended. "Change in Control" shall mean the occurrence of any of the followingevents: (i) the partners of the Borrower shall approve any plan or proposal forthe liquidation or dissolution of the Borrower; (ii) the General Partner shallcease for any reason (other than a Qualifying Involuntary Removal) to be thesole general partner of the Borrower and, in the case of an Involuntary Removal(so long as no other Event of Default or Default shall have occurred and becontinuing), a period of at least 60 days shall have elapsed since the occurrence of such Involuntary Removal; (iii) the Public Partnership ceases forany reason to beneficially own, directly or indirectly, 100% of all classes ofCapital Stock of the Borrower (other than the General Partner's interest in theBorrower); (iv) the General Partner shall cease for any reason (other than aQualifying Involuntary Removal) to be the sole general partner of the PublicPartnership and, in the case of an Involuntary Removal (so long as no otherEvent of Default or Default shall have occurred and be continuing), a period ofat least 60 days shall have elapsed since the occurrence of such InvoluntaryRemoval; or (v) the Sevin Group collectively shall cease for any reason tobeneficially own Capital Stock having the voting power to elect all of thedirectors or other governing board of the General Partner. "Charges" shall have the meaning assigned to such term in Section9.09. "Class" shall have the meaning assigned to such term in Section 1.03. "Closing" shall mean the time at which this Agreement shall becomeeffective. "Closing Date" shall mean the date on which the conditions precedentset forth in Section 4.01 shall have been satisfied, which date is September 23,2003. "Code" shall mean the Internal Revenue Code of 1986, as the same maybe amended from time to time. "Collateral" shall mean all the collateral pledged or purported to bepledged pursuant to any of the Collateral Documents. "Collateral Documents" shall mean the Security Agreements, theSubsidiaries Consent and Agreement, the General Partner Consent and Agreement,the Public Partnership Consent and Agreement, the Motor Vehicle SecurityAgreements, the Perfection Certificate, the Lockbox Agreements, the Mortgages,the Intercreditor Agreement, the Agreement of Lenders and Supplement toIntercreditor Agreement, the Cash Collateral Agreement, checking and depositaccount agreements and all other security agreements and other documents andinstruments executed and/or delivered pursuant to the terms hereof or thereof(including the certificates of title referred to in Section 4.01(c) of theBorrower Security Agreement) in order to secure any Facilities Obligations andParity Debt or perfect any Lien granted for the benefit of the Lenders and theholders of Parity Debt pursuant thereto. "Commitment" shall mean, with respect to any Lender, such Lender'sTranche A Revolving Credit Commitment and Tranche B Commitment. 9 "Commitment Fees" shall mean the Tranche A Commitment Fees and theTranche B Commitment Fees. "Commodities Inventory" shall mean all inventory consisting of propanegas and other petroleum derivative products of, and held for sale by, theBorrower or any Restricted Subsidiary. "Commodity Hedging Agreement" shall mean any agreement or arrangementdesigned solely to protect the Borrower and the Restricted Subsidiaries againstfluctuations in the price of propane with respect to quantities of propane thatthe Borrower and the Restricted Subsidiaries reasonably expect to purchase fromsuppliers, sell to their customers or need for their inventory during the periodcovered by such agreement or arrangement. "Conduit Lender" shall mean any special purpose corporation organizedand administered by any Lender for the purpose of making Loans otherwiserequired to be made by such Lender and designated by such Lender in a writteninstrument; provided that, the designation by any Lender of a Conduit Lendershall not relieve the designating Lender of any of its obligations to fund aLoan under this Agreement if, for any reason, its Conduit Lender fails to fundany such Loan, and the designating Lender (and not the Conduit Lender) shallhave the sole right and responsibility to deliver all consents and waiversrequired or requested under this Agreement with respect to its Conduit Lender,and provided, further, that no Conduit Lender shall (a) be entitled to receiveany greater amount pursuant to Section 2.13, Section 2.15, Section 2.19 or Section 9.05 than the designating Lender would have been entitled to receive inrespect of the extensions of credit made by such Conduit Lender or (b) be deemedto have any Commitment. "Confidential Information Memorandum" shall mean the ConfidentialInformation Memorandum dated August 2003 and furnished to certain Lenders. "Consolidated Cash Flow" shall mean at any date of determination, forthe Reference Period with respect to such date of determination, (i) the sum of,without duplication, the amounts for such period, taken as a single accountingperiod, (a) Consolidated Net Income and (b) all amounts deducted in arriving atsuch Consolidated Net Income in respect of (I) interest charges (includingamortization of debt discount and expense and imputed interest in Capital LeaseObligations), (II) provisions for all taxes and reserves (including reserves fordeferred income taxes) and (III) non-cash items, including, without limitation,non-cash expenses or losses incurred as a result of Statement of FinancialAccounting Standard Number 133 and the implementation of Statement of FinancialAccounting Standard Numbers 141 and 142 less (ii) without duplication, anynon-cash items added in the determination of such Consolidated Net Income forsuch period. Consolidated Cash Flow shall be calculated after giving effect, ona pro forma basis for the Reference Period with respect to any date ofdetermination to, without duplication, any asset sales or asset acquisitions(including any asset acquisition giving rise to the need to make suchcalculation as a result of the Borrower or any Restricted Subsidiary (includingany Person who becomes a Restricted Subsidiary as a result of such assetacquisition) incurring, assuming or otherwise being liable for acquiredIndebtedness) occurring during the period commencing on the first day of suchReference Period to and including the date of determination, as if such assetsale or asset acquisition occurred on the first day of such 10Reference Period. The pro forma calculations required by this definition will bedetermined in accordance with GAAP, shall be certified by a Financial Officer ofthe Borrower, and shall be calculated in a manner reasonably satisfactory to theRequired Lenders; provided, however, that such calculation shall be made (i)based on the historical sales volume associated with any Eligible PropaneAcquisition for the Reference Period with respect to the date of suchacquisition, less estimated post-acquisition loss of sales volume (not to beless than three percent (3%)), (ii) based on the actual cost to the Borrower ofthe volume of goods sold as determined in clause (i) above, (iii) based on thepro forma expenses that would have been incurred by the Borrower in theoperation of such Eligible Propane Acquisition if it had occurred on the firstday of such period computed on the basis of personnel expenses for employeesretained or to be retained by the Borrower in the operation of such EligiblePropane Acquisition and non-personnel costs and expenses incurred by theBorrower or the General Partner in the operation of the Business at similarlysituated facilities of the Borrower and the Restricted Subsidiaries, and (iv)without inclusion of the operations of any Unrestricted Subsidiary. "Consolidated Interest Expense" shall mean as of any date ofdetermination, the total amount payable by the Borrower and its RestrictedSubsidiaries on a consolidated basis (it being understood that amounts payableby Unrestricted Subsidiaries shall not be consolidated with the Borrower or anyRestricted Subsidiary for purposes of calculating Consolidated InterestExpense), during the Reference Period with respect to such date ofdetermination, in respect of all interest charges (including amortization ofdebt discount and expense and imputed interest on actual payments under CapitalLease Obligations) during such Reference Period with respect to Indebtedness ofthe Borrower and its Restricted Subsidiaries. "Consolidated Net Income" shall mean, with reference to any period,the net income (or deficit) of the Borrower and its Restricted Subsidiaries forsuch period (taken as a cumulative whole), after deducting all operatingexpenses, provisions for all taxes and reserves (including reserves for deferredincome taxes) and all other proper deductions, all determined in accordance withGAAP on a consolidated basis (it being understood that the net income ofUnrestricted Subsidiaries shall not be consolidated with the Borrower or anyRestricted Subsidiary for purposes of calculating Consolidated Net Income),after eliminating all intercompany transactions and after deducting portions ofincome properly attributable to minority interests, if any, in the stock andsurplus of Restricted Subsidiaries, provided that there shall be excluded (a)the income (or deficit) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Borrower or aRestricted Subsidiary, (b) the income (or deficit) of any Person (other than aRestricted Subsidiary) in which the Borrower or any Restricted Subsidiary has anownership interest, except to the extent that any such income has been actuallyreceived by the Borrower or such Restricted Subsidiary in the form of dividendsor similar distributions (but subject to the limitations specified in theproviso below), (c) the undistributed earnings of any Restricted Subsidiary tothe extent that the declaration or payment of dividends or similar distributionsby such Restricted Subsidiary is not at the time permitted by the terms of itscharter or any agreement, instrument, judgment, decree, order, statute, rule orgovernmental regulation applicable to such Restricted Subsidiary, (d) anyrestoration to income of any contingency reserve, except to the extent thatprovision for such reserve was made out of income accrued during such period,(e) any aggregate net gain (but not any aggregate net loss) during such periodarising from the sale, exchange or other disposition of capital assets (suchterm to include all fixed assets, whether tangible or intangible, all inventory 11sold in conjunction with the disposition of fixed assets, and all securities),(f) any write-up of any asset, (g) any net gain from the collection of theproceeds of life insurance policies, (h) any gain arising from the acquisitionof any securities, or the extinguishment, under GAAP, of any Indebtedness, ofthe Borrower or any Restricted Subsidiary, (i) any net income or gain (but notany net loss) during such period from any change in accounting, from anydiscontinued operations or the disposition thereof, from any extraordinaryevents or from any prior period adjustments, (j) any deferred creditrepresenting the excess of equity in any Restricted Subsidiary at the date ofacquisition over the cost of the investment in such Restricted Subsidiary, and(k) in the case of a successor to the Borrower by consolidation or merger or asa transferee of its assets, any earnings of the successor corporation prior tosuch consolidation, merger or transfer of assets; provided, further, thatnotwithstanding clause (b) above, there shall be excluded in all events theincome (or deficit) of Petro Holdings and its Subsidiaries, whether or not anyamounts are actually received by the Borrower or any Restricted Subsidiary fromor through Petro Holdings or any of its Subsidiaries in the form of dividends orotherwise. "Consolidated Pro Forma Debt Service" shall mean, as of any date ofdetermination, the total amount payable by the Borrower and the RestrictedSubsidiaries on a consolidated basis (it being understood that amounts payableby Unrestricted Subsidiaries shall not be consolidated with the Borrower or anyRestricted Subsidiary for purposes of calculating Consolidated Pro Forma DebtService), during the four consecutive calendar quarters next succeeding the dateof determination, in respect of scheduled principal payments and all interestcharges (excluding amortization of debt discount and expense) with respect toIndebtedness of the Borrower and the Restricted Subsidiaries outstanding on suchdate of determination (other than all scheduled principal payments during anysuch four consecutive calendar quarter period with respect to Funded Debt andthe Tranche B Loans), after giving effect to any Indebtedness proposed to beincurred on such date and to the substantially concurrent repayment of any otherIndebtedness, and (a) including actual payments under Capital Lease Obligations,(b) assuming, in the case of Indebtedness (other than Indebtedness incurredunder the Facilities and the Parity Debt Credit Agreement) bearing interest atfluctuating interest rates which cannot be determined in advance, that the ratein effect on such date will remain in effect throughout such period, (c)assuming in the case of Indebtedness incurred under the Facilities and/or theParity Debt Credit Agreement, that (i) the interest payments payable during suchfour consecutive calendar quarters next succeeding the date of determinationwill equal the actual interest payments associated with the Facilities or theParity Debt Credit Agreement, as the case may be, during the most recent fourfiscal quarters and (ii) except for the 12-month period immediately prior to thetermination or final maturity thereof (unless extended or renewed), no principalpayments will be made under Facility A and (iii) principal payments relating toFacility B and the Parity Debt Credit Agreement will become due based on theassumption that the conversion to the fixed amortization schedule pursuant toSection 2.01(c) and Section 2.11(c) of this Agreement and Sections 2.01(b) and2.11(b) of the Parity Debt Credit Agreement, as applicable, has occurred, (d)treating the principal amount of all Indebtedness outstanding as of such date ofdetermination under a revolving credit or similar agreement (other than theFacilities) as maturing and becoming due and payable on the scheduled maturitydate or dates thereof (including the maturity of any payment required by anycommitment reduction or similar amortization provision), without regard to any provision permitting such maturity date to be extended, (e) including any otherdebt repayments due within twelve months from such date of 12determination and (f) excluding principal and interest payments in connectionwith the Star/Petro Intercompany Subordinated Debt. "Control" shall mean the possession, directly or indirectly, of thepower to direct or cause the direction of the management or policies of aPerson, whether through the ownership of voting securities, by contract orotherwise, and "Controlling" and "Controlled" shall have meanings correlativethereto. "Current Assets" shall mean, as of any date, all assets which would,in accordance with GAAP, be included on a consolidated balance sheet of theBorrower and its Restricted Subsidiaries as of such date as current assets;provided that it is understood that the current assets of UnrestrictedSubsidiaries shall not be consolidated with those of the Borrower or anyRestricted Subsidiary for purposes of calculating Current Assets. "Current Liabilities" shall mean, as of any date, without duplication,(a) all liabilities which would, in accordance with GAAP, be included on aconsolidated balance sheet of the Borrower and its Restricted Subsidiaries as ofsuch date as current liabilities; provided that it is understood that thecurrent liabilities of Unrestricted Subsidiaries shall not be consolidated withthose of the Borrower or any Restricted Subsidiary for purposes of calculatingCurrent Liabilities, and (b) all Indebtedness as of such date in respect of theTranche A Revolving Loans and Tranche A Letters of Credit. "Current Value" shall have the meaning assigned to such term inSection 6.20. "Default" shall mean any event or condition which upon notice, lapseof time or both would constitute an Event of Default. "Disqualified Stock" of any Person shall mean any Capital Stock ofsuch Person which by its terms (or by the terms of any security into which it isconvertible or for which it is exchangeable or exercisable), upon the happeningof any event or otherwise (a) matures or is mandatorily redeemable or subject toany mandatory repurchase requirement, pursuant to a sinking fund obligation orotherwise, (b) is convertible into or exchangeable or exercisable forIndebtedness or Disqualified Stock or (c) is redeemable or subject to anymandatory repurchase requirement at the option of the holder thereof, in wholeor in part, in each case on or prior to the first anniversary of the Tranche BMaturity Date. "Documentation Agent" shall mean Wachovia Bank, N.A., in its capacityas documentation agent for the Lenders hereunder, and its successors in suchcapacity. "dollars" or "$" shall mean lawful money of the United States ofAmerica. "Eligible Commodities Inventory" shall mean Commodities Inventory ofthe Borrower or any Restricted Subsidiary (it being understood that theCommodities Inventory of any Unrestricted Subsidiary shall not be included incalculating Eligible Commodities Inventory) as to which all of the followingrequirements have been fulfilled to the satisfaction of the Agents: (a) such Inventory is owned by the Borrower or such Restricted Subsidiary, is subject to the security interest of the Trustee in favor of the Secured Parties 13 pursuant to the Security Agreements, which security interest is perfected as to such Inventory, and is subject to no other Lien whatsoever other than a Lien permitted under clause (b) of Section 6.02; (b) such Inventory is not held on consignment; (c) such Inventory is of customary quality and meets all standards applicable to such Inventory, its use or sale imposed by any Governmental Authority having regulatory authority over such matters; (d) such Inventory is of a type sold in the ordinary course of the business of the Borrower or such Restricted Subsidiary; (e) such Inventory is located within the United States (i) in the TEPPCO Partners, L.P. pipeline system in one of the states listed in Schedule 4 to the Security Agreements, (ii) in commercial storage facilities or (iii) at one of the locations listed in Schedule 4 to the Security Agreements; (f) such Inventory is stored in storage facilities of the Borrower or such Restricted Subsidiary, in commercial storage facilities or in the TEPPCO Partners, L.P. pipeline system and if located in a warehouse or other facility leased by the Borrower or such Restricted Subsidiary, the lessor has delivered to the Administrative Agent a waiver, consent and agreement in form and substance satisfactory to the Administrative Agent; provided that any such Inventory stored in such pipeline system or in commercial storage facilities does not in the aggregate exceed 10% of the total Eligible Commodities Inventory; (g) such Inventory has not been delivered to a customer of the Borrower or any Restricted Subsidiary (regardless of whether such delivery is on a consignment basis) and has not been returned by any customer; (h) in the case of any Inventory consisting of any petroleum derivative products other than propane, such inventory does not exceed 10% of the total Eligible Commodities Inventory; and (i) such Inventory is not determined by the Agents, on behalf of the Lenders, to be ineligible for any other reason, based upon credit, collateral or other considerations customarily taken into account by the Agents in making such determinations. "Eligible Non-Commodities Inventory" shall mean Non-CommoditiesInventory of the Borrower or any Restricted Subsidiary (it being understood thatthe Non-Commodities Inventory of any Unrestricted Subsidiary shall not beincluded in calculating Eligible Non-Commodities Inventory) as to which all ofthe following requirements have been fulfilled to the satisfaction of theAgents: (a) such Inventory is owned by the Borrower or such Restricted Subsidiary, is subject to the security interest of the Trustee in favor of the Secured Parties 14 pursuant to the Security Agreements, which security interest is perfected as to such Inventory, and is subject to no other Lien whatsoever other than a Lien permitted under clause (b) of Section 6.02; (b) such Inventory is not held on consignment; (c) such Inventory is in good condition, is not damaged and meets all standards applicable to such goods, their use or sale imposed by any Governmental Authority having regulatory authority over such matters; (d) such Inventory is currently saleable, at prices approximating at least the cost thereof, in the ordinary course of the business of the Borrower or such Restricted Subsidiary and is of a type sold in the ordinary course of business of the Borrower or such Restricted Subsidiary; (e) such Inventory is not work in process, or obsolete or repossessed, or used goods taken in trade; (f) such Inventory is located within the United States at one of the locations listed in Schedule 4 to the Security Agreements; (g) such Inventory is in the possession and control of the Borrower or such Restricted Subsidiary and not any third party and if located in a warehouse or other facility leased by the Borrower or such Restricted Subsidiary, the lessor has delivered to the Administrative Agent a waiver, consent and agreement in form and substance satisfactory to the Administrative Agent; (h) such Inventory has not been delivered to a customer of the Borrower or any Restricted Subsidiary (regardless of whether such delivery is on a consignment basis) and has not been returned by any customer; (i) in the case of any such Inventory consisting of new parts inventory and new supplies inventory, such Inventory does not exceed $200,000 in the aggregate; and (j) such Inventory is not determined by the Agents, on behalf of the Lenders, to be ineligible for any other reason, based upon credit, collateral or other considerations customarily taken into account by the Agents in making such determinations. "Eligible Propane Acquisitions" shall mean acquisitions by theBorrower or any Restricted Subsidiary of controlling stock or all or any part ofthe assets of Persons primarily engaged in the distribution of propane and,incidental thereto, propane appliances, within (a) the continental United Statesof America or (b) Canada or Puerto Rico, to the extent that the Trustee, for thebenefit of the Secured Parties, has a perfected first-priority security interestin such acquired Capital Stock or assets of such Person pursuant to theCollateral Agreements; provided that, any acquisition made by an UnrestrictedSubsidiary shall not constitute an Eligible Propane Acquisition. A Person shallbe "primarily engaged" in the distribution of propane and propane 15appliances within the continental United States of America, Canada or PuertoRico in the event that at least eighty-five percent (85%) of its annual grossrevenue is derived from such distribution activities within such locations. "Eligible Receivable" shall mean a Receivable arising in the ordinarycourse of the business of the Borrower or any Restricted Subsidiary (it beingunderstood that Receivables of any Unrestricted Subsidiary shall not be includedin Eligible Receivables) as to which all of the following requirements have beenfulfilled to the satisfaction of the Agents: (a) such Receivable is owned by the Borrower or such Restricted Subsidiary and represents a complete bona fide, arm's-length transaction which requires no further act on the part of the Borrower or such Restricted Subsidiary to make such Receivable payable by the applicable Account Debtor; (b) such Receivable is not past due more than 60 days after the due date of the original invoice; (c) such Receivable provides for credit terms which are not materially more favorable than customary among the competitors of the Borrower and its Restricted Subsidiaries with respect to similar Account Debtors; (d) such Receivable does not arise out of any transaction between or among the Borrower, any Restricted Subsidiary and any creditor, lessor or supplier of the Borrower or any Restricted Subsidiary (except as to the portion of such Receivable that is greater than all amounts owing by the Borrower and the Restricted Subsidiaries to such Person); (e) the Account Debtor with respect thereto is located in the United States of America; (f) such Receivable is not subject to the Assignment of Claims Act of 1940, as amended from time to time, or any applicable law now or hereafter existing similar in effect thereto, or to any contractual provision prohibiting its assignment or requiring notice of or consent of any Person to such assignment, except to the extent the requirements thereof have been satisfied; (g) the Borrower or such Restricted Subsidiary is not in breach of any express or implied representation or warranty with respect to the goods or services the sale of which gave rise to such Receivable; (h) the Account Debtor with respect to such Receivable is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other proceeding or action, threatened or pending, which, in the Agents' judgment, is reasonably likely to result in the insolvency of such Account Debtor; (i) the Inventory the sale of which gave rise to such Receivable were shipped or delivered to the applicable Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or 16 return basis or on the basis of any other similar understanding, and such goods have not been returned or rejected; (j) such Receivable, when added to all other Receivables owing to the Borrower or any Restricted Subsidiary by the applicable Account Debtor or any of its Affiliates, does not exceed in face amount the greater of (i) 1% of the total Eligible Receivables and (ii) $150,000 (unless the Agents shall have determined in their sole discretion to include such Receivables of a particular Account Debtor to the extent in excess of the foregoing greater amount); (k) such Receivable is evidenced by an invoice or other documentation in form satisfactory to the Administrative Agent containing only terms normally offered by the Borrower or such Restricted Subsidiary, and is dated no later than the date of shipment; (l) such Receivable is a valid, legally enforceable obligation of the Account Debtor with respect thereto and is not subject to any present (and no facts exist which are the basis for any future) offset, credit, rebate, deduction or counterclaim, dispute or other defense on the part of such Account Debtor; (m) such Receivable is not evidenced by chattel paper or an instrument of any kind; (n) such Receivable does not constitute deferred revenue from any service agreement and does not arise from fees for the time value of money; (o) such Receivable is subject to the security interest of the Trustee in favor of the Secured Parties pursuant to the Security Agreements, which security interest is perfected as to such Receivable, and is subject to no other Lien whatsoever other than a Lien permitted under clause (b) of Section 6.02 and the Inventory giving rise to such Receivable were not, at the time of the sale thereof, subject to any Lien; (p) such Receivable is payable in dollars; and (q) such Receivable is not determined by the Agents, on behalf of the Lenders, to be ineligible for any other reason based upon credit, collateral or other considerations customarily taken into account by the Agents in making such determinations. "Environmental Laws" shall mean the common law and all Federal, state,local and foreign laws, rules or regulations relating to pollution or protectionof public health, safety or the environment, including laws relating to (a)emissions, discharges, releases or threatened releases of any Hazardous Materialinto the environment (including air, surface water, ground water or land) or (b)the manufacture, processing, distribution, use, treatment, storage, disposal,transport or handling of Hazardous Materials. "ERISA" shall mean the Employee Retirement Income Security Act of1974, as the same may be amended from time to time and the regulations and rulesissued thereunder. 17 "Eurodollar Borrowing" shall mean a Borrowing comprised of EurodollarLoans. "Eurodollar Loan" shall mean any Eurodollar Revolving Loan orEurodollar Tranche B Term Loan. "Eurodollar Revolving Loan" shall mean any Revolving Loan bearinginterest at a rate determined by reference to the Adjusted LIBO Rate inaccordance with the provisions of Article II. "Eurodollar Tranche A Revolving Loan" shall mean any Tranche ARevolving Loan bearing interest at a rate determined by reference to theAdjusted LIBO Rate in accordance with the provisions of Article II. "Eurodollar Tranche B Revolving Loan" shall mean any Tranche BRevolving Loan bearing interest at a rate determined by reference to theAdjusted LIBO Rate in accordance with the provisions of Article II. "Eurodollar Tranche B Term Borrowing" shall mean a Borrowing comprisedof Eurodollar Tranche B Term Loans. "Eurodollar Tranche B Term Loan" shall mean any Tranche B Term Loanbearing interest at a rate determined by reference to the Adjusted LIBO Rate inaccordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term inArticle VII. "Excess Proceeds" shall mean the meaning specified in Section6.07(c)(iii)(B). "Exchange Act" shall mean the Securities Exchange Act of 1934, asamended, and the rule and regulations promulgated thereunder. "Existing Credit Agreement" shall have the meaning assigned to suchterm in the recitals hereto. "Existing Parity Debt Credit Agreement" shall mean the Parity DebtCredit Agreement dated as of February 22, 2002 among the Borrower, the lendersparty thereto from time to time, Fleet National Bank as Administrative Agent andIssuing Bank and Bank of America, N.A. as Documentation Agent, as the same maybe amended, modified or supplemented from time to time. "Existing Unmortgaged Property" shall have the meaning assigned tosuch term in Section 6.20. "Existing Lenders" shall have the meaning assigned to such term inSection 4.01(e). "Facilities" shall mean Facility A and Facility B. 18 "Facilities Obligations" shall mean (a) the Borrower's obligations inrespect of the due and punctual payment of principal of and interest on(including interest accruing after the maturity of the Loans and Letter ofCredit Disbursements not yet reimbursed by the Borrower as provided in Section2.21 and interest accruing after the filing of any petition in bankruptcy, orthe commencement of any insolvency, reorganization or like proceeding, relatingto the Borrower, whether or not a claim for post-filing or post-petitioninterest is allowed in such proceeding) the Loans and all amounts drawn underthe Letters of Credit, when and as due, whether at maturity, by acceleration,upon one or more dates set for prepayment or otherwise, (b) all Fees, expenses,indemnities and expense reimbursement obligations of the Borrower under thisAgreement or any other Loan Document, (c) all obligations of the Borrower to anyAgent or Lender under any Interest Rate Agreement and (d) all other obligations,monetary or otherwise, of the Borrower or any other Loan Party under any LoanDocument to which it is a party, in each case, whether now owing or hereafterexisting. "Facility A" shall mean the Tranche A Revolving Loans and the TrancheA Letters of Credit provided or participated in by the Lenders to the Borrowerpursuant to this Agreement and the other Loan Documents. "Facility B" shall mean the Tranche B Revolving Loans, the Tranche BLetters of Credit and the Tranche B Term Loans provided or participated in bythe Lenders to the Borrower pursuant to this Agreement and the other LoanDocuments. "Facility Obligations" shall have the meaning assigned to such term inthe Parity Debt Credit Agreement. "Federal Funds Effective Rate" shall mean, for any day, the rate equalto the weighted average (rounded upwards to the nearest 1/8%) of the rates onovernight federal funds transactions with members of the Federal Reserve Systemarranged by federal funds brokers, (a) as such weighted average is published forsuch day (or, if such day is not a Business Day, for the immediately precedingBusiness Day) by the Federal Reserve Bank of New York or (b) if such rate is notso published for such Business Day, as determined by the Administrative Agentusing any reasonable means of determination. Each determination by theAdministrative Agent of the Federal Funds Effective Rate shall, in the absenceof manifest error, be conclusive. "Fees" shall mean the Commitment Fees, the other fees payable pursuantto Section 2.05 and the Letter of Credit Fees. "Financial Officer" shall mean, as to any corporation, the chieffinancial officer or principal accounting officer of such corporation and, as toany partnership, an officer of its managing general partner who would qualify asa Financial Officer of such general partner hereunder. "Funded Debt", as applied to any Person, shall mean all Indebtednessof such Person which by its terms or by the terms of any instrument or agreementrelating thereto matures more than one year from the date of the initialcreation thereof (including any current installment thereof due within one yearof the date of determination) provided that Funded Debt shall include anyIndebtedness which does not otherwise come within the foregoing definition 19but which is directly or indirectly renewable or extendible at the option of thedebtor to a date one year or more (including an option of the debtor under arevolving credit or similar agreement obligating the lender or lenders to extendcredit over a period of one year or more) from the date of the initial creationthereof; provided, further, that Funded Debt shall not include intercompanyIndebtedness permitted pursuant to Section 6.01(d). "Funding Office" shall mean the office of the Administrative Agentspecified in Section 9.01 or such other office as may be specified from time totime by the Administrative Agent as its funding office by written notice to theBorrower and the Lenders. "GAAP" shall mean generally accepted accounting principles in effectin the United States from time to time. "General Partner" shall mean Star Gas LLC or, after an InvoluntaryRemoval, any Person which replaces Star Gas LLC as sole general partner of theBorrower and the Public Partnership in a Qualifying Involuntary Removal. "General Partner Consent and Agreement" shall mean the General PartnerConsent and Agreement dated as of the date hereof among the General Partner andthe Trustee as to the consent and agreement of the General Partner in connectionwith the General Partner Guarantee and the Partners Security Agreement, in theform attached hereto as Exhibit B-1, as amended, supplemented or otherwisemodified from time to time. "General Partner Guarantee Agreement" shall mean the GuaranteeAgreement between the General Partner and the Trustee dated as of March 25,1999, as amended, supplemented or otherwise modified from time to time. "Governmental Authority" shall mean any Federal, state, local orforeign governmental department, commission, board, bureau, authority, agency,court, instrumentality or judicial or regulatory body or entity. "Growth-Related Capital Expenditures" shall mean, with respect to anyPerson, all capital expenditures by such Person made to improve or enhance the existing capital assets or to increase the customer base of such Person or toacquire or construct new capital assets (but excluding capital expenditures madeto maintain, up to the level thereof that existed at the time of suchexpenditure, the operating capacity of the capital assets of such Person as suchassets existed at the time of such expenditure). "Guaranty", as applied to any Person, shall mean any direct orindirect liability, contingent or otherwise, of such Person with respect to anyindebtedness, lease, dividend or other obligation of another, including any suchobligation directly or indirectly guaranteed, endorsed (otherwise than forcollection or deposit in the ordinary course of business) or discounted or soldwith recourse by such Person, or in respect of which such Person is otherwisedirectly or indirectly liable or any other obligation under any contract which,in economic effect, is substantially equivalent to a guaranty, including anysuch obligation of a partnership in which such Person is a general partner or ofa joint venture in which such Person is a joint venturer, and any suchobligation in effect guaranteed by such Person through any agreement (contingentor otherwise) to purchase, repurchase or otherwise acquire such obligation orany security therefor, 20or to provide funds for the payment or discharge of such obligation (whether inthe form of loans, advances, stock purchases, capital contributions orotherwise), or to maintain the solvency or any balance sheet or other financialcondition of the obligor of such obligation, or to make payment for anyproducts, materials or supplies or for any transportation or services regardlessof the non-delivery or non-furnishing thereof, in any such case if the purposeor intent of such agreement is to provide assurance that such obligation will bepaid or discharged, or that any agreements relating thereto will be compliedwith, or that the holders of such obligation will be protected against loss inrespect thereof. "Guarantee Agreements" shall mean the General Partner GuaranteeAgreement and the Subsidiaries Guarantee Agreement. "Hazardous Materials" shall mean any toxic or hazardous substance orwaste, gasoline or petroleum (including crude oil or any fraction thereof) orpetroleum products, polychlorinated biphenyls, urea-formaldehyde insulation,asbestos or asbestos-containing materials, pollutants, contaminants,radioactivity, and any other materials or substances of any kind, whether or notany such substance is defined as hazardous under any Environmental Law, that isregulated pursuant to any Environmental Law or that could give rise to liabilityunder any Environmental Law. "Hedging Agreement" shall mean any interest rate swap, collar, cap orsimilar interest rate arrangement designed solely to protect the Borroweragainst fluctuations in interest rates on Indebtedness outstanding or committedunder the Facilities. "Indebtedness", as applied to any Person, shall mean the following(without duplication): (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed; (b) any indebtedness, whether or not for borrowed money, with respect to which such Person has become directly or indirectly liable and which represents the deferred purchase price (or a portion thereof) or has been incurred to finance the purchase price (or a portion thereof) of any property or service or business acquired by such Person, whether by purchase, consolidation, merger or otherwise; (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition or property, assets or businesses, and all obligations upon which interest charges are customarily paid; (d) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); 21 (e) any Capital Lease Obligations to the extent such obligations would, in accordance with GAAP, appear on a balance sheet of such Person; (f) any indebtedness, whether or not for borrowed money, secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, provided that the amount of such Indebtedness if not so assumed shall in no event be deemed to be greater than the fair market value from time to time (as determined in good faith by such Person) of the property subject to such Lien; (g) all Disqualified Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends; (h) any Preferred Stock of any Subsidiary of such Person valued at the sum of the liquidation preference thereof or any mandatory redemption payment obligations in respect thereof plus, in either case, accrued dividends thereon; (i) any indebtedness of the character referred to in clause (a) through (h) of this definition deemed to be extinguished under GAAP but for which such Person remains legally liable; (j) all obligations of such Person in respect of Interest Rate Agreements; and (k) all standby letters of credit (including the Letters of Credit) of such Person and any indebtedness of any other Person of the character referred to in clause (a) through (i) of this definition with respect to which the Person whose Indebtedness is being determined has become liable by way of a Guaranty.Notwithstanding the foregoing, in determining the Indebtedness of the Borrowerand the Restricted Subsidiaries, there shall be excluded all undrawn commercialletters of credit (not yet due and payable), trade accounts payable, accruedinterest and other accrued expenses and customer credit balances arising in theordinary course of business on ordinary terms. The Indebtedness of any Personshall include the Indebtedness of any partnership in which such Person is ageneral partner. "Indemnified Party" shall have the meaning assigned to such term inSection 9.05(b). "Initial Acquisition Facility" shall mean Facility B. "Intercompany Notes" shall mean the promissory notes of theSubsidiaries issued to the Borrower as contemplated by Section 6.01(c), either(i) in the form attached hereto as Exhibit D, or (ii)\ such other form as may besatisfactory to the Administrative Agent, representing all Indebtedness of theSubsidiaries to the Borrower outstanding at any time. 22 "Intercreditor Agreement" shall mean the Intercreditor and TrustAgreement dated as of December 13, 1995, among (i) the Borrower, the PublicPartnership, Star Gas LLC and the Restricted Subsidiaries, as trustor, (ii) HSBCBank USA (formerly known as Marine Midland Bank), as trustee, (iii) the notepurchasers named therein, (iv) the bank lenders named therein, (v) theDocumentation Agent, (vi) the Syndication Agent, and (vii) the AdministrativeAgent, as amended by the First Amendment to Intercreditor and Trust Agreementdated as of May 31, 1996, the Second Amendment to Intercreditor and TrustAgreement dated as of September 30, 2000, the Third Amendment to Intercreditorand Trust Agreement dated as of October 25, 2002, and as supplemented by anAgreement of Parity Lenders and Supplement to Intercreditor Agreement, dated asof March 15, 2001, the Supplemental Agreement, dated as of March 25, 1999, theAgreement of Parity Lenders and Supplement to Intercreditor Agreement dated as of October 23, 2001, the Agreement of Parity Lenders and Supplement toIntercreditor Agreement, dated as of February 22, 2002, the Agreement of Lendersand Supplement to Intercreditor Agreement and the Agreement of Parity Lendersand Supplement to Intercreditor Agreement, and as further amended, supplementedor otherwise modified from time to time. "Interest Payment Date" shall mean, with respect to any Loan, the lastday of the Interest Period applicable to the Borrowing of which such Loan is apart and, in the case of any Eurodollar Borrowing with an Interest Period ofmore than three months' duration, each day that would have been an InterestPayment Date had successive Interest Periods of three months' duration beenapplicable to such Borrowing and, in addition, in the case of any EurodollarBorrowing, the date of any refinancing or conversion of such Borrowing with orto a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, theperiod commencing on the date of such Borrowing or on the last day of theimmediately preceding Interest Period applicable to such Borrowing, as the casemay be, and ending on the numerically corresponding day (or, if there is nonumerically corresponding day, on the last day) in the calendar month that isone, two, three or six months thereafter, as the Borrower may elect, and (b) asto any ABR Borrowing, the period commencing on the date of such Borrowing or onthe last day of the immediately preceding Interest Period applicable to suchBorrowing, as the case may be, and ending on the earliest of (i) the last day ofeach March, June, September and December and (ii) with respect to any Tranche ARevolving Loan, Tranche B Revolving Loan or Tranche B Term Loan, the Tranche AMaturity Date, the Tranche B Conversion Date or the Tranche B Maturity Date,respectively; provided, however, that if any Interest Period would end on a dayother than a Business Day, such Interest Period shall be extended to the nextsucceeding Business Day unless, in the case of a Eurodollar Borrowing only, suchnext succeeding Business Day would fall in the next calendar month, in whichcase such Interest Period shall end on the next preceding Business Day. Interestshall accrue from and including the first day of an Interest Period to, butexcluding, the last day of such Interest Period. "Interest Rate Agreement" shall mean any interest rate swap, collar,cap, foreign currency exchange agreement or other arrangement requiring paymentscontingent upon interest or exchange rates. "Inventory" shall mean Commodities Inventory and Non-CommoditiesInventory. 23 "Investment", as applied to any Person, shall mean any direct orindirect purchase or other acquisition by such Person of stock or othersecurities of any other Person, or any direct or indirect loan, advance orcapital contribution by such Person to any other Person, and any other itemwhich would be classified as an "investment" on a balance sheet of such Personprepared in accordance with GAAP, including any direct or indirect contributionby such Person of property or assets to a joint venture, partnership or otherbusiness entity in which such Person retains an interest. For the purposes ofSection 6.03, the amount involved in Investments made during any period shall bethe aggregate cost to the Borrower of all such Investments made during suchperiod, determined in accordance with GAAP, but without regard to unrealizedincreases or decreases in value, or write-ups, write-downs or write-offs, ofsuch investments and without regard to the existence of any undistributedearnings or accrued interest with respect thereto accrued after the respectivedates on which such Investments were made, less any net return of capitalrealized during such period upon the sale, repayment or other liquidation ofsuch Investment (determined in accordance with GAAP, but without regard to anyamounts received during such period as earnings (in the form of dividends notconstituting a return of capital, interest or otherwise) on such Investment) oras loans from any Person in whom such Investments have been made. "Involuntary Removal" shall mean an involuntary removal of the GeneralPartner as the general partner of the Borrower pursuant to Section 12.2 of thePartnership Agreement or as the general partner of the Public Partnershippursuant to Section 13.2 of the MLP Agreement. "Issuing Bank" shall mean, as to any Letter of Credit, JPMorgan ChaseBank, in its capacity as the issuer of such Letter of Credit, and its successorsin such capacity. "Legal Requirement" shall mean any law, statute, ordinance, decree,requirement, order, judgment, rule or regulation (or published officialinterpretation by any Governmental Authority of any of the foregoing) of anyGovernmental Authority. "Lender" shall mean each financial institution listed on the signaturepages hereof, each assignee which becomes a Lender pursuant to Section 9.04(b),and their respective successors; provided, that unless the context otherwiserequires, each reference herein to the Lenders shall be deemed to include anyConduit Lender. "Letter Agreement" shall have the meaning set forth in Section2.05(c). "Letter of Credit Disbursement" shall mean a payment or disbursementmade by the Issuing Bank pursuant to a Letter of Credit. "Letter of Credit Exposure" shall mean at any time the sum of (i) theTranche A Letter of Credit Exposure and (ii) the Tranche B Letter of CreditExposure. The Letter of Credit Exposure of any Lender at any time shall mean thesum of its Tranche A Letter of Credit Exposure and Tranche B Letter of CreditExposure at such time. "Letter of Credit Fees" shall mean the Tranche A Letter of Credit Feesand Tranche B Letter of Credit Fees. 24 "Letters of Credit" shall mean any and all Tranche A Letters of Creditand Tranche B Letters of Credit. "Level I Pricing Period" shall mean, subject to Section 2.06(e), anyperiod during which the Leverage Ratio is less than 3.50 to 1.00 and no Event ofDefault has occurred and is continuing. "Level II Pricing Period" shall mean, subject to Section 2.06(e), anyperiod during which the Leverage Ratio is greater than or equal to 3.50 to 1.00but less than 4.00 to 1.00 and no Event of Default has occurred and iscontinuing. "Level III Pricing Period" shall mean, subject to Section 2.06(e), anyperiod which is not a Level I Pricing Period or a Level II Pricing Period. "Leverage Ratio" as of any date shall mean the ratio of (a) TotalFunded Debt as of the last day of the Reference Period with respect to such dateto (b) Consolidated Cash Flow for such Reference Period. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing forany Interest Period, the rate per annum determined on the basis of the rate fordeposits in dollars for a period equal to such Interest Period commencing on thefirst day of such Interest Period appearing on Page 3750 of the Telerate screenas of 11:00 a.m., London time, two Business Days prior to the beginning of suchInterest Period. In the event that such rate does not appear on Page 3750 of theTelerate screen (or otherwise on such screen), the "LIBO Rate" shall bedetermined by reference to such other comparable publicly available service fordisplaying eurodollar rates as may be selected by the Administrative Agent or,in the absence of such availability, by reference to the rate at which theAdministrative Agent is offered dollar deposits at or about 11:00 a.m., New YorkCity time, two Business Days prior to the beginning of such Interest Period inthe interbank eurodollar market where its eurodollar and foreign currency andexchange operations are then being conducted for delivery on the first day ofsuch Interest Period for the number of days comprised therein. "Lien", as to any Person, shall mean any mortgage, lien (statutory orotherwise), pledge, reservation, right of entry, encroachment, easement, rightof way, restrictive covenant, license, charge, security interest or otherencumbrance in or on, or any interest or title of any vendor, lessor, lender orother secured party to or of such Person under any conditional sale or othertitle retention agreement or Capital Lease Obligation with respect to, anyproperty or asset owned or held by such Person, or the signing or filing of afinancing statement with respect to any of the foregoing which names such Personas debtor, or the signing of any security agreement with respect to any of the foregoing authorizing any other party as the secured party thereunder to fileany financing statement or any other agreement to give or grant any of theforegoing. For the purposes of this Agreement, a Person shall be deemed to bethe owner of any asset which it has placed in trust for the benefit of theholders of Indebtedness of such Person and such trust shall be deemed to be aLien if such Person remains legally liable therefor, notwithstanding that suchIndebtedness is or may be deemed to be extinguished under GAAP. 25 "Loan Documents" shall mean (a) this Agreement, (b) the Notes, (c) theLetters of Credit, (d) the Guarantee Agreements, (e) the Intercompany Notes, (f)the Collateral Documents, (g) any Interest Rate Agreements entered into by theBorrower with any Agent or Lender and (h) any Supplemental Agreements. "Loan Parties" shall mean the Public Partnership, the General Partner,the Borrower and the Restricted Subsidiaries. "Loan Value of Eligible Receivables, Eligible Commodities Inventoryand Eligible Non-Commodities Inventory" shall mean the sum of (a) 90% of the NetUnpaid Balance of all Eligible Receivables, plus (b) 90% of the aggregate bookvalue of all Eligible Commodities Inventory, determined following the movingweighted average method based on the lower of cost or market in accordance withGAAP, plus (c) 50% of the aggregate book value of all Eligible Non-CommoditiesInventory, determined following the moving weighted average method based on thelower of cost or market in accordance with GAAP. "Loans" shall mean any or all of the Tranche A Revolving Loans, theTranche B Revolving Loans and the Tranche B Term Loans. "Lockbox Agreement" shall mean an agreement among any Lender or otherbank, the Borrower or any Restricted Subsidiary, and the Administrative Agent insubstantially the form attached hereto as Exhibit O or in such other form as maybe reasonably satisfactory to the Administrative Agent. "Make Whole Amount" shall have the meaning set forth in the 1995 NoteAgreement as in effect on December 13, 1995. "Margin Stock" shall have the meaning assigned to such term underRegulation U. "Material Adverse Effect" shall mean a material adverse effect on (a)the business, operations, property or condition (financial or otherwise) of theBorrower or the Business, (b) the ability of the Borrower, the General Partneror any Restricted Subsidiary to perform its obligations under this Agreement orany other Operative Agreement or (c) the validity, enforceability, perfection orpriority of this Agreement or any other Operative Agreement or of the rights orremedies of any Lender or the Trustee. "Material Contract" shall mean any "material contract" (within themeaning of Item 601(b)(10) of Regulation S-K under the Exchange Act) except foremployee compensation plans, employee contracts and other employee compensationarrangements approved by the General Partner or, prior to March 25, 1999, byStar Gas Corporation, in its capacity as general partner of the Borrower. "Maximum Consolidated Pro Forma Debt Service" shall mean, as of anydate of determination, the highest total amount payable by the Borrower and theRestricted Subsidiaries on a consolidated basis (it being understood thatamounts payable by Unrestricted Subsidiaries shall not be consolidated with theBorrower or any Restricted Subsidiary for purposes of calculating MaximumConsolidated Pro Forma Debt Service), during any period of four 26consecutive fiscal quarters, commencing with the fiscal quarter in which suchdate of determination occurs and ending on the maturity date of the MortgageNotes, in respect of scheduled principal payments and all interest charges withrespect to all Indebtedness of the Borrower and the Restricted Subsidiaries(other than all scheduled principal payments with respect to the Tranche BRevolving Loans only to the extent that the outstanding principal amount of theTranche B Revolving Loans is zero for a period of at least 30 consecutive days during the two-year period prior to any such date of determination) outstandingor to be outstanding, after giving effect to any Indebtedness proposed to beincurred on such date and to the substantially concurrent repayment of any otherIndebtedness, and (a) including actual payments under Capital Lease Obligations,(b) assuming, in the case of Indebtedness (other than Indebtedness incurredunder the Facilities and the Parity Debt Credit Agreement) bearing interest atfluctuating interest rates which cannot be determined in advance, that the ratein effect on such date will remain in effect throughout such period, (c)assuming in the case of Indebtedness incurred under the Facilities and theParity Debt Credit Agreement, that (i) the interest payments payable during suchfour consecutive calendar quarters next succeeding the date of determinationwill equal the actual interest payments associated with the Facilities or theParity Debt Credit Agreement, as the case may be, during the most recent fourfiscal quarters, (ii) except for the 12-month period immediately prior to thetermination or final maturity thereof (unless extended or renewed), no principalpayments will be made under the Facility A and (iii) principal payments relatingto Facility B and the Parity Debt Credit Agreement Facility will become duebased on the assumption that the conversion to the fixed amortization scheduleis exercised pursuant to Section 2.01(c) and Section 2.11(c) under thisAgreement and Section 2.01(b) and Section 2.11(c) of the Parity Debt CreditAgreement, as applicable, (d) treating the principal amount of all Indebtednessoutstanding as of such date of determination under a revolving credit or similaragreement (other than the Facilities and the Parity Debt Credit Agreement) asmaturing and becoming due and payable on the scheduled maturity date or datesthereof (including the maturity of any payment required by any commitmentreduction or similar amortization provision), without regard to any provisionpermitting such maturity date to be extended, (e) including any other debtrepayments due within twelve months from such date of determination and (f)excluding principal and interest payments in connection with the Star/PetroIntercompany Subordinated Debt. "Maximum Rate" shall have the meaning assigned to such term in Section9.09. "MLP Agreement" shall mean the Agreement of Limited Partnership of thePublic Partnership. "Mortgage" shall mean each mortgage, assignment of rents, securityagreement and fixture filing, or deed of trust, assignment of rents and fixturefiling, or similar instrument creating and evidencing a lien on a real propertyand other property and rights incidental thereto, which shall be substantiallyin the form of Exhibit P, containing such schedules and including such exhibitsas shall not be inconsistent with the provisions of Section 4.01(g) or shall benecessary to conform such instrument to applicable local law and which shall bedated the date of delivery thereof and made by the owner of the real propertydescribed therein for the benefit of the Trustee, as mortgagee (or beneficiary),assignee and secured party for the benefit of the Secured Parties, as the samemay be amended, supplemented or otherwise modified from time to time. 27 "Mortgage Notes" shall mean the $85,000,000 8.04% First Mortgage Notesdue September 15, 2009 issued by Borrower pursuant to the 1995 Note Agreement. "Mortgaged Properties" shall mean the real properties identified onSchedule 3.07(b) and each other real property subjected to a Mortgage underSection 6.20 or otherwise. "Motor Vehicle Security Agreements" shall mean the Security Agreementsfor Motor Vehicles and other Rolling Stock between the Borrower or theRestricted Subsidiary, as applicable, and the Trustee in the form of Exhibit Dto the Borrower Security Agreement, as amended, supplemented or otherwisemodified from time to time. "Multiemployer Plan" shall mean a Plan which is a multiemployer planas defined in Section 4001(a)(3) of ERISA. "Net Unpaid Balance" of any Eligible Receivable on any date shall meanthe unpaid balance of such Eligible Receivable on such date. "Net Working Capital" as of any date shall mean the lesser of (a) (i)Current Assets as of such date, minus (ii) Current Liabilities as of such dateand (b) $8,000,000. "1995 Note Agreement" shall mean the Note Agreement dated as ofDecember 13, 1995, among the Star Gas LLC, the Borrower and the investors namedtherein, as amended by the First Amendment to Note Agreement dated as of May 31,1996, the Second Amendment to Note Agreement dated as of March 25, 1999, theThird Amendment to Note Agreement dated as of September 30, 2000, the FourthAmendment to Note Agreement dated as of October 25, 2002, and as furtheramended, supplemented or otherwise modified from time to time in accordance withthe Intercreditor Agreement. "Non-Commodities Inventory" shall mean new household appliances, newparts inventory and new supplies inventory which are held for sale by theBorrower or its Restricted Subsidiaries in the normal course of business andwhich, upon sale, will qualify for the full term of the original manufacturer'swarranty, if any. "Non-Excluded Taxes" shall have the meaning assigned to such term inSection 2.19. "Note Agreements" shall mean, collectively, the 1995 Note Agreement,the 2000 Note Agreement and the 2001 Note Agreement. "Notes" shall mean the Tranche A Revolving Credit Notes and theTranche B Notes. "Officers' Certificate" shall mean, as to any corporation, acertificate executed on its behalf by the Chairman of the Board of Directors (ifan officer) or its President or one of its Vice Presidents and its Treasurer, orController, or one of its Assistant Treasurers or Assistant Controllers, and, asto any partnership, a certificate executed on behalf of such partnership by its 28general partner in a manner which would qualify such certificate as an Officers'Certificate of such general partner hereunder. "Operative Agreements" shall mean this Agreement, the Note Agreements,the Collateral Documents, the MLP Agreement and the Partnership Agreement. "Other Taxes" shall mean any and all present or future stamp ordocumentary taxes or any other excise or property taxes, charges or similarlevies arising from any payment made hereunder or from the execution, deliveryor enforcement of, or otherwise with respect to, this Agreement or any otherLoan Document. "Parent Consolidated Cash Flow" shall mean at any date ofdetermination, for the Reference Period with respect to such date ofdetermination, (i) the sum of, without duplication, the amounts for such period,taken as a single accounting period, (a) Parent Consolidated Net Income and (b)all amounts deducted in arriving at such Parent Consolidated Net Income inrespect of (I) interest charges (including amortization of debt discount andexpense and imputed interest in Capital Lease Obligations), (II) provisions forall taxes and reserves (including reserves for deferred income taxes), (III)non-cash items, including, without limitation, (x) non-cash expenses or lossesincurred as a result of Statement of Financial Accounting Standard Number 133and the implementation of Statement of Financial Accounting Standard Numbers 141and 142 and (y) non-cash expenses related to unit appreciation rights, and (IV)Petro Reorganization Expenses in an aggregate amount of up to $12,000,000, less(ii) without duplication, any non-cash items added in the determination of suchParent Consolidated Net Income for such period. Parent Consolidated Cash Flowshall be calculated after giving effect, on a pro forma basis for the ReferencePeriod with respect to any date of determination to, without duplication, anyasset sales or asset acquisitions (including any asset acquisition giving riseto the need to make such calculation as a result of the Borrower or anyRestricted Subsidiary (including any Person who becomes a Restricted Subsidiaryas a result of such asset acquisition) incurring, assuming or otherwise beingliable for acquired Indebtedness) occurring during the period commencing on thefirst day of such Reference Period to and including the date of determination,as if such asset sale or asset acquisition occurred on the first day of suchReference Period. The pro forma calculations required by this definition will bedetermined in accordance with GAAP, shall be certified by a Financial Officer ofthe Public Partnership, and shall be calculated in a manner reasonablysatisfactory to the Required Lenders; provided, however, that such calculation shall be made (i) based on the historical sales volume associated with anyacquisition of a related business for the Reference Period with respect to thedate of such acquisition, less estimated post-acquisition loss of sales volume(not to be less than three percent (3%)), (ii) based on the actual cost to theBorrower of the volume of goods sold as determined in clause (i) above, (iii)based on the pro forma expenses that would have been incurred by the Borrower inthe operation of such related business if it had occurred on the first day ofsuch period computed on the basis of personnel expenses for employees retainedor to be retained by the Borrower in the operation of such related business andnon-personnel costs and expenses incurred by the Borrower or the General Partnerin the operation of the Business at similarly situated facilities of theBorrower and the Restricted Subsidiaries, and (iv) without inclusion of theoperations of any Unrestricted Subsidiary. 29 "Parent Consolidated Funded Debt" as of any date shall mean all FundedDebt of the Public Partnership and its Subsidiaries as of such date, excludingIndebtedness in respect of the Tranche A Revolving Loans and Tranche A Lettersof Credit and Indebtedness incurred for working capital purposes under the PetroCredit Agreement. "Parent Consolidated Interest Expense" shall mean as of any date ofdetermination, the total amount payable by the Public Partnership and itsSubsidiaries on a consolidated basis, during the Reference Period with respectto such date of determination, in respect of all interest charges (includingamortization of debt discount and expense and imputed interest on actualpayments under Capital Lease Obligations) during such Reference Period withrespect to Indebtedness of the Public Partnership and its Subsidiaries. "Parent Consolidated Net Income" shall mean, with reference to anyperiod, the net income (or deficit) of the Public Partnership and itsSubsidiaries (taken as a cumulative whole), after deducting all operatingexpenses, provisions for all taxes and reserves (including reserves for deferredincome taxes) and all other proper deductions, all determined in accordance withGAAP on a consolidated basis, after eliminating all intercompany transactionsand after deducting portions of income properly attributable to minorityinterests, if any, in the stock and surplus of Subsidiaries, provided that thereshall be excluded (a) the income (or deficit) of any Person accrued prior to thedate it becomes a Subsidiary or is merged into or consolidated with the PublicPartnership or a Subsidiary, (b) the income (or deficit) of any Person (otherthan a Subsidiary) in which the Public Partnership or any Subsidiary has anownership interest, except to the extent that any such income has been actuallyreceived by the Public Partnership or such Subsidiary in the form of dividendsor similar distributions (but subject to the limitations specified in theproviso below), (c) the undistributed earnings of any Subsidiary to the extentthat the declaration or payment of dividends or similar distributions by suchSubsidiary is not at the time permitted by the terms of its charter or anyagreement, instrument, judgment, decree, order, statute, rule or governmentalregulation applicable to such Subsidiary, (d) any restoration to income of anycontingency reserve, except to the extent that provision for such reserve wasmade out of income accrued during such period, (e) any aggregate net gain (butnot any aggregate net loss) during such period arising from the sale, exchangeor other disposition of capital assets (such term to include all fixed assets,whether tangible or intangible, all inventory sold in conjunction with thedisposition of fixed assets, and all securities), (f) any write-up of any asset,(g) any net gain from the collection of the proceeds of life insurance policies,(h) any gain arising from the acquisition of any securities, or theextinguishment, under GAAP, of any Indebtedness, of the Public Partnership orany Subsidiary, (i) any net income or gain (but not any net loss) during suchperiod from any change in accounting, from any discontinued operations or thedisposition thereof, from any extraordinary events or from any prior periodadjustments, (j) any deferred credit representing the excess of equity in anySubsidiary at the date of acquisition over the cost of the investment in suchSubsidiary, and (k) in the case of a successor to the Public Partnership byconsolidation or merger or as a transferee of its assets, any earnings of thesuccessor corporation prior to such consolidation, merger or transfer of assets. "Parent Indenture" shall mean the Indenture, dated as of February 6,2003, among the Public Partnership, Star Gas Finance Company and Union Bank ofCalifornia, N.A., as Trustee, with respect to the Public Partnership's issuanceof 10 1/4% Senior Notes due 2013, as amended, modified, replaced, refinanced orotherwise modified from time to time. 30 "Parent Material Adverse Effect" shall mean a material adverse effecton (a) the business, operations, property, condition (financial or otherwise) orprospects of the Public Partnership, the General Partner and the Borrower andits Restricted Subsidiaries, taken as a whole, or (b) the validity orenforceability of any of the Loan Documents or the rights or remedies of theAdministrative Agent, any Lender or the Trustee thereunder. "Parity Debt" shall mean Indebtedness of the Borrower incurred inaccordance with Section 6.01(a), (b), (f) and (j) (but only to the extent suchIndebtedness under Section 6.01(j) is incurred to any Lender) or Section 6.01(i)and secured by the lien of the Collateral Documents in accordance with Section6.02(g) or (h). For purposes of clarification, "Parity Debt" includes the 2000Parity Notes and the 2001 Parity Notes. "Parity Debt Agreements" shall have the meaning assigned to such termin the Intercreditor Agreement. "Parity Debt Credit Agreement" shall mean the Parity Debt CreditAgreement dated as of September 23, 2003 among the Borrower, the lenders partythereto from time to time, JPMorgan Chase Bank, as administrative agent andissuing bank, Wachovia Bank, N.A. as documentation agent, and Fleet NationalBank, as syndication agent, as the same may be amended, supplemented, replaced,refinanced or otherwise modified from time to time. "Parity Debt Credit Agreement Facility" shall mean the "Facility" assuch term is defined in the Parity Debt Credit Agreement. "Participant" shall have the meaning set forth in Section 9.04(c). "Partners Security Agreement" shall mean the Amended and RestatedPledge and Security Agreement among the Public Partnership, the General Partnerand the Trustee dated as of March 25, 1999, as amended, supplemented orotherwise modified from time to time. "Partnership Agreement" shall mean the Agreement of LimitedPartnership of the Borrower, as in effect on March 25, 1999, and as the same mayfrom time to time be amended, modified or supplemented in accordance with theterms thereof and Section 6.12 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation establishedpursuant to Subtitle A of Title IV of ERISA or any successor thereto. "Perfection Certificate" shall mean a certificate from the Borrowersubstantially in the form of Exhibit G. "Permitted Exceptions" shall have the meaning set forth in Section3.26. "Permitted Insurers" shall mean insurers with ratings of A or betteraccording to Best's Insurance Reports (or a comparable rating agency forinsurance companies located outside of the United States and Canada) and withassets of no less than $500,000,000. 31 "Person" shall mean any natural Person, corporation, business trust,joint venture, association, company, limited liability company, partnership,government (or any agency or political subdivision thereof) or other entity. "Petro" shall mean Petroleum Heat and Power Co., Inc., a Minnesotacorporation. "Petro Credit Agreement" shall mean the Second Amended and RestatedCredit Agreement, dated as of June 15, 2001, among Petroleum Heat and Power Co.,Inc., the various financial institutions parties thereto from time to time, Bankof America, N.A., as administrative agent, Fleet National Bank, as syndicationagent, and First Union National Bank, as documentation agent, as amended,supplemented or otherwise modified from time to time. "Petro Holdings" shall mean, collectively, Petro Holdings, Inc., aMinnesota corporation, and its subsidiaries. "Petro Holdings Dividends" shall mean the cash dividends ordistributions actually received by the Borrower or a Restricted Subsidiary fromPetro Holdings with respect to a calendar quarter during the 45 days immediatelyfollowing any such calendar quarter. "Petro Reorganization Expenses" shall mean expenses relating to thereorganization of Petro Holdings and its Subsidiaries, including, but notlimited to, severance pay, project consultants, project related travel expense,corporate identity expense (e.g. repainting trucks), set-up and implementationfees of outsourcing arrangements and salary of personnel to the extent relatingto services dedicated to the project and not related to operations in theordinary course of business. "Plan" shall mean an "employee benefit plan" (as defined in Section3(3) of ERISA) subject to Title IV of ERISA which is or has been established ormaintained, or to which contributions are or have been made, by Star GasCorporation, in its former capacity as general partner of the Borrower, theGeneral Partner, the Borrower or any Related Person or to which Star GasCorporation, in its former capacity as general partner of the Borrower, theGeneral Partner, the Borrower or any Related Person is or has been obligated tocontribute, or an employee benefit plan as to which Star Gas Corporation, in itsformer capacity as general partner of the Borrower, the General Partner, theBorrower or any Related Person could be treated as a contributory sponsor underSection 4069 or Section 4212 of ERISA if such plan were terminated. "Preferred Stock", as applied to the Capital Stock of any Person,shall mean Capital Stock of any class or classes (however designated) which ispreferred as to the payment of dividends, or as to the distribution of assetsupon any voluntary or involuntary liquidation or dissolution of suchcorporation, over shares of Capital Stock of any other class of such Person. "Prime Rate" shall mean the rate of interest per annum publiclyannounced from time to time by the Administrative Agent as its Base Rate (whichmay not be the lowest rate at which the Administrative Agent makes loans toborrowers) in effect at its principal office in New York, New York. Each changein the Prime Rate shall be effective on the date such change is adopted, withoutnotice to the Borrower. 32 "Pro Forma Balance Sheet" shall have the meaning assigned to such termin Section 3.05(b). "Public Partnership" shall mean Star Gas Partners, L.P., a Delawarelimited partnership. "Public Partnership Consent and Agreement" shall mean the PublicPartnership Consent and Agreement dated as of the date hereof among the PublicPartnership and Trustee as to the consent and agreement of the PublicPartnership in connection with the Partners Security Agreement, in the formattached hereto as Exhibit B-2, as amended, supplemented or otherwise modifiedfrom time to time. "Qualifying Involuntary Removal" shall mean any Involuntary Removal;provided that (a) the Person which shall become the general partner of theBorrower and the Public Partnership shall be satisfactory to the RequiredLenders in their sole discretion or (b) (i) the ratio of (A) Total Funded Debtas of the last day of the Reference Period with respect to the date of removalof the predecessor general partner to (B) Consolidated Cash Flow for suchReference Period shall be no greater than 4.25 to 1.00, (ii) the ratio ofConsolidated Cash Flow to Maximum Consolidated Pro Forma Debt Service for suchReference Period will be greater than 1.25 to 1.00 and (iii) within 60 daysafter such Involuntary Removal, the successor general partner (which shall be acorporation organized and existing under the laws of the United States ofAmerica or any State thereof) shall expressly assume, by a written agreementexecuted and delivered to the Trustee, in form satisfactory to the Trustee andthe Required Lenders, all the obligations of the "General Partner" under thisAgreement and the other Loan Documents. "RCRA" shall mean the Federal Resource Conservation and Recovery Act,as amended. "Receivables" shall mean all billed accounts for goods sold, leased orotherwise marketed in the ordinary course of business of the Borrower and theRestricted Subsidiaries and for services rendered in the ordinary course ofbusiness of the Borrower and the Restricted Subsidiaries, recorded on books ofaccount in accordance with GAAP. "Reference Period" with respect to any date of determination shallmean the period of four consecutive fiscal quarters of the Borrower mostrecently completed at least 45 days prior to such date, except that (a) inconnection with any calculation required pursuant to Section 2.01(c) and Section6.04, the "Reference Period" with respect to any date of determination shallmean the period of four consecutive fiscal quarters of the Borrower immediatelypreceding, or ending on, such date of determination and (b) solely for purposesof Section 6.29, the "Reference Period" with respect to any date ofdetermination shall have the meaning set forth in the second sentence of Section6.29(b). "Register" shall have the meaning assigned to such term in Section9.04(b)(iv). "Regulation T" shall mean Regulation T of the Board as from time totime in effect and all official rulings and interpretations thereunder orthereof. 33 "Regulation U" shall mean Regulation U of the Board as from time totime in effect and all official rulings and interpretations thereunder orthereof. "Regulation X" shall mean Regulation X of the Board as from time totime in effect and all official rulings and interpretations thereunder orthereof. "Related Person" shall mean any trade or business, whether or notincorporated, which, as of any date of determination, would be treated as asingle employer together with the General Partner or the Borrower under Section414 of the Code. "Reportable Event" shall mean any of the events set forth in Section4043(c) of ERISA, other than those events as to which the 30-day notice periodis waived under subsections .22, .23, .25, .27, or .28 of PBGC Reg. (S)4043. "Required Lenders" shall mean, at any time, Lenders holding Loans andparticipations in Letters of Credit, and having Commitments, representing in theaggregate more than 50% of the sum at such time of (a) the aggregate principalamount of the Loans outstanding, (b) the aggregate amount of the Letter ofCredit Exposure and (c) the aggregate amount of unused Commitments. "Responsible Officer" shall mean the President, any Vice President,the Chief Financial Officer, the Treasurer and the Secretary of the GeneralPartner and any other officer of the General Partner who is responsible forcompliance with or performance of any obligation under this Agreement, the otherLoan Documents or the other Operative Agreements and any employee of theBorrower performing any of the above functions. "Restricted Payment" shall mean (a) any payment, dividend or otherdistribution, direct or indirect, in respect of (i) any Capital Stock of theBorrower or any Restricted Subsidiary, except a distribution payable solely inadditional Capital Stock of the Borrower (other than Disqualified Stock) or (ii)any Capital Stock of any Unrestricted Subsidiary to a holder of such CapitalStock that is not the Borrower, a Restricted Subsidiary or any UnrestrictedSubsidiary that is wholly owned by the Borrower or a Restricted Subsidiary, (b)any payment, direct or indirect, on account of the redemption, retirement,purchase or other acquisition of any Capital Stock of the Borrower or anyRestricted Subsidiary now or hereafter outstanding, except to the extent thatthe consideration therefor consists of Capital Stock of the Borrower (other thanDisqualified Stock) and (c) except for any prepayment of Parity Debtcontemplated by Section 2.11 and the Collateral Documents, any principal paymenton, or redemption, repurchase, defeasance or other acquisition, or retirement for value, prior to any scheduled repayment or maturity, of (i) any Indebtednesssubordinated in right of payment to the Facilities Obligations or (ii) anyMortgage Notes or other Parity Debt. "Restricted Subsidiary" shall mean any Wholly Owned Subsidiary of theBorrower (excluding Petro Holdings and its direct and indirect subsidiaries) (a)organized under the laws of the United States of America or any state thereof orthe District of Columbia, (b) none of the capital stock or ownership interestsof which is owned by Unrestricted Subsidiaries, (c) substantially all of theoperating assets of which are located in, and substantially all of the businessof which is conducted within the United States and which business consists of 34the wholesale and retail sale, distribution and storage of propane gas andrelated petroleum derivative products and/or the related retail sale of suppliesand equipment, including home appliances and (d) designated by the Borrower as aRestricted Subsidiary in Schedule 1.01B or at a subsequent date; provided,however, that (i) to the extent a newly formed or acquired Wholly OwnedSubsidiary satisfying the requirements of the foregoing clauses (a), (b) and (c)is not declared either a Restricted Subsidiary or an Unrestricted Subsidiarywithin 90 days of its formation or acquisition, such Wholly Owned Subsidiaryshall be deemed a Restricted Subsidiary and (ii) a Restricted Subsidiary may bedesignated as an Unrestricted Subsidiary in accordance with the provisions ofSection 6.17. "Revolving Credit Borrowing" shall mean a Borrowing consisting ofRevolving Loans. "Revolving Credit Commitment" shall mean any and all Tranche ARevolving Credit Commitments and Tranche B Revolving Credit Commitments. "Revolving Loans" shall mean any and all Tranche A Revolving Loans andTranche B Revolving Loans. "SEC" shall mean the Securities and Exchange Commission or anysuccessor thereto. "Secured Parties" shall mean (a) the Lenders, (b) the AdministrativeAgent, the Syndication Agent and the Documentation Agent, in their capacities assuch under each Loan Document, (c) each Agent or Lender with which the Borrowerenters into an Interest Rate Agreement, in its capacity as a party to suchagreement, (d) the beneficiaries of each indemnification obligation undertakenby the Borrower or any of the Loan Parties under any Loan Document, (e) theholders of any Parity Debt and (f) the successors and assigns of the foregoing. "Security Agreements" shall mean the Partners Security Agreement andthe Borrower Security Agreement. "Seller" shall mean, with respect to any Acquired Business Entity, thePerson from whom the Business acquires (whether by purchase, merger orconsolidation) such Acquired Business Entity. "Sevin Group" shall mean the Estate of Malvin P. Sevin and trustscreated thereunder, Audrey L. Sevin and Irik P. Sevin and any trust over whichany one or more of such Persons have sole voting power. "Single Employer Plan" shall mean any Plan which is not aMultiemployer Plan. "Solvent" shall have the meaning assigned to such term in Section3.19. "Specified Percentage" as of any date shall mean (a) 50%, if the ratioof Consolidated Cash Flow to Consolidated Interest Expense referred to inSection 6.04(c) as of such date is less than or equal to 2.00 to 1.00, (b) 25%,if such ratio of Consolidated Cash Flow 35to Consolidated Interest Expense as of such date is greater than 2.00 to 1.00, but less than or equal to 2.25 to 1.00 and (c) 0.00, if such ratio ofConsolidated Cash Flow to Consolidated Interest Expense as of such date isgreater than 2.25 to 1.00. "Star Gas LLC" shall mean Star Gas LLC, a Delaware limited liabilitycompany and the successor general partner of the Borrower. "Star/Petro" shall mean Star/Petro, Inc., a Minnesota corporation. "Star/Petro Intercompany Subordinated Debt" shall mean the borrowingsof Star/Petro made from time to time pursuant to Section 6.01(d) from the PublicPartnership and evidenced by the Star/Petro Intercompany Subordinated Note,which shall be fully subordinate to the prior payment in full of the principaland premium, if any, and interest on the Notes. "Star/Petro Intercompany Subordinated Note" shall mean theintercompany note evidencing the Star/Petro Intercompany Subordinated Debt,which shall be fully subordinate to the prior payment, in full, of theprincipal, interest and premium, if any, on the Notes, with the terms asspecified either (i) in the form of Intercompany Note attached as Exhibit Dhereto, but modified (as set more fully forth in Section 6.04(c) hereof) topermit (x) principal and interest payments to be made solely from proceeds ofcapital contributions or equity investments indirectly made by the PublicPartnership into Star/Petro and/or dividends received from Petro Holdings and(y) interest payments in the event that the ratio of Consolidated Cash Flow toConsolidated Interest Expense is greater than 2.0 to 1.0; provided that,immediately prior to and after giving effect to such principal or interestpayments, no condition or event shall exist which constitutes an Event ofDefault, or (ii) in such other form satisfactory to the Agents and the Lenders,in the sole discretion of each. "Statutory Reserves" shall mean the stated maximum rate (expressed asa decimal) of all reserves (including any basic, supplemental, marginal oremergency reserve or any reserve asset), if any, as from time to time in effect,required by the Board and any other banking authority to which theAdministrative Agent is subject for any legal requirement to be maintained byany Lender against (a) "Eurocurrency liabilities" as specified in Regulation Dof the Board, (b) any other category of liabilities that includes eurodollardeposits by reference to which the LIBO Rate for any Eurodollar Borrowing isdetermined, (c) the principal amount of or interest on any portion of anyEurodollar Borrowing or (d) any other category of extensions of credit, or otherassets, that is based upon the LIBO Rate by a non-United States office of any ofthe Lenders to United States residents, in each case without the benefits ofcredits for prorations, exceptions or offsets that may be available to a Lender. "Subsidiaries Consent and Agreement" shall mean the SubsidiariesConsent and Agreement dated as of the date hereof among the RestrictedSubsidiaries and the Trustee as to the consent and agreement of the RestrictedSubsidiaries in connection with the Subsidiaries Guarantee Agreement and theBorrower Security Agreement substantially in the form of Exhibit C, as amended,supplemented or otherwise modified from time to time. 36 "Subsidiaries Guarantee Agreement" shall mean the Guarantee Agreementdated as of December 13, 1995 among the Restricted Subsidiaries and the Trustee,as amended, supplemented or otherwise modified from time to time. "Subsidiary" shall mean any corporation, association, partnership,joint venture or other business entity at least a majority (by number of votes)of the stock of any class or classes (or equivalent interests) of which is atthe time owned by the Borrower or by one or more Subsidiaries of the Borrower orby the Borrower and one or more Subsidiaries of the Borrower, if the holders ofthe stock of such class or classes (or equivalent interests) (a) are ordinarily,in the absence of contingencies, entitled to vote for the election of a majorityof the directors (or Persons performing similar functions) of such businessentity, even though the right so to vote has been suspended by the happening ofsuch a contingency, or (b) are at the time entitled, as such holders, to votefor the election of the majority of the directors (or Persons performing similarfunctions) of such business entity, whether or not the right so to vote existsby reason of the happening of a contingency. Unless the context otherwiserequires, any reference to a Subsidiary shall mean a Subsidiary of the Borrower. "Supplemental Agreement" shall mean an agreement between a RestrictedSubsidiary and the Trustee in the form attached hereto as Exhibit H, as amended,supplemented or otherwise modified from time to time. "Title Company" shall mean such title insurance company as shall besatisfactory to the Agents. "Total Funded Debt" as of any date shall mean (a) all Funded Debt ofthe Borrower and its Restricted Subsidiaries as of such date, includingIndebtedness in respect of the Mortgage Notes, Tranche B Revolving Loans,Tranche B Term Loans and Tranche B Letters of Credit, but excluding Indebtednessin respect of the Tranche A Revolving Loans and Tranche A Letters of Credit,minus (b) Net Working Capital of the Borrower and its Restricted Subsidiaries asof such date (or, if such Net Working Capital is negative, plus the amountthereof). "Tranche A Commitment Fee" shall have the meaning assigned to suchterm in Section 2.05(a). "Tranche A Letters of Credit" shall mean any and all standby lettersof credit issued pursuant to Section 2.21(a). "Tranche A Letter of Credit Disbursement" shall mean a payment ordisbursement made by the Issuing Bank pursuant to a Tranche A Letter of Credit. "Tranche A Letter of Credit Exposure" shall mean at any time the sumof (i) the aggregate undrawn amount of all outstanding Tranche A Letters ofCredit, plus (ii) the aggregate amount of all Tranche A Letter of CreditDisbursements not yet reimbursed by the Borrower as provided in Section 2.21,minus (iii) other than for the purpose of determining compliance with Section2.01 or Section 2.21(a) or (b), the aggregate principal amount of cashcollateral in respect of outstanding Tranche A Letters of Credit deposited bythe Borrower with the Administrative Agent and held pursuant to the CashCollateral Agreement pursuant to Section 2.21(k). The Tranche A Letter of CreditExposure of any Lender at any time shall mean 37its pro rata share (based on such Lender's Tranche A Revolving Credit CommitmentPercentage) of the aggregate Tranche A Letter of Credit Exposure at such time. "Tranche A Letter of Credit Fees" shall mean the fees payable to theIssuing Bank and the Lenders in respect of Tranche A Letters of Credit pursuantto Section 2.21(f). "Tranche A Maturity Date" shall mean September 30, 2006. "Tranche A Revolving Credit Availability Period" shall mean the periodfrom and including the Closing Date to but excluding the earlier of (a) theTranche A Maturity Date and (b) the termination of the Tranche A RevolvingCredit Commitments of the Lenders in accordance with the terms hereof. "Tranche A Revolving Credit Borrowing" shall mean a Borrowingcomprised of Tranche A Revolving Loans. "Tranche A Revolving Credit Commitment" shall mean, as to any Lender,the obligation of such Lender, if any, to make Tranche A Revolving Loans andparticipate in Tranche A Letters of Credit in an aggregate principal and/or faceamount not to exceed the amount set forth under the heading "Tranche A RevolvingCredit Commitment" opposite such Lender's name on Schedule 1.01A or in theAssignment and Acceptance pursuant to which such Lender became a party hereto,as the same may be changed from time to time pursuant to the terms hereof. Theoriginal amount of the total Tranche A Revolving Credit Commitments of all theLenders is $24,000,000. "Tranche A Revolving Credit Commitment Percentage" shall mean, foreach Lender, the percentage identified as its Tranche A Revolving CreditCommitment Percentage on Schedule 1.01A hereto which includes assignments tocertain Lenders in accordance with the provisions of Section 9.04, as suchpercentage may be modified in connection with any further assignment made inaccordance with the provisions of Section 9.04 or as the same may be reducedfrom time to time pursuant to Section 2.09. "Tranche A Revolving Credit Note" shall mean a promissory note of theBorrower, substantially in the form of Exhibit A-1, evidencing Tranche ARevolving Loans, and any substitutions or replacements therefor. "Tranche A Revolving Loans" shall mean the revolving loans made by theLenders to the Borrower pursuant to Section 2.01(a). Each Tranche A RevolvingLoan shall be a Eurodollar Revolving Loan or an ABR Revolving Loan. "Tranche B Commitment" shall mean, with respect to each Lender, thecommitment of such Lender to make Tranche B Revolving Loans hereunder as setforth in Section 2.01(b), as the same may be reduced from time to time pursuantto Section 2.09 or changed from time to time pursuant to an assignment inaccordance with Section 9.04, and to convert Tranche B Revolving Loans into aTranche B Term Loan hereunder as set forth in Section 2.01(c). 38 "Tranche B Commitment Fee" shall have the meaning assigned to suchterm in Section 2.05(b). "Tranche B Conversion Date" shall mean September 30, 2006. "Tranche B Letter of Credit Disbursement" shall mean a payment ordisbursement made by the Issuing Bank pursuant to a Tranche B Letter of Credit. "Tranche B Letter of Credit Exposure" shall mean at any time the sumof (i) the aggregate undrawn amount of all outstanding Tranche B Letters ofCredit, plus (ii) the aggregate amount of all Tranche B Letter of CreditDisbursements not yet reimbursed by the Borrower as provided in Section 2.21,minus (iii) other than for the purpose of determining compliance with Section2.01 or Section 2.21(a) or (b), the aggregate principal amount of cashcollateral in respect of Tranche B Letters of Credit deposited by the Borrowerwith the Administrative Agent and held pursuant to the Cash Collateral Agreementpursuant to Section 2.21(k). The Tranche B Letter of Credit Exposure of anyLender at any time shall mean its pro rata share (based on such Lender's TrancheB Revolving Credit Commitment Percentage) of the aggregate Tranche B Letter ofCredit Exposure at such time. "Tranche B Letter of Credit Fees" shall mean the fees payable to theIssuing Bank and the Lenders in respect of Tranche B Letters of Credit pursuantto Section 2.21(f). "Tranche B Letters of Credit" shall mean any and all standby lettersof credit issued pursuant to Section 2.21(b). "Tranche B Loans" shall mean the Tranche B Revolving Loans and theTranche B Term Loans. "Tranche B Maturity Date" shall mean September 30, 2008. "Tranche B Note" shall mean a promissory note of the Borrower,substantially in the form of Exhibit A-2, evidencing Tranche B Revolving Loansand (after the Tranche B Conversion Date) Tranche B Term Loans, and anysubstitutions or replacements therefor. "Tranche B Repayment Date" shall have the meaning assigned to suchterm in Section 2.11(c). "Tranche B Revolving Credit Availability Period" shall mean the periodfrom and including the Closing Date to but excluding the earlier of (a) theTranche B Conversion Date and (b) the termination of the Tranche B RevolvingCredit Commitments of the Lenders in accordance with the terms hereof. "Tranche B Revolving Credit Borrowing" shall mean a Borrowingcomprised of Tranche B Revolving Loans. "Tranche B Revolving Credit Commitment" shall mean, as to any Lender,the obligation of such Lender, if any, to make Tranche B Revolving Loans andparticipate in Tranche B Letters of Credit in an aggregate principal and/or faceamount not to exceed the 39amount set forth under the heading "Tranche B Revolving Credit Commitment"opposite such Lender's name on Schedule 1.01A or in the Assignment andAcceptance pursuant to which such Lender became a party hereto, as the same maybe changed from time to time pursuant to the terms hereof. The original amountof the total Tranche B Revolving Credit Commitments of all the Lenders is$25,000,000. "Tranche B Revolving Credit Commitment Percentage" shall mean, foreach Lender, the percentage identified as its Tranche B Revolving CreditCommitment Percentage on Schedule 1.01A hereto which includes assignments tocertain Lenders in accordance with the provisions of Section 9.04, as suchpercentage may be modified in connection with any further assignment made inaccordance with the provisions of Section 9.04 or as the same may be reducedfrom time to time pursuant to Section 2.09. For clarification, the term "TrancheB Revolving Credit Commitment Percentage" shall refer to each Lender'spercentage of the Tranche B Term Loans, as determined in accordance with Section2.01(c). "Tranche B Revolving Loans" shall mean the revolving loans made by theLenders to the Borrower pursuant to Section 2.01(b). Each Tranche B RevolvingLoan shall be a Eurodollar Revolving Loan or an ABR Revolving Loan. "Tranche B Term Borrowing" shall mean a Borrowing comprised of TrancheB Term Loans. "Tranche B Term Loans" shall have the meaning assigned to such term inSection 2.01(c). Each Tranche B Term Loan shall be a Eurodollar Term Loan or anABR Term Loan. "Tranche B Term-Out Effective Date" shall mean the date that is fiveBusiness Days prior to the Tranche B Conversion Date. "Tranche B Term-Out Option" shall have the meaning assigned to suchterm in Section 2.01(c). "Transferee" shall mean an Assignee or a Participant. "Trustee" shall mean HSBC Bank USA (formerly known as Marine MidlandBank), as Trustee under the Intercreditor Agreement, and its successors andassigns thereunder. "2000 Note Agreement" shall mean the Note Agreement dated as of March30, 2000, among the Borrower, Star/Petro and the investors named therein, asamended by the First Amendment to Note Agreement dated as of September 30, 2000,the Second Amendment to Note Agreement dated as of October 25, 2002, and asfurther amended, supplemented or otherwise modified from time to time inaccordance with the Intercreditor Agreement. "2000 Parity Notes" shall mean the $12,500,000 8.67% First MortgageNotes, Series A, due March 30, 2012 and the $15,000,000 8.72% First MortgageNotes, Series B, due March 30, 2015 issued by the Borrower and Star/Petropursuant to the 2000 Note Agreement. 40 "2001 Note Agreement" shall mean the Note Agreement dated as of March15, 2001, among the Borrower, Star/Petro and the investors named therein, asamended by the First Amendment to Note Agreement dated as of October 25, 2002,and as further amended, supplemented or otherwise modified from time to time inaccordance with the Intercreditor Agreement. "2001 Parity Notes" shall mean the $7,500,000 7.62% First MortgageNotes, Series A, due April 1, 2008 and the $22,000,000 7.95% First MortgageNotes, Series B, due April 1, 2001 issued by the Borrower and Star/Petropursuant to the 2001 Note Agreement. "Type" shall have the meaning assigned to such term in Section 1.03. "Unrestricted Subsidiary" shall mean any Wholly Owned Subsidiary otherthan a Restricted Subsidiary which is organized under the laws of the UnitedStates of America or any state thereof or the District of Columbia and substantially all of the operating assets of which are located in, andsubstantially all of the business of which is conducted within the United Statesand which business consists of the wholesale and retail sale, distribution andstorage of propane gas and related petroleum derivative products and the relatedretail sale of supplies and equipment, including home appliances; provided thatat all times Petro Holdings and its subsidiaries shall be deemed UnrestrictedSubsidiaries. "Wholly Owned", as applied to any Subsidiary, shall mean a Subsidiaryall the outstanding Capital Stock (other than directors' qualifying shares, ifrequired by law) of which is at the time owned by the Borrower or by one or moreWholly Owned Subsidiaries or by the Borrower and one or more Wholly OwnedSubsidiaries. "Working Capital Facility" shall mean Facility A. Section 1.02. Terms Generally. The definitions in Section 1.01 shallapply equally to both the singular and plural forms of the terms defined.Whenever the context may require, any pronoun shall include the correspondingmasculine, feminine and neuter forms. The words "include," "includes" and"including" shall be deemed to be followed by the phrase "without limitation."All references herein to Articles, Sections, Exhibits and Schedules shall bedeemed references to Articles and Sections of, and Exhibits and Schedules to,this Agreement unless the context shall otherwise require. Unless otherwiseexpressly provided herein, all terms of an accounting or financial nature usedherein shall be interpreted in accordance with GAAP, as in effect from time totime; provided, however, that, for purposes of (a) making any calculationcontemplated by the provisions of Article II and (b) determining compliance withany covenant set forth in Article VI, such terms shall be construed inaccordance with GAAP as in effect on the date of this Agreement applied on abasis consistent with the application used in preparing the Audited FinancialStatements. Unless otherwise expressly required herein, all calculations withrespect to the Borrower and the Restricted Subsidiaries shall be made exclusiveof any assets, liabilities, income or losses of any Unrestricted Subsidiary. Asused herein, the "knowledge" of the Borrower includes the knowledge of each andevery Loan Party. Unless otherwise expressly provided herein, the word "day"means a calendar day. 41 Section 1.03. Types of Borrowings. The term "Borrowing" refers to theportion of the aggregate principal amount of Loans of any Class outstandinghereunder which bears interest of a specific Type and for a specific InterestPeriod pursuant to a notice of Borrowing pursuant to Section 2.03. Each Lender'sratable share of each Borrowing is referred to herein as a separate "Loan."Borrowings, Loans, Letters of Credit and certain related terms hereunder may bedistinguished by "Class" and by "Type." The "Class" of a Loan or of a Commitmentto make such a Loan or of a Borrowing comprising such Loans or of a Letter ofCredit refers to whether such Loan is a Tranche A Revolving Loan, a Tranche BRevolving Loan or a Tranche B Term Loan, each of which constitutes a Class. The"Class" of a Letter of Credit refers to whether such Letter of Credit is aTranche A Letter of Credit or a Tranche B Letter of Credit, each of whichconstitutes a Class. The "Type" of a Loan refers to whether such Loan is an ABRLoan or a Eurodollar Loan. Borrowings and Loans may (but need not) be identifiedboth by Class and Type (e.g., a "Eurodollar Tranche A Revolving Loan" is a Loanwhich is both a Tranche A Revolving Loan and a Eurodollar Loan). ARTICLE II THE CREDITS Section 2.01. Commitment to Make Loans. (a) Subject to the terms andconditions and relying upon the representations and warranties herein set forth,each Lender agrees, severally and not jointly, to make Tranche A Revolving Loansto the Borrower, at any time and from time to time during the Tranche ARevolving Credit Availability Period, in an aggregate principal amount at anytime outstanding not to exceed the lesser of (i) the excess, if any, of (A) suchLender's Tranche A Revolving Credit Commitment over (B) its Tranche A Letter ofCredit Exposure at such time and (ii) the excess, if any, of (A) such Lender'sTranche A Revolving Credit Commitment Percentage of the Borrowing Base at suchtime over (B) its Tranche A Letter of Credit Exposure at such time, providedthat, in no event shall the Lenders be required to make any Tranche A RevolvingLoans if, after giving effect to such Loans, the sum of (I) the aggregate principal amount of outstanding Tranche A Revolving Loans on any date plus (II)the Tranche A Letter of Credit Exposure on such date exceed the aggregateTranche A Revolving Credit Commitments of all the Lenders. (b) Subject to the terms and conditions and relying upon therepresentations and warranties herein set forth, each Lender agrees, severallyand not jointly, to make Tranche B Revolving Loans to the Borrower, at any timeand from time to time during the Tranche B Revolving Credit Availability Period,in an aggregate principal amount at any time outstanding not to exceed theexcess, if any, of (i) such Lender's Tranche B Revolving Credit Commitment over(ii) its Tranche B Letter of Credit Exposure at such time, provided that, in noevent shall the Lenders be required to make any Tranche B Revolving Loans if,after giving effect to such Loans, the sum of (A) the aggregate principal amountof outstanding Tranche B Revolving Loans on any date plus (B) the Tranche BLetter of Credit Exposure on such date exceed the aggregate Tranche B RevolvingCredit Commitments of all the Lenders. (c) At any time during the period beginning 60 days prior to theTranche B Conversion Date and ending on the date that is 30 Business Days priorto the Tranche B Conversion Date, the Borrower in its sole discretion may elect(the "Tranche B Term-Out 42Option") by written notice to the Administrative Agent, (i) to convert all or aportion of the Tranche B Revolving Term Loans outstanding on the Tranche BConversion Date into term loans (each such loan, a "Tranche B Term Loan") on theTranche B Conversion Date and (ii) subject to the terms of Section 2.21(b), torequest an extension of the expiration of any Tranche B Letter of Creditoutstanding on the Tranche B Term-Out Effective Date to a date no later than thedate which is five Business Days prior to the Tranche B Maturity Date. TheTranche B Term-Out Option shall become effective on the Tranche B Term-OutEffective Date upon the receipt by the Administrative Agent of an Officers'Certificate, dated as of the Tranche B Term-Out Effective Date, certifying as ofsuch date, that: (i) the ratio of Parent Consolidated Funded Debt to Parent Consolidated Cash Flow as of the Tranche B Term-Out Effective Date shall be no greater than 5.00 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating compliance with such condition to the satisfaction of the Agents); (ii) neither the Borrower nor any of its Subsidiaries shall have made any Restricted Payment since the date of the most recent Borrowing or issuance of Letter of Credit if, on the date of such Restricted Payment, the ratio of (x) Parent Consolidated Cash Flow to (y) Parent Consolidated Interest Expense plus the aggregate amount of Restricted Payments made by the Public Partnership to its equityholders during the Reference Period with respect to such date, was less than 0.75 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating compliance with such condition to the satisfaction of the Agents); (iii) on the Tranche B Term-Out Effective Date, the Public Partnership and its Subsidiaries shall have in effect weather insurance coverage of at least $12,500,000 on a consolidated basis; (iv) the representations and warranties set forth in Article III hereof and the representations and warranties of the Borrower and the other Loan Parties set forth in the other Loan Documents shall be true and correct in all material respects on and as of the Tranche B Term-Out Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects on and as of such earlier date); and (v) no Default or Event of Default shall have occurred and be continuing as of the Tranche B Term-Out Effective Date. (d) The Borrower may borrow, pay or prepay and reborrow Tranche ARevolving Loans during the Tranche A Revolving Credit Availability Period,within the limits set forth in Section 2.01(a) and upon the other terms andsubject to the other conditions and limitations set forth herein. The Borrower may borrow, pay or prepay and reborrow Tranche B Revolving Loans during theTranche B Revolving Credit Availability Period, within the limits set forth inSection 2.01(b) and upon the other terms and subject to the other conditions andlimitations set forth herein, provided that, subject to the terms and conditionsset forth herein, at all times the Borrower shall maintain Tranche B Loansoutstanding in a minimum principal 43amount of $500,000 until the earlier of (x) Facility B is terminated in fullthrough acceleration or otherwise and (y) the Facility Obligations under theParity Debt Credit Agreement have been paid in full in cash and the Commitmentsunder the Parity Debt Credit Agreement have been fully terminated. Amounts paidor prepaid in respect of Tranche B Term Loans may not be reborrowed. Section 2.02. Loans. (a) Each Loan shall be made as part of aBorrowing consisting of Loans made by the Lenders ratably in accordance withtheir respective Tranche A Revolving Credit Commitments or Tranche B RevolvingCredit Commitments, as the case may be; provided, however, that the failure ofany Lender to make any Loan shall not in itself relieve any other Lender of itsobligation to lend hereunder (it being understood, however, that no Lender shallbe responsible for the failure of any other Lender to make any Loan required tobe made by such other Lender). The Loans comprising each Borrowing shall be inan aggregate principal amount which is (i) an integral multiple of $100,000 andnot less than $500,000 in the case of Eurodollar Loans and (ii) an integralmultiple of $100,000 in the case of ABR Loans (or, in the case of ABR Loans, anaggregate principal amount equal to the remaining balance of the Tranche ARevolving Credit Commitments or Tranche B Revolving Credit Commitments, as thecase may be). (b) A particular Borrowing of any Class shall consist solely of ABRLoans or Eurodollar Loans of such Class, as the Borrower may request pursuant toSection 2.03. Each Lender may at its option fulfill its Commitment with respectto any Eurodollar Loan by causing any domestic or foreign branch or Affiliate ofsuch Lender to make such Loan; provided that, any exercise of such option shallnot affect the obligation of the Borrower to repay such Loan in accordance withthe terms of this Agreement and the applicable Note. Borrowings of more than oneType and Eurodollar Loans bearing interest for more than one specific InterestPeriod may be outstanding at the same time; provided, however, that the Borrowershall not be entitled to request any Borrowing which, if made, would result inan aggregate of more than five separate Eurodollar Loans of any Lender beingoutstanding hereunder at any one time. For purposes of the foregoing, Loanshaving different Interest Periods, regardless of whether they commence on thesame date, shall be considered separate Loans. (c) Each Lender shall make a Loan in the amount of its pro rataportion, as determined under Section 2.16, of each Borrowing hereunder on theproposed date thereof by wire transfer of immediately available funds to theAdministrative Agent at the Funding Office, not later than 1:00 p.m., New YorkCity time, and the Administrative Agent shall by 3:00 p.m., New York City time,credit the amounts so received to the general deposit account of the Borrowerwith the Administrative Agent or, if a Borrowing shall not occur on such datebecause any condition precedent herein specified shall not have been met, returnthe amounts so received to the respective Lenders. (d) If the Administrative Agent has not received from the Borrower thepayment required by Section 2.21(g) by 12:30 p.m., New York City time, on thedate on which the Issuing Bank has notified the Borrower and the AdministrativeAgent that payment of a draft presented under any Letter of Credit of any Classwill be made, as provided in Section 2.21(g), the Administrative Agent willpromptly notify the Issuing Bank and each Lender of the Letter of CreditDisbursement of such Class and, in the case of each Lender, its pro rata share(based on 44such Lender's Tranche A Revolving Credit Commitment Percentage and Tranche BRevolving Credit Commitment Percentage of such Class) of such Letter of CreditDisbursement. Not later than 2:00 p.m., New York City time, on such date, eachLender shall make available its pro rata share, as so determined, of such Letterof Credit Disbursement, in Federal or other funds immediately available, to the Administrative Agent at the Funding Office, and the Administrative Agent willpromptly make such funds available to the Issuing Bank. The Administrative Agentwill promptly remit to each Lender that shall have made such funds available itspro rata share, as so determined, of any amounts subsequently received by theAdministrative Agent from the Borrower in respect of such Letter of CreditDisbursement. (e) Unless the Administrative Agent shall have received notice from aLender prior to the date of any Borrowing, or prior to the time of any requiredpayment by such Lender in respect of a Letter of Credit Disbursement, that suchLender will not make available to the Administrative Agent such Lender's prorata portion of such Borrowing or payment, the Administrative Agent may assumethat such Lender has made such portion available to the Administrative Agent onthe date of such Borrowing or payment in accordance with Section 2.02(c) or (d),as applicable, and the Administrative Agent may, in reliance upon suchassumption, make available to the Borrower or Issuing Bank, as applicable, onsuch date a corresponding amount. If and to the extent that such Lender shallnot have made such portion available to the Administrative Agent, such Lenderand the Borrower severally agree to repay to the Administrative Agent forthwithon demand such corresponding amount together with interest thereon, for each dayfrom the date such amount is made available to the Borrower or the Issuing Bank(or, if the Administrative Agent and the Issuing Bank are the same Person, fromthe date of such payment in respect of a Letter of Credit Disbursement), asapplicable, until the date such amount is repaid to the Administrative Agent at,(i) in the case of the Borrower, the interest rate applicable thereto pursuantto Section 2.06 or Section 2.21(g), as applicable and (ii) in the case of suchLender, the Federal Funds Effective Rate. If such Lender shall repay to theAdministrative Agent such corresponding amount in respect of a Borrowing, suchamount shall constitute such Lender's Loan as part of such Borrowing forpurposes of this Agreement. (f) Notwithstanding any other provision of this Agreement, theBorrower shall not be entitled to request (i) any Tranche A Revolving CreditBorrowing if the Interest Period requested with respect thereto would end afterthe Tranche A Maturity Date or (ii) any Tranche B Revolving Credit Borrowing ifthe Interest Period requested with respect thereto would end after the Tranche BConversion Date. Further, and notwithstanding any other provision of thisAgreement to the contrary, the Borrower shall not be entitled to request, norshall any Lender be required to make, any Eurodollar Loan during the existenceof a Default or an Event of Default unless the Required Lenders otherwise agree. Section 2.03. Notice of Borrowings. The Borrower shall give theAdministrative Agent telephone notice (promptly confirmed in writing or bytelecopy in the form of Exhibit I-1 hereto) (a) in the case of a EurodollarBorrowing, not later than 11:00 a.m., New York City time, three Business Daysbefore a proposed borrowing and (b) in the case of an ABR Borrowing, not laterthan 11:00 a.m., New York City time, on the Business Day of the proposedborrowing. Such notice shall be irrevocable and shall in each case refer to thisAgreement and specify (i) the applicable Class and Type of such Borrowing; (ii)the date of such Borrowing (which shall be a Business Day) and the amountthereof; and (iii) if such Borrowing is to be a Eurodollar 45Borrowing, the Interest Period with respect thereto. If no election as to theType of Borrowing is specified in any such notice, then the requested Borrowingshall be an ABR Borrowing. If no Interest Period with respect to any EurodollarBorrowing is specified in any such notice, then the Borrower shall be deemed tohave selected an Interest Period of one month's duration. The AdministrativeAgent shall promptly advise the Lenders of any notice given pursuant to thisSection 2.03 and of each Lender's pro rata portion of the requested Borrowing. Section 2.04. Notes; Repayment of Loans. The Tranche A Revolving Loansand Tranche B Loans made by each Lender shall be evidenced by a Tranche ARevolving Credit Note or a Tranche B Note, as applicable, duly executed anddelivered on behalf of the Borrower, dated the Closing Date, in substantiallythe form attached hereto as Exhibit A-1 or A-2, as applicable, with the blanksappropriately filled, payable to the order of such Lender in a principal amountequal to such Lender's Tranche A Revolving Credit Commitment (in the case of itsTranche A Revolving Credit Note) and Tranche B Revolving Credit Commitment (inthe case of its Tranche B Note). The outstanding principal balance of each Loan,as evidenced by the applicable Note, shall be payable (a) in the case of aTranche A Revolving Loan, on the Tranche A Maturity Date, (b) subject to Section 2.01(c), in the case of a Tranche B Revolving Loan, on the Tranche B ConversionDate and (c) in the case of a Tranche B Term Loan, as provided in Section 2.11.Each Note shall bear interest from the date of the first Borrowing hereunder onthe outstanding principal balance thereof as set forth in Section 2.06. EachLender shall, and is hereby authorized by the Borrower to, endorse on theschedule attached to each Note delivered to such Lender (or on a continuation ofsuch schedule attached to such Note and made a part thereof), or otherwise torecord in such Lender's internal records, an appropriate notation evidencing thedate and amount of each applicable Loan from such Lender, each payment andprepayment of principal of any such Loan, each payment of interest on any suchLoan and the other information provided for on such schedule; provided, however,that the failure of any Lender to make such a notation or any error thereinshall not affect the obligation of the Borrower to repay the Loans made by suchLender in accordance with the terms of this Agreement and the applicable Notes. Section 2.05. Fees. (a) The Borrower shall pay to the AdministrativeAgent for the account of each Lender, on the last day of March, June, Septemberand December in each year, and on the last day of the Tranche A Revolving CreditAvailability Period, a commitment fee (a "Tranche A Commitment Fee") on theaverage daily unused amount of the Tranche A Revolving Credit Commitment of suchLender during the preceding quarter (or shorter period commencing with the dateof this Agreement or ending with the last day of the Tranche A Revolving CreditAvailability Period), equal to (i) during any Level I Pricing Period, 0.25% perannum, (ii) during any Level II Pricing Period, 0.375% per annum and (iii) atall other times, 0.50% per annum. The "unused amount" of the Tranche A RevolvingCredit Commitment of a Lender on any date means the amount of such Lender'sTranche A Revolving Credit Commitment on such date, less the sum of itsoutstanding Tranche A Revolving Loans on such date and its Tranche A Letter ofCredit Exposure on such date. All Tranche A Commitment Fees shall be computed onthe basis of the actual number of days elapsed in a year of 360 days. TheTranche A Commitment Fee due to each Lender shall commence to accrue from thedate of this Agreement and shall cease to accrue on the last day of the TrancheA Revolving Credit Availability Period. 46 (b) The Borrower shall pay to the Administrative Agent for the accountof each Lender, on the last day of March, June, September and December in eachyear, and on the last day of the Tranche B Revolving Credit Availability Period,a commitment fee (a "Tranche B Commitment Fee") on the average daily unusedamount of the Tranche B Revolving Credit Commitment of such Lender during thepreceding calendar quarter (or shorter period commencing with the date of thisAgreement or ending with the last day of the Tranche B Revolving CreditAvailability Period), equal to (i) during any Level I Pricing Period, 0.25% perannum, (ii) during any Level II Pricing Period, 0.375% per annum and (iii) atall other times, 0.50% per annum. The "unused amount" of the Tranche B RevolvingCredit Commitment of a Lender on any date means the amount of such Lender'sTranche B Revolving Credit Commitment on such date, less the sum of itsoutstanding Tranche B Revolving Loans on such date and its Tranche B Letter ofCredit Exposure on such date. All Tranche B Commitment Fees shall be computed onthe basis of the actual number of days elapsed in a year of 360 days. TheTranche B Commitment Fee due to each Lender shall commence to accrue from thedate of this Agreement and shall cease to accrue on the last day of the TrancheA Revolving Credit Availability Period. (c) The Borrower agrees to pay to the Administrative Agent, for itsown account, the fees set forth in the Letter Agreement dated August 19, 2003(the "Letter Agreement"), among the Administrative Agent, J.P. Morgan SecuritiesInc. and the Borrower, in the amounts and on the dates provided in the LetterAgreement. Such fees shall be in addition to reimbursement of the Agents'reasonable out- of-pocket expenses. (d) All Fees shall be paid on the dates due, in immediately availablefunds. Once paid, none of the Fees shall be refundable under any circumstances. Section 2.06. Interest on Loans. (a) Subject to Section 2.07, eachTranche A Revolving Loan comprising an ABR Borrowing shall bear interest foreach day from the date such Loan is made until it becomes due (computed on thebasis of the actual number of days elapsed over a year of 360 days, except that,with respect to ABR Loans the rate of interest on which is calculated on thebasis of the Prime Rate, the interest thereon shall be calculated on the basisof a 365- (or 366-, as the case may be) day year for the actual days elapsed) ata rate per annum equal to the Alternate Base Rate, plus the Applicable Tranche A ABR Margin. (b) Subject to Section 2.07, each Tranche B Revolving Loan or TrancheB Term Loan comprising an ABR Borrowing shall bear interest for each day fromthe date such Loan is made until it becomes due (computed on the basis of theactual number of days elapsed over a year of 360 days, except that, with respectto ABR Loans the rate of interest on which is calculated on the basis of thePrime Rate, the interest thereon shall be calculated on the basis of a 365- (or366-, as the case may be) day year for the actual days elapsed) at a rate perannum equal to the Alternate Base Rate, plus the Applicable Tranche B ABRMargin. (c) Subject to Section 2.07, each Tranche A Revolving Loan comprisinga Eurodollar Borrowing shall bear interest for each day from the date such Loanis made until it becomes due (computed on the basis of the actual number of dayselapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBORate for the Interest Period in effect for such Borrowing, plus the ApplicableTranche A Eurodollar Margin. 47 (d) Subject to Section 2.07, each Tranche B Revolving Loan or TrancheB Term Loan comprising a Eurodollar Borrowing shall bear interest for each dayfrom the date such Loan is made until it becomes due (computed on the basis ofthe actual number of days elapsed over a year of 360 days) at a rate per annumequal to the Adjusted LIBO Rate for the Interest Period in effect for suchBorrowing, plus the Applicable Tranche B Eurodollar Margin. (e) Any change in any Applicable Margin required hereunder shall bedeemed to occur (i) five Business Days after the date the Borrower delivers itsfinancial statements required by Section 5.02(a) or (b), as the case may be, inrespect of its most recent fiscal quarter and the certificate required bySection 5.02(c) or (ii) on the date any Tranche B Revolving Credit Borrowing ismade or any Tranche B Letter of Credit is issued in respect of the financialstatements required by Section 4.03(a); provided that, if the Borrower fails todeliver such financial statements and certificate on or before the date suchstatements and certificate are required to be delivered pursuant to Section5.02(a) or (b), as the case may be, and Section 5.02(c), the Applicable Marginfor the period from such required date until the date such statements andcertificate are actually delivered shall be calculated as if a Level III PricingPeriod were in effect, and after the date such statements and certificate areactually delivered the Applicable Margin shall be determined as otherwiseprovided for herein. (f) Interest on each Loan shall be payable on the Interest PaymentDates applicable to such Loan, except as otherwise provided in this Agreement.The applicable Alternate Base Rate or Adjusted LIBO Rate for each InterestPeriod or day within an Interest Period, as the case may be, shall be determinedby the Administrative Agent, and such determination shall be conclusive absentmanifest error. Section 2.07. Default Interest. If the Borrower shall default in thepayment of the principal of or interest on any Loan or any other amount becomingdue under this Agreement or any other Loan Document, by acceleration orotherwise, interest shall accrue, to the extent permitted by law, on suchdefaulted amount during the period from (and including) the date of such defaultto (but not including) the date of actual payment (after as well as beforejudgment) at (a) in the case of principal or interest on any Loan, the rate perannum (computed on the basis of the actual number of days elapsed over a year of360 days) that would otherwise be applicable to such Loan pursuant to Section2.06 as if a Level III Pricing Period were in effect, plus 2.00% or (b) in thecase of any other amount, a rate per annum (computed on the basis of the actualnumber of days elapsed over a year of 360 days) equal to the rate applicable toABR Tranche B Revolving Loans pursuant to Section 2.06 as if a Level III PricingPeriod were in effect, plus 2.00%. The Borrower shall pay all such accrued butunpaid interest from time to time upon demand. Section 2.08. Alternate Rate of Interest. In the event, and on eachoccasion, that on the day two Business Days prior to the commencement of anyInterest Period for a Eurodollar Borrowing the Administrative Agent shall havedetermined that dollar deposits in the principal amounts of the Loans comprisingsuch Borrowing are not generally available in the applicable interbank market,or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintainingits Eurodollar Loan during such Interest Period, or that reasonable means do notexist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall,as soon as practicable thereafter, give written or 48telecopy notice of such determination to the Borrower and the Lenders. In theevent of any such determination, any request by the Borrower for a EurodollarBorrowing pursuant to Section 2.03 or Section 2.10 shall, until theAdministrative Agent shall have advised the Borrower and the Lenders that thecircumstances giving rise to such notice no longer exist, be deemed to be arequest for an ABR Borrowing. Each determination by the Administrative Agenthereunder shall be conclusive absent manifest error. Section 2.09. Termination and Reduction of Commitments. (a) TheTranche A Revolving Credit Commitments shall be automatically terminated at 5:00p.m., New York City time, on (i) September 30, 2003, if the Closing hereunder inaccordance with Article IV has not occurred by such date and (ii) otherwise, theTranche A Maturity Date. The Tranche B Revolving Credit Commitments shall beautomatically terminated at 5:00 p.m., New York City time, on (i) September 30,2003, if the Closing hereunder in accordance with Article IV has not occurred bysuch date and (ii) otherwise, the Tranche B Conversion Date. (b) Upon at least three Business Days' prior irrevocable written ortelecopy notice to the Administrative Agent, the Borrower may at any time inwhole permanently terminate, or from time to time in part permanently reduce,the Tranche A Revolving Credit Commitments and/or the Tranche B Revolving CreditCommitments; provided, however that (i) upon any such reduction of the Tranche BRevolving Credit Commitment, the Borrower simultaneously reduce the Parity DebtCredit Agreement Facility by a pro rata amount, provided that, the Borrower may,at its option, elect the aggregate amount of any such reduction to be applied,first, to the Parity Debt Credit Agreement Facility, and, second, to Facility B,and provided further, that in no event shall the outstanding Indebtedness underthe Parity Debt Credit Agreement Facility be reduced to an amount less than$2,000,000 (unless the Facility Obligations under the Parity Credit AgreementFacility is paid in full in cash and the commitments under such Facility arefully terminated), (ii) each partial reduction of the Revolving CreditCommitments of any Class shall be in a minimum collective aggregate principalamount which is an integral multiple of $100,000 and not less than $500,000,(iii) the Tranche A Revolving Credit Commitments may not be so terminated inwhole or in part unless and until (A) the Tranche B Revolving Credit Commitmentshave been terminated in whole, (B) the Tranche B Revolving Loans and Tranche BTerm Loans, together with interest, fees and all other obligations in respectthereof, have been paid in full, (C) all Tranche B Letters of Credit (other thanany such Letters of Credit for which the Borrower has deposited with theAdministrative Agent pursuant to the Cash Collateral Agreement an amount in cashequal to 100% of the undrawn amount of such Letters of Credit as provided inSection 2.21(k)) have been cancelled or have expired and (D) all Tranche BLetter of Credit Disbursements have been reimbursed in full and (iv) no suchtermination or reduction of Tranche A Revolving Credit Commitments or Tranche BRevolving Credit Commitments shall be permitted if, after giving effect theretoand to any prepayments of the related Loans made on the effective date thereof,(x) in the case of a termination or reduction of the Tranche A Revolving CreditCommitments, the sum of the aggregate outstanding principal amount of Tranche ARevolving Loans on the date of such reduction plus the Tranche A Letter ofCredit Exposure on such date would exceed the Tranche A Revolving CreditCommitments, (y) in the case of a termination or reduction of the Tranche BRevolving Credit Commitments, the sum of the aggregate outstanding principalamount of Tranche B Revolving Loans on the date of such reduction plus theTranche B Letter of Credit Exposure on such date would exceed the Tranche BRevolving Credit Commitments or 49(z) the aggregate outstanding Indebtedness under Facility B shall be reduced toan amount less than $500,000 unless the Facility Obligations under the ParityDebt Credit Agreement have been paid in full in cash and the Commitments (asdefined in the Parity Debt Credit Agreement) have been fully terminated. (c) In the event, and on each occasion, that the Borrower is required to prepay or repay Tranche A Revolving Loans and/or to provide cash collateralfor Tranche A Letters of Credit as provided in Section 2.11(e) or (f) andSection 2.11(h), then on the date of such required action, the Tranche ARevolving Credit Commitments shall be automatically and permanently reduced byan amount equal to the sum of such required payment and cash collateral. In theevent, and on each occasion, that the Borrower is required to prepay or repayTranche B Revolving Loans and/or to provide cash collateral for Tranche BLetters of Credit as provided in Section 2.11(e) or (f) and Section 2.11(h),then on the date of such required action, the Tranche B Revolving CreditCommitments shall be automatically and permanently reduced by an amount equal tothe sum of such required payment and cash collateral; provided, however, that(i) the Borrower simultaneously reduce the Parity Debt Credit Agreement Facilityby a pro rata portion of the amount of such prepayment or reduction determinedpursuant to the allocation method set forth in Section 4(d)(ii) of theIntercreditor Agreement and (ii) in no event shall any such reduction orprepayment reduce either (x) the outstanding Indebtedness under Facility B to anamount less than $500,000 or (y) the outstanding Indebtedness under the ParityDebt Credit Agreement Facility to an amount less than $2,000,000, in each case,unless the Facility Obligations under the Parity Debt Credit Agreement aresimultaneously paid in full in cash and the Commitments (as defined in theParity Debt Credit Agreement) are terminated in full. In addition, the Tranche ARevolving Credit Commitments and the Tranche B Revolving Credit Commitmentsshall be automatically and permanently reduced by the amount of Excess Proceedsreferred to in paragraph (e) or (f) of Section 2.11 which is allocable to reducesuch Commitments as provided in Section 2.11(h). For purposes of applying therequirements of this Section 2.09(c), the amount of any Excess Proceeds referredto in paragraph (e) or (f) of Section 2.11 which is allocable to the FacilitiesObligations shall be calculated as if the definition set forth in the lastsentence of Section 2.11(e) included, in addition, the maximum aggregate amountof the unused Tranche B Revolving Credit Commitments. (d) Each reduction in the Revolving Credit Commitments of any Class inaccordance with this Article II shall be made ratably among the Lenders inaccordance with their respective Revolving Credit Commitments of such Class. TheBorrower shall pay to the Administrative Agent for the account of the Lenders,on the date of each termination or reduction of the Revolving Credit Commitmentsof any Class, the Commitment Fees on the amount of the Revolving CreditCommitments of such Class so terminated or reduced accrued to the date of suchtermination or reduction. Section 2.10. Conversion and Continuation of Borrowings. The Borrowershall have the right at any time upon prior irrevocable notice to theAdministrative Agent (a) not later than 11:00 a.m., New York City time, on theBusiness Day of conversion, to convert any Eurodollar Borrowing into an ABRBorrowing, (b) not later than 11:00 a.m., New York City time, three BusinessDays prior to conversion or continuation, to convert any ABR Borrowing into aEurodollar Borrowing or to continue any Eurodollar Borrowing as a EurodollarBorrowing for an additional Interest Period and (c) not later than 11:00 a.m.,New York City time, three 50Business Days prior to conversion, to convert the Interest Period with respectto any Eurodollar Borrowing to another permissible Interest Period, subject ineach case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) the aggregate principal amount of such Borrowing converted into or continued as (A) a Eurodollar Borrowing, shall be an integral multiple of $100,000 and not less than $500,000 or (B) an ABR Borrowing, shall be the lesser of (I) the remaining outstanding principal amount of such Borrowing and (II) an integral multiple of $100,000; (iii) each conversion or continuation shall be effected by each Lender by applying the proceeds of the new Loan of such Lender resulting from such conversion or continuation to the Loan (or portion thereof) of such Lender being converted or continued; accrued interest on a Eurodollar Loan (or portion thereof) being converted or continued shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted or continued at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.15; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) unless the Required Lenders otherwise agree, during the existence of a Default or an Event of Default, the Borrower shall not be entitled to elect to have any Borrowing converted into or continued as a Eurodollar Borrowing; (vii) any portion of a Borrowing which cannot be converted into or continued as a Eurodollar Borrowing by reason of clause (v) or (vi) above shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; (viii) no Interest Period may be selected for any Tranche A Revolving Credit Borrowing that is a Eurodollar Borrowing that would end later than the Tranche A Maturity Date; and (ix) no Interest Period may be selected for any Eurodollar Tranche B Term Borrowing that would end later than a Tranche B Repayment Date occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (A) Eurodollar Tranche B Term Borrowings with Interest Periods ending on or prior to such Tranche B Repayment Date and (B) the ABR Tranche B Term Borrowings would not be at least equal to the principal amount of Tranche B Term Borrowings to be paid on such Tranche B Repayment Date. 51 Each notice pursuant to this Section 2.10 shall be irrevocable andshall refer to this Agreement and specify (I) the principal amount, the Typeand, in the case of a Eurodollar Borrowing, the Interest Period of the Borrowingthat the Borrower requests be converted or continued, (II) whether suchBorrowing is to be converted to or continued as a Eurodollar Borrowing or an ABRBorrowing, (III) if such notice requests a conversion, the date of suchconversion (which shall be a Business Day) and (IV) if such Borrowing is to beconverted to or continued as a Eurodollar Borrowing, the Interest Period withrespect thereto. If no Interest Period is specified in any such notice withrespect to any conversion to or continuation as a Eurodollar Borrowing, theBorrower shall be deemed to have selected an Interest Period of one month'sduration. The Administrative Agent shall advise the other Lenders of any noticegiven pursuant to this Section 2.10 and of each Lender's pro rata portion of anyconverted or continued Borrowing. If the Borrower shall not have given notice inaccordance with this Section 2.10 to continue any Borrowing into a subsequentInterest Period (and shall not otherwise have given notice in accordance withthis Section 2.10 to convert such Borrowing), such Borrowing shall, at the endof the Interest Period applicable thereto (unless repaid pursuant to the termshereof), automatically be continued into a new Interest Period as an ABRBorrowing. Section 2.11. Mandatory Repayments and Prepayments. (a) On the TrancheA Maturity Date, all Tranche A Revolving Credit Borrowings shall be due andpayable to the extent not previously paid. (b) On the Tranche B Conversion Date, all Tranche B Revolving CreditBorrowings not converted into Tranche B Term Loans pursuant to Section 2.01(c)shall be due and payable to the extent not previously paid. (c) Subject to adjustment as provided in Section 2.11(h) and Section2.12(b), the Borrower shall repay the Tranche B Term Loans and reduce theTranche B Letter of Credit Exposure in quarterly installments, commencing onDecember 31, 2006, and continuing on the last day of every third calendar monththereafter through September 30, 2008 (the due date of each such installmentbeing called a "Tranche B Repayment Date"), provided that, notwithstandinganything to the contrary contained in this Agreement, in no event shall theaggregate amount of outstanding Indebtedness under Facility B be less than$500,000 until the Facility Obligations under the Parity Debt Credit Agreementhave been paid in full in cash and the Commitments (as defined in the Parity Debt Credit Agreement) have been fully terminated. The amount of any suchinstallment payable on a Tranche B Repayment Date shall, subject to the provisoin the preceding sentence, be the amount, if any, necessary (after giving effectto any reductions on account of the expiration after the Tranche B ConversionDate of any Tranche B Letters of Credit) to reduce the sum of (i) the aggregateprincipal amount of the Tranche B Term Loans outstanding immediately after theTranche B Conversion Date and (ii) the Tranche B Letter of Credit Exposureoutstanding immediately after the Tranche B Conversion Date by an aggregatepercentage of such sum equal to the percentage set forth opposite such RepaymentDate below:December 31, 2006 12.5%March 30, 2007 25.0%June 30, 2007 37.5%September 30, 2007 50.0% 52December 31, 2007 62.5%March 31, 2008 75.0%June 30, 2008 87.5%September 30, 2008 100.00%On the Tranche B Repayment Date that is September 30, 2008, the Borrower shallrepay the remaining principal and interest owing on all outstanding Tranche BTerm Loans and fully cash collateralize any then existing Tranche B Letter ofCredit Exposure. All payments under this paragraph (c) shall be applied (I)first, to repay any outstanding Tranche B Term Loans and (II) second, after theTranche B Term Loans have been paid in full, to reduce the Tranche B Letter ofCredit Exposure. Any such payments so applied to reduce the Tranche B Letter ofCredit Exposure shall be deposited with the Administrative Agent pursuant to theCash Collateral Agreement as provided in Section 2.21(k). (d) During each year, the Borrower will cause a period of at least 30consecutive days to occur, at any time between March 1 and August 31 of suchyear, during which no Tranche A Revolving Credit Borrowings shall beoutstanding. (e) If at any time the Borrower or any of the Restricted Subsidiariesdisposes of property or such property shall be damaged, destroyed or taken ineminent domain or there shall be title insurance proceeds with respect to suchproperty, in any such case, with the result that there are Excess Proceeds, andthe Borrower does not apply such Excess Proceeds in the manner described inSection 6.07(c)(iii)(B)(I), the Borrower shall prepay, upon notice as providedin paragraph (g) of this Section 2.11 (which notice shall be given not laterthan 180 days after the date of such sale of property), a principal amount ofthe outstanding Facilities Obligations equal to the amount of such remainingExcess Proceeds allocable to the Facilities Obligations, determined byallocating such remaining Excess Proceeds pro rata among the Lenders and theholders of Parity Debt, if any, outstanding on the date such prepayment is to bemade, according to the aggregate then unpaid principal amounts of the FacilitiesObligations and Parity Debt (and the Make Whole Amount on the principal amountof the Mortgage Notes to be prepaid) in accordance with the allocation methodset forth in Section 4(d)(ii) of the Intercreditor Agreement. For purposes ofthis Section 2.11, the "aggregate then unpaid principal amount of the FacilitiesObligations" shall equal the sum of (i) the aggregate principal amount of theoutstanding Loans, (ii) the Letter of Credit Exposure and (iii) the maximumaggregate amount of the unused Tranche A Revolving Credit Commitments. (f) In the event that damage, destruction or a taking shall occur inrespect of all or a portion of the properties subject to any of the CollateralDocuments, or there shall be proceeds under title insurance policies withrespect to any real property, all Net Insurance Proceeds (as defined in theMortgage), self-insurance amounts, Net Awards (as defined in the Mortgage) ortitle insurance proceeds which, as of any date, shall not theretofore have beenapplied to the cost of Restoration (as defined in the Mortgage) shall be deemedto be proceeds of property disposed of voluntarily, shall be subject to theprovisions of Section 6.07(c) and, if subdivision (iii)(B)(I) of Section 6.07(c)is applicable thereto, shall be subject to the prepayment provisions ofparagraph (e) of this Section 2.11; provided that, if any such event orcircumstances (individually or together with all other related events andcircumstances) shall result in proceeds of more than $25,000,000 in theaggregate, the Borrower shall not apply such 53proceeds to replacement or other assets or undertake any Restoration without theprior written consent of the Required Lenders. (g) The Borrower will give the Administrative Agent irrevocablewritten notice of each prepayment under paragraph (e) or (f) of this Section2.11 not less than ten days and not more than 30 days prior to the date fixedfor such prepayment, in each case specifying such prepayment date, the aggregateprincipal amount of the Facilities Obligations to be prepaid, the principalamount of each issue of Parity Debt to be prepaid and the paragraph under whichsuch prepayment is to be made. Each Lender shall receive, on the Business Dayimmediately preceding the date scheduled for any such prepayment, a certificateof a Financial Officer of the Borrower certifying that the applicable conditionsof this Section 2.11 have been fulfilled and specifying the particulars of suchfulfillment. Such certificate shall set forth the principal amount of theFacilities Obligations being prepaid and specify how such amount was determined,and certify that such amount has been computed in accordance with this Section2.11. (h) All mandatory prepayments of the Facilities Obligations underparagraphs (e) and (f) of this Section 2.11 shall be applied (i) first, to payor prepay any outstanding Tranche B Revolving Loans or Tranche B Term Loans and,to the extent that the remaining amount of such prepayment is greater than theaggregate principal amount of outstanding Tranche B Loans, to reduce the TrancheB Letter of Credit Exposure, (ii) second, to permanently reduce any remainingunused Tranche B Revolving Credit Commitments as contemplated by Section2.09(c), (iii) third, to pay or prepay any outstanding Tranche A RevolvingLoans, and (iv) fourth, to permanently reduce any remaining unused Tranche ARevolving Credit Commitments as contemplated by Section 2.09(c), provided that,in the event that any such prepayment would reduce the outstanding Indebtednessunder Facility B to an amount less than $500,000 prior to the date that theFacility Obligations under the Parity Debt Credit Agreement have been paid infull in cash and the Commitments (as defined in the Parity Debt CreditAgreement) have been fully terminated, an amount equal to the excess of the (x)amount of such prepayment minus (y) the sum of the aggregate principal amount ofoutstanding Tranche B Loans on the date of such prepayment or reduction plus theTranche B Letter of Credit Exposure on such date shall be deposited with theAdministrative Agent pursuant to the Cash Collateral Agreement as provided inSection 2.21(k). All such mandatory prepayments so applied on or after theTranche B Conversion Date shall be applied to reduce the amount of scheduledpayments due under Section 2.11(c) after the date of such prepayment in theinverse order of maturity (without affecting the requirement that suchprepayments be applied first to pay all outstanding Tranche B Term Loans andonly thereafter to reduce the Tranche B Letter of Credit Exposure). Subject tothe foregoing provisions, any such mandatory prepayment of Loans of any Classshall be applied to prepay all ABR Loans of such Class before any EurodollarLoans of such Class are prepaid. Any such payments under paragraphs (e) and (f)of this Section 2.11 so applied to reduce the Letter of Credit Exposure shall bedeposited with the Trustee and applied as provided in the IntercreditorAgreement. (i) In the event and on each occasion that the sum of (i) theaggregate outstanding principal amount of the Tranche A Revolving Loans on anydate and (ii) the Tranche A Letter of Credit Exposure on such date exceeds thelesser of (A) the aggregate amount of the Tranche A Revolving Credit Commitmentsat such time, (B) the Borrowing Base at such 54time, and (C) the Borrowing Base as calculated pursuant to Section10.1(e)(ii)(3)(y) of the Note Agreements, the Borrower shall immediately prepayTranche A Revolving Loans (and, to the extent that the amount of such excess isgreater than the aggregate principal amount of outstanding Tranche A RevolvingLoans, reduce the Tranche A Letter of Credit Exposure by making a deposit withthe Administrative Agent pursuant to the Cash Collateral Agreement as providedin Section 2.21(k)) in an aggregate principal amount equal to such excess. (j) In the event and on any date that the ratio of Consolidated CashFlow to Consolidated Interest Expense (in each case, as defined in the Note Agreements) is less than 2.0 to 1.0, the Borrower will repay the Tranche ARevolving Loans and cash collateralize Tranche A Letters of Credit to the extentnecessary so that the sum of (i) the aggregate principal amount of aggregateoutstanding principal amount of the Tranche A Revolving Loans on such date plus(ii) the Tranche A Letter of Credit Exposure on such date shall not exceed$18,000,000 (and, to the extent that the amount of such prepayment exceeds theaggregate principal amount of outstanding Tranche A Revolving Loans, theBorrower shall deposit with the Administrative Agent pursuant to the CashCollateral Agreement as provided in Section 2.21(k) an amount equal to suchexcess). (k) In the event and on each occasion that the sum of (i) theaggregate outstanding principal amount of the Tranche B Revolving Loans on anydate and (ii) the Tranche B Letter of Credit Exposure on such date exceeds theaggregate amount of the Tranche B Revolving Credit Commitments at such time, theBorrower shall immediately prepay Tranche B Revolving Loans (and, to the extentthat the amount of such excess is greater than the aggregate principal amount ofoutstanding Tranche B Revolving Loans, reduce the Tranche B Letter of CreditExposure by making a deposit with the Administrative Agent pursuant to the CashCollateral Agreement as provided in Section 2.21(k)) in an aggregate principalamount equal to such excess. (l) Each payment of Borrowings pursuant to this Section 2.11 shall beaccompanied by accrued interest on the principal amount paid to but excludingthe date of payment. The repayments and prepayments of the Loans required by therespective subsections of this Section 2.11 and the optional prepaymentspermitted by Section 2.12 are separate and cumulative, so that any one suchrepayment or prepayment shall reduce any other repayment or prepayment only asand to the extent expressly specified herein. All payments under this Section2.11 shall be subject to Section 2.15, but otherwise shall be without premium orpenalty. Section 2.12. Optional Prepayments. (a) Subject to Section 2.01(d) andSection 2.12(b), the Borrower shall have the right at any time and from time totime to prepay any Borrowing or payment due under Section 2.11(c), in whole orin part, upon prior written or telecopy notice (or telephone notice promptlyconfirmed by written or telecopy notice) to the Administrative Agent (i) in thecase of any prepayment of amounts payable under Section 2.11(c), not later than11:00 a.m., New York City time, three Business Days in advance of the proposedprepayment, (ii) in the case of any prepayment of Eurodollar Revolving Loans,not later than 11:00 a.m., New York City time, three Business Days in advance ofthe proposed prepayment and (iii) in the case of any prepayment of ABR RevolvingLoans, not later than 11:00 a.m., New York City time, on the Business Day of theproposed prepayment; provided, however, that (A) to the extent the Borrowerprepays Facility B, the Borrower simultaneously 55reduce the Parity Debt Credit Agreement Facility pro rata, such that theprepayments made pursuant to this Section 2.12(a) and Section 2.12(a) of theParity Debt Credit Agreement shall be in equal dollar amounts, provided that,the Borrower may, at its option, elect the aggregate amount of such prepaymentsto be applied, first, to the Parity Debt Credit Agreement Facility, and, second,to Facility B, and provided further, that in no event shall (x) the aggregateoutstanding Indebtedness under the Parity Debt Credit Agreement Facility bereduced to an amount less than $2,000,000 and (y) the aggregate outstandingIndebtedness under Facility B be reduced to an amount less than $500,000 unlessthe Facility Obligations under the Parity Debt Credit Agreement have been paidin full in cash and the Commitments (as defined in the Parity Debt CreditAgreement) have been fully terminated, (B) each partial prepayment of ABR Loansshall be in a minimum aggregate amount of $100,000 under each of Facility B andthe Parity Debt Credit Agreement Facility, (C) each partial prepayment ofEurodollar Loans shall be in an amount which is an integral multiple of $100,000under each of Facility B and the Parity Debt Credit Agreement Facility and notless than $500,000 under each of Facility B and the Parity Debt Credit AgreementFacility and (D) a partial prepayment of a Eurodollar Borrowing under thisSection 2.12(a) shall not be made that would result in the remaining aggregateoutstanding principal amount thereof being less than $500,000, in the case ofFacility A, and being less than $500,000 under each of Facility B and the ParityDebt Credit Agreement Facility, in the case of Facility B. Each notice ofprepayment of any Borrowing or payment due under Section 2.11(c) shall specifythe prepayment date, the Class, the Type and the Interest Period of theBorrowing to be prepaid (in the case of a Eurodollar Borrowing), and the principal amount thereof to be prepaid, shall be irrevocable and shall committhe Borrower to prepay such Borrowing or payment by the amount stated therein onthe date stated therein. (b) All prepayments under this Section 2.12 shall be subject toSection 2.15 but otherwise shall be without premium or penalty. All prepaymentsunder this Section 2.12 shall be accompanied by accrued interest on theprincipal amount being prepaid to, but excluding, the date of payment. Allprepayments under this Section 2.12 of amounts payable under Section 2.11(c)shall be applied to reduce the amount of scheduled payments of amounts due underSection 2.11(c) after the date of such prepayment in the inverse order ofmaturity (without affecting the requirement that such prepayments be appliedfirst to pay all outstanding Tranche B Term Loans and only thereafter to providecash collateral in respect of Tranche B Letters of Credit) until the last fourof such scheduled payments shall have been repaid in full, and thereafter allsuch prepayments of amounts payable under Section 2.11(c) shall be applied toreduce such remaining scheduled payments pro rata. Subject to the foregoingprovisions, any optional prepayment of Loans of any Class pursuant to Section2.12(a) shall be applied to prepay all ABR Loans of such Class before anyEurodollar Loans of such Class are prepaid. Section 2.13. Reserve Requirements; Certain Changes in Circumstances.(a) Notwithstanding any other provision herein, if after the date of thisAgreement any change in applicable law or regulation or in the interpretation oradministration thereof by any Governmental Authority charged with theinterpretation or administration thereof (whether or not having the force oflaw) shall change the basis of taxation of payments to any Lender of theprincipal of or interest on any Eurodollar Loan made by such Lender or any Feesor other amounts payable hereunder (other than changes in respect of taxesimposed on the overall net income of such Lender by the jurisdiction in whichsuch Lender has its principal office or by any political subdivision or taxingauthority therein), or shall impose, modify or deem applicable any 56reserve, special deposit or similar requirement against assets of, deposits withor for the account of or credit extended by such Lender (except any such reserverequirement which is reflected in the Adjusted LIBO Rate) or shall impose onsuch Lender or the applicable interbank market any other condition affectingthis Agreement or Eurodollar Loans made by such Lender, and the result of any ofthe foregoing shall be to increase the cost to such Lender of making ormaintaining any Eurodollar Loan or to reduce the amount of any sum received orreceivable by such Lender hereunder or under the Notes (whether of principal,interest or otherwise) or Letters of Credit by an amount deemed by such Lenderto be material, then from time to time the Borrower shall pay to such Lenderupon demand such additional amount or amounts as will compensate such Lender forsuch additional costs incurred or reduction suffered. (b) If any Lender shall have determined that the adoption after thedate hereof of any law, rule, regulation, agreement or guideline regardingcapital adequacy, or any change in any of the foregoing or in the interpretationor administration of any of the foregoing by any Governmental Authority, centralbank or comparable agency charged with the interpretation or administrationthereof, or compliance by any Lender (or any lending office of such Lender) orany Lender's holding company with any request or directive regarding capitaladequacy (whether or not having the force of law) of any such authority, centralbank or comparable agency, has or would have the effect of reducing the rate ofreturn on such Lender's capital or on the capital of such Lender's holdingcompany, if any, as a consequence of this Agreement, the Letters of Credit orthe Loans made by such Lender pursuant hereto to a level below that which suchLender or such Lender's holding company could have achieved but for suchadoption, change or compliance (taking into consideration such Lender's policiesand the policies of such Lender's holding company with respect to capitaladequacy) by an amount deemed by such Lender or such Lender's holding company tobe material, then from time to time the Borrower shall pay to such Lender upondemand such additional amount or amounts as will compensate such Lender or suchLender's holding company for any such reduction suffered. (c) A certificate of each Lender setting forth such amount or amountsas shall be necessary to compensate such Lender or its holding company asspecified in paragraph (a) or (b) above, as the case may be, shall be deliveredto the Borrower and shall be conclusive absent manifest error. The Borrowershall pay each Lender the amount shown as due on any such certificate delivered by it within ten days after its receipt of the same. (d) No Lender shall be entitled to compensation under this Section2.13 for any costs incurred or reductions suffered with respect to any dateunless such Lender shall have notified the Borrower that it will demandcompensation for such costs or reductions not more than 120 days after the laterof (i) such date and (ii) the date on which such Lender becomes aware of suchcosts or reductions. Failure on the part of any Lender to demand compensationfor any increased costs or reduction in amounts received or receivable orreduction in return on capital with respect to any period shall not constitute awaiver of such Lender's right to demand compensation with respect to any otherperiod. The protection of this Section 2.13 shall be available to each Lenderregardless of any possible contention of the invalidity or inapplicability ofthe law, rule, regulation, guideline or other change, condition or circumstanceswhich shall have occurred or been imposed. 57 Section 2.14. Change in Legality. (a) Notwithstanding any otherprovision herein, if any change in any law or regulation or in theinterpretation thereof by any Governmental Authority charged with theadministration or interpretation thereof shall make it unlawful for any Lenderto make or maintain any Eurodollar Loan or to give effect to its obligations ascontemplated hereby with respect to any Eurodollar Loan, then, by written ortelecopy notice to the Borrower and to the Administrative Agent, such Lendermay: (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for an ABR Borrowing unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in Section 2.14(b).In the event that any Lender shall exercise its rights under clause (i) or (ii)above, all payments and prepayments of principal which would otherwise have beenapplied to repay the Eurodollar Loans that would have been made by such Lenderor the converted Eurodollar Loans of such Lender shall instead be applied torepay the ABR Loans made by such Lender in lieu of, or resulting from theconversion of, such Eurodollar Loans. (b) For purposes of this Section 2.14, a notice to the Borrower by anyLender shall be effective as to each Eurodollar Loan, if lawful, on the last dayof the Interest Period currently applicable to such Eurodollar Loan; in allother cases such notice shall be effective on the date of receipt by theBorrower. Section 2.15. Indemnity. The Borrower shall indemnify each Lenderagainst any loss or expense which such Lender may sustain or incur as aconsequence of (a) any failure by the Borrower to fulfill on the date of anyborrowing hereunder the applicable conditions set forth in Article IV, (b) anyfailure by the Borrower to borrow or to refinance, convert or continue any Loanhereunder after irrevocable notice of such borrowing, refinancing, conversion orcontinuation has been given pursuant to Section 2.03 or Section 2.10, (c) anypayment, prepayment or conversion of a Eurodollar Loan required by any otherprovision of this Agreement or otherwise made or deemed made on a date otherthan the last day of the Interest Period applicable thereto, (d) any default inpayment or prepayment of the principal amount of any Loan or any part thereof orinterest accrued thereon, as and when due and payable (at the due date thereof,whether by scheduled maturity, acceleration, irrevocable notice of prepayment orotherwise) or (e) the occurrence of any Event of Default, including, in eachsuch case, any loss or reasonable expense sustained or incurred or to besustained or incurred in liquidating or employing deposits from third partiesacquired to effect or maintain such Loan or any part thereof as a EurodollarLoan. Such loss or reasonable expense shall include an amount equal to theexcess, if any, as reasonably determined by such Lender, of (i) its cost ofobtaining the funds for the Loan being paid, prepaid, converted or not borrowed,refinanced, converted or continued or not paid or prepaid (assumed to be theAdjusted LIBO Rate applicable thereto) for the period from the date of suchpayment, prepayment, conversion or failure to borrow, refinance, convert or continue or failure to pay or prepay to the last day of the Interest Period forsuch Loan (or, in 58the case of a failure to borrow, refinance, convert or continue, the InterestPeriod for such Loan which would have commenced on the date of such failure)over (ii) the amount of interest (as reasonably determined by such Lender) thatwould be realized by such Lender in reemploying the funds so paid, prepaid,converted or not borrowed, refinanced, converted or continued for such period orInterest Period, as the case may be based upon the purchase of debt securitiescustomarily issued by the Treasury of the United States of America which have amaturity date approximating the last Business Day of such Interest Period). Acertificate of any Lender setting forth any amount or amounts which such Lenderis entitled to receive pursuant to this Section 2.15 shall be delivered to theBorrower and shall be conclusive absent manifest error. The Borrower shall payeach Lender the amount shown as due on any such certificate delivered by itwithin ten days after its receipt of the same. Section 2.16. Pro Rata Treatment. Except as required under Section2.13 or Section 2.14 and by the terms of this Agreement requiring pro ratatreatment with the Parity Debt Credit Agreement Facility, each Borrowing, eachpayment or prepayment of principal of any Borrowing, each payment of interest onthe Loans, each payment of the Commitment Fees, each reduction of theCommitments, each payment in respect of participations in Letter of CreditDisbursements and each refinancing of any Borrowing with, conversion of anyBorrowing to, or continuation of any Borrowing as a Borrowing of any Type shallbe allocated pro rata among the Lenders in accordance with their respectiveCommitments of the applicable Class (or, if such Commitments shall have expiredor been terminated, in accordance with the respective principal amounts of theiroutstanding Loans of the applicable Class). Each Lender agrees that in computingsuch Lender's portion of any Borrowing to be made hereunder, the AdministrativeAgent may, in its discretion, round each Lender's share of such Borrowing,computed in accordance with Schedule 1.01A, to the next higher or lower wholedollar amount. Section 2.17. Sharing of Setoffs. Each Lender agrees that if it shall,through the exercise of a right of banker's lien, setoff or counterclaim againstthe Borrower, or pursuant to a secured claim under Section 506 of Title 11 ofthe United States Code or other security or interest arising from, or in lieuof, such secured claim, received by such Lender under any applicable bankruptcy,insolvency or other similar law or otherwise (except pursuant to Section 2.20),or by any other means, obtain payment (voluntary or involuntary) in respect ofany Loan or Loans as a result of which the unpaid principal portion of its Loansof any Class shall be proportionately less than the unpaid principal portion ofthe Loans of such Class of any other Lender, it shall be deemed simultaneouslyto have purchased from such other Lender at face value, and shall promptly payto such other Lender the purchase price for, a participation in such Loans ofsuch other Lender, so that the aggregate unpaid principal amount of the Loansand participations in Loans of any Class held by each Lender shall be in thesame proportion to the aggregate unpaid principal amount of all Loans of suchClass then outstanding as the principal amount of its Loans of such Class priorto such exercise of banker's lien, setoff or counterclaim or other event was tothe principal amount of all Loans of such Class outstanding prior to suchexercise of banker's lien, setoff or counterclaim or other event; provided,however, that if any such purchase or purchases or adjustments shall be madepursuant to this Section 2.17 and the payment giving rise thereto shallthereafter be recovered, such purchase or purchases or adjustments shall berescinded to the extent of such recovery and the purchase price or prices oradjustment restored without interest (unless the party from which such recoveryis made is obligated by law to pay interest on the amount recovered, in whichcase each of the Lenders shall 59be responsible for its pro rata share of such interest). The Borrower expresslyconsents to the foregoing arrangements and agrees that any Lender holding aparticipation in a Loan deemed to have been so purchased may exercise any andall rights of banker's lien, setoff or counterclaim with respect to any and allmoneys owing by the Borrower to such Lender by reason thereof as fully as ifsuch Lender had made a Loan directly to the Borrower in the amount of such participation. Section 2.18. Payments. (a) The Borrower shall make each payment(including principal of or interest on any Borrowing or any Fees or otheramounts) hereunder or under any other Loan Document not later than 12:00 (noon),New York City time, on the date when due in dollars to the Administrative Agentat the Funding Office, in immediately available funds. Any such payment receivedafter such time on any date shall be deemed made on the next Business Day. (b) Whenever any payment (including principal of or interest on anyBorrowing or any Fees or other amounts) hereunder or under any other LoanDocument shall become due, or otherwise would occur, on a day that is not aBusiness Day, such payment may be made on the next succeeding Business Day, andsuch extension of time shall in such case be included in the computation ofinterest or Fees, if applicable. Section 2.19. Taxes. (a) All payments made by the Borrower under thisAgreement, the Notes and the Letters of Credit shall be made free and clear of,and without deduction or withholding for or on account of, any present or futureincome, stamp or other taxes, levies, imposts, duties, charges, assessments,fees, deductions or withholdings, now or hereafter imposed, levied, collected,withheld or assessed by any Governmental Authority, excluding net income taxesand franchise taxes (imposed in lieu of net income taxes) imposed on any Agentor any Lender as a result of a present or former connection between such Agentor such Lender and the jurisdiction of the Governmental Authority imposing suchtax or any political subdivision or taxing authority thereof or therein (otherthan any such connection arising solely from such Agent or such Lender havingexecuted, delivered or performed its obligations or received a payment under, orenforced, this Agreement, the Notes or any Letters of Credit). If any suchnon-excluded taxes, levies, imposts, duties, charges, fees deductions orwithholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheldfrom any amounts payable to any such Agent or any Lender hereunder or under theNotes or any Letters of Credit, the amounts so payable to such Agent or suchLender shall be increased to the extent necessary to yield to such Agent or suchLender (after payment of all Non-Excluded Taxes and Other Taxes) interest or anysuch other amounts payable hereunder at the rates or in the amounts specified inthis Agreement, the Notes and any Letters of Credit, provided, however, that theBorrower shall not be required to increase any such amounts payable to anyLender that is not organized under the laws of the United States of America or astate thereof if such Lender fails to comply with the requirements of Section2.19(d). (b) In addition, the Borrower shall pay any Other Taxes to therelevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes are payable by the Borrower, aspromptly as possible thereafter the Borrower shall send to the AdministrativeAgent for its own 60account or for the account of any Agent or such other Lender, as the case maybe, a certified copy of an original official receipt received by the Borrowershowing payment thereof. If the Borrower fails to pay any Non-Excluded Taxeswhen due to the appropriate taxing authority or fails to remit to theAdministrative Agent the required receipts or other required documentaryevidence, the Borrower shall indemnify the Agents and the Lenders for anyincremental taxes, interest or penalties that may become payable by the Agentsor any Lender as a result of any such failure. (d) Each Lender (or Transferee) that is not a "U.S. Person" as definedin Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to theBorrower and the Administrative Agent (or, in the case of a Participant, to theLender from which the related participation shall have been purchased) twocopies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or,in the case of a Non-U.S. Lender claiming exemption from U.S. federalwithholding tax under Section 871(h) or 881(c) of the Code with respect topayments of "portfolio interest", a statement substantially in the form ofExhibit L and a Form W-8BEN, or any subsequent versions thereof or successorsthereto, properly completed and duly executed by such Non-U.S. Lender claimingcomplete exemption from, or a reduced rate of, U.S. federal withholding tax onall payments by the Borrower under this Agreement and the other Loan Documents.Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on orbefore the date such Participant purchases the related participation). Inaddition, each Non-U.S. Lender shall deliver such forms promptly upon theobsolescence or invalidity of any form previously delivered by such Non-U.S.Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time itdetermines that it is no longer in a position to provide any previouslydelivered certificate to the Borrower (or any other form of certificationadopted by the U.S. taxing authorities for such purpose). Notwithstanding anyother provision of this paragraph, a Non-U.S. Lender shall not be required todeliver any form pursuant to this paragraph that such Non-U.S. Lender is notlegally able to complete and deliver. (e) The provisions of this Section 2.19 shall remain operative and infull force and effect regardless of the expiration of the term of thisAgreement, the consummation of the transactions contemplated hereby, therepayment of any of the Loans, the invalidity or unenforceability of any term orprovision of this Agreement or any other Loan Document, or any investigationmade by or on behalf of any Agent or any Lender. (f) Any Agent or Lender claiming any indemnity payment or additionalamounts payable pursuant to this Section 2.19 shall use reasonable efforts(consistent with legal and regulatory restrictions) to file any certificate ordocument reasonably requested in writing by the Borrower or to change thejurisdiction of its applicable lending office if the making of such a filing orchange would avoid the need for or reduce the amount of any such indemnitypayment or additional amounts that may thereafter accrue and would not, in thesole determination of such Agent or Lender, be otherwise disadvantageous to suchLender. (g) Nothing contained in this Section 2.19 shall require any Agent orLender to make available any of its tax returns (or any other information thatit deems to be confidential or proprietary). 61 (h) No Lender shall be entitled to claim any indemnity payment oradditional amount payable pursuant to this Section 2.19 with respect to any taxunless such Lender shall have notified the Borrower that it will demandcompensation for such payment or amount not more than 120 days after the laterof (i) such date and (ii) the date on which such Lender becomes aware of thecosts or reductions giving rise to such claim. Failure on the part of any Lenderto demand any indemnity payment or any such additional amount with respect toany period shall not constitute a waiver of such Lender's right to demandcompensation with respect to any other period. The protection of this Section2.19 shall be available to each Lender regardless of any possible contention ofthe invalidity or inapplicability of the law, rule, regulation, guideline orother change, condition or circumstances which shall have occurred or beenimposed. Section 2.20. Assignment of Commitments Under Certain Circumstances.In the event that any Lender shall have delivered a notice or certificatepursuant to Section 2.13 or Section 2.14, or the Borrower shall be required topay additional amounts to any Lender under Section 2.19, the Borrower shall havethe right, at its own expense, upon notice to such Lender and the AdministrativeAgent, to require such Lender to transfer and assign without recourse (inaccordance with and subject to the provisions set forth in Section 9.04,including clause (v) of the proviso to Section 9.04(b)) all its interests,rights and obligations under this Agreement to another financial institutiondesignated by the Borrower which shall assume such obligations; provided that(i) in the case of an assignment under Facility B, a similar assignment by suchLender be made under the Parity Debt Credit Agreement of all of its interests,rights and obligations under the Parity Debt Credit Agreement, (ii) no suchassignment shall conflict with any law, rule, regulation or order of anyGovernmental Authority and (iii) the Borrower shall pay to the affected Lender(and, in the case of assignments under Facility B, shall take the same actionsunder the Parity Debt Credit Agreement) in immediately available funds on thedate of such assignment the entire amount of principal of and interest accruedto the date of payment on the Loans and participations in Letter of CreditDisbursements made by it hereunder and all other amounts accrued for its accountor owed to it hereunder; provided, further, that if prior to any such assignmentthe circumstances or event that resulted in such Lender's notice or certificateunder Section 2.13 or Section 2.14 or demand for additional amounts underSection 2.19, as the case may be, shall cease to exist or become inapplicable for any reason or if such Lender shall waive its rights in respect of suchcircumstances or event under Section 2.13, Section 2.14 or Section 2.19, as thecase may be, then such Lender shall not thereafter be required to make any suchassignment hereunder, or in the case of assignments under Facility B, under theParity Debt Credit Agreement. Section 2.21. Letters of Credit. (a) The Borrower may request theissuance of Tranche A Letters of Credit, in a form reasonably acceptable to theAdministrative Agent and the Issuing Bank, for the account of the Borrower, atany time and from time to time during the Tranche A Revolving CreditAvailability Period; provided that any Tranche A Letter of Credit shall beissued only if, and each request by the Borrower for the issuance of any TrancheA Letter of Credit shall be deemed a representation and warranty by the Borrowerthat, immediately following the issuance of such Letter of Credit, the sum of(i) the Tranche A Letter of Credit Exposure and (ii) the aggregate principalamount of outstanding Tranche A Revolving Loans shall not exceed the lesser of(A) the aggregate amount of the Tranche A Revolving Credit Commitments at suchtime and (B) the Borrowing Base at such time, provided that, in no event 62shall the sum (I) of the aggregate principal amount of outstanding Tranche ARevolving Loans on the date of such issuance plus (II) the aggregate amount ofthe Tranche A Letter of Credit Exposure on such date exceed the aggregateTranche A Revolving Credit Commitment of all the Lenders. Each Tranche A Letterof Credit shall expire at the close of business on the earlier of (i) the datethat is five Business Days prior to the Tranche A Maturity Date and (ii) thefirst anniversary of the date of issuance of such Tranche A Letter of Credit,unless such Tranche A Letter of Credit expires by its terms on an earlier date,provided that, any Tranche A Letter of Credit with an expiration date on thefirst anniversary of such Tranche A Letter of Credit may provide for the renewalthereof for additional one-year periods (which shall in no event extend beyondthe date referred to in clause (i) above). Each Letter of Credit shall providefor payments of drawings in dollars. (b) The Borrower may request the issuance of the Tranche B Letters ofCredit, in a form reasonably acceptable to the Administrative Agent and theIssuing Bank, for the account of the Borrower, at any time and from time to timeduring the Tranche B Revolving Credit Availability Period; provided that anyTranche B Letter of Credit shall be issued only if, and each request by theBorrower for the issuance of any Tranche B Letter of Credit shall be deemed arepresentation and warranty by the Borrower that, immediately following theissuance of such Letter of Credit, the sum of (i) the Tranche B Letter of CreditExposure and (ii) the aggregate principal amount of outstanding Tranche BRevolving Loans shall not exceed the aggregate amount of the Tranche B RevolvingCredit Commitments at such time; provided that, in no event shall the sum of (A)the aggregate principal amount of outstanding Tranche B Revolving Loans on thedate of such issuance plus (B) the aggregate amount of Tranche B Letter ofCredit Exposure on such date exceed the aggregate Tranche B Revolving CreditCommitment of all the Lenders and, provided, further, that the amount of alloutstanding Letters of Credit (as defined in the Parity Debt Credit Agreement)and the Tranche B Letters of Credit shall not exceed $12,500,000. Each Tranche BLetter of Credit shall expire at the close of business on the earlier of (i) thedate that is five Business Days prior to the Tranche B Conversion Date (or, ifthe Tranche B Term-Out Option has become effective pursuant to Section 2.02(c),five Business Days prior to the Tranche B Maturity Date) and (ii) the firstanniversary of the date of issuance of such Tranche B Letter of Credit, unlesssuch Tranche B Letter of Credit expires by its terms on an earlier date,provided that, any Tranche B Letter of Credit with an expiration date on thefirst anniversary of such Tranche B Letter of Credit may provide for the renewalthereof for additional one-year periods (which shall in no event extend beyondthe date referred to in clause (i) above). Each Letter of Credit shall providefor payments of drawings in dollars. (c) Each issuance of any Letter of Credit shall be made on at leasttwo Business Days' prior irrevocable written or telecopy notice (or such shorternotice as shall be acceptable to the Issuing Bank) from the Borrower to theAdministrative Agent and the Issuing Bank specifying, on the Issuing Bank'sstandard form or on such other form as is acceptable to the Issuing Bank, thedate of issuance, the date on which such Letter of Credit is to expire, theamount of such Letter of Credit, the name and address of the beneficiary of suchLetter of Credit, whether such Letter of Credit is a Tranche A Letter of Creditor a Tranche B Letter of Credit, and such other information as may be necessary or desirable to complete such Letter of Credit. The Issuing Bank will give theAdministrative Agent prompt notice of the issuance and amount of such Letter ofCredit and the expiration date of such Letter of Credit (and the AdministrativeAgent shall give prompt notice thereof to each Lender). The Issuing Bank alsowill give the 63Administrative Agent a quarterly summary indicating the issuance of any Letterof Credit and the amount thereof, the expiration of any Letter of Credit and theamount thereof and the payment on any draft presented under any Letter ofCredit. The Administrative Agent will promptly provide the Lenders with copiesof each such quarterly summary. (d) By the issuance of a Letter of Credit and without any furtheraction on the part of the Issuing Bank, the Administrative Agent or the Lendersin respect thereof, the Issuing Bank hereby grants to each Lender, and eachLender hereby acquires from the Issuing Bank, effective upon the issuance ofsuch Letter of Credit, a participation in such Letter of Credit equal to (i) inthe case of any such Tranche A Letter of Credit, such Lender's pro rata share(based on such Lender's Tranche A Revolving Credit Commitment Percentage) of theaggregate amount available to be drawn under such Tranche A Letter of Credit and(ii) in the case of any such Tranche B Letter of Credit, such Lender's pro ratashare (based on such Lender's Tranche B Revolving Credit Commitment Percentage)of the aggregate amount available to be drawn under such Tranche B Letter ofCredit. In consideration and in furtherance of the foregoing, each Lender herebyabsolutely and unconditionally agrees to pay to the Administrative Agent, onbehalf of the Issuing Bank, in accordance with Section 2.02(d), (A) suchLender's pro rata share (based on such Lender's Tranche A Revolving CreditCommitment Percentage) of each Tranche A Letter of Credit Disbursement made bythe Issuing Bank and not reimbursed by the Borrower when due in accordance withSection 2.21(g) and (B) such Lender's pro rata share (based on such Lender'sTranche B Revolving Credit Commitment Percentage) of each Tranche B Letter ofCredit Disbursement made by the Issuing Bank and not reimbursed by the Borrowerwhen due in accordance with Section 2.21(g); provided that the Lenders shall notbe obligated to make any such payment with respect to any wrongful Letter ofCredit Disbursement made as a result of the gross negligence or willfulmisconduct of the Issuing Bank. (e) Each Lender acknowledges and agrees that its obligation to acquireparticipations pursuant to Section 2.21(d) in respect of Letters of Credit isabsolute and unconditional and shall not be affected by any circumstancewhatsoever, including the occurrence and continuance of a Default or Event ofDefault, and that each such payment shall be made without any offset, abatement,withholding or reduction whatsoever (subject only to the proviso set forth inSection 2.21(d)). (f) During the Tranche A Revolving Credit Availability Period, theBorrower shall pay to the Administrative Agent, on the last day of March, June,September and December in each year and on the date on which the Tranche ARevolving Credit Commitments shall be terminated as provided herein, (i) for theaccount of the Lenders, ratably in proportion to their Tranche A RevolvingCredit Commitments, a fee on the average daily aggregate amount available to bedrawn under all outstanding Tranche A Letters of Credit during the precedingquarter (or shorter period commencing with the date of this Agreement) at a rateper annum equal to the Applicable Tranche A Eurodollar Margin from time to timein effect during such period pursuant to Section 2.06 and (ii) for the accountof the Issuing Bank, a fee on the average daily aggregate amount available to bedrawn under all outstanding Tranche A Letters of Credit during the precedingquarter (or shorter period commencing with the date of this Agreement) at a rateper annum equal to 0.125 %. During the Tranche B Revolving Credit AvailabilityPeriod, the Borrower shall pay to the Administrative Agent, on the last day ofMarch, June, September and December in each year and on the date on which theTranche B Revolving Credit 64Commitments shall be terminated as provided herein, (i) for the account of theLenders, ratably in proportion to their Tranche B Revolving Credit Commitments,a fee on the average daily aggregate amount available to be drawn under alloutstanding Tranche B Letters of Credit during the preceding quarter (or shorter period commencing with the date of this Agreement) at a rate per annum equal tothe Applicable Tranche B Eurodollar Margin from time to time in effect duringsuch period pursuant to Section 2.06 and (ii) for the account of the IssuingBank, a fee on the average daily aggregate amount available to be drawn underall outstanding Tranche B Letters of Credit during the preceding quarter (orshorter period commencing with the date of this Agreement) at a rate per annumequal to 0.125%. Such fees shall be computed on the basis of the actual numberof days elapsed in a year of 360 days. Such fees shall accrue from and includingthe date of this Agreement to but excluding the last day of the Tranche ARevolving Credit Availability Period or the Tranche B Revolving CreditAvailability Period, as applicable. In addition to the foregoing, the Borrowershall pay directly to the Issuing Bank, for its account, payable within 15 daysafter demand therefor by the Issuing Bank, the Issuing Bank's customaryprocessing and documentation fees in connection with the issuance or amendmentof or payment on any Letter of Credit. (g) The Borrower hereby agrees to reimburse the Issuing Bank for anypayment or disbursement made by the Issuing Bank under any Letter of Credit, bymaking payment in immediately available funds to the Administrative Agent, in anamount equal to the amount of such payment or disbursement, not later than 12:00noon, New York City time, on (i) the Business Day that the Borrower receivesnotice of such draft, if such notice is received on such day prior to 10:00a.m., New York City time, or (ii) if clause (i) above does not apply, theBusiness Day immediately following the day that the Borrower receives suchnotice, plus interest on the amount so paid or disbursed by the Issuing Bank, tothe extent not reimbursed prior to 3:00 p.m., New York City time, on the date ofsuch payment or disbursement, from and including the date paid or disbursed tobut excluding the date the Issuing Bank is reimbursed by the Borrower therefor,at a rate per annum equal to (i) in the case of amounts due in respect ofTranche A Letters of Credit, the rate applicable to ABR Tranche A RevolvingLoans during such period pursuant to Section 2.06 and (ii) in the case ofamounts due in respect of Tranche B Letters of Credit, the rate applicable toABR Tranche B Revolving Loans during such period pursuant to Section 2.06. Ifthe Borrower shall fail to pay any amount required to be paid by it under thisSection 2.21(g) when due, such unpaid amount shall bear interest as provided inSection 2.07. The Issuing Bank shall give the Borrower prompt notice of eachdrawing under any Letter of Credit, provided that the failure to give any suchnotice shall in no way affect, impair or diminish the Borrower's obligationshereunder. The Administrative Agent shall promptly pay any such amounts receivedby it to the Issuing Bank. (h) The Borrower's obligation to reimburse Letter of CreditDisbursements as provided in Section 2.21(g) shall be absolute, unconditionaland irrevocable and shall be performed strictly in accordance with the terms ofthis Agreement under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any other Loan Document; 65 (ii) the existence of any claim, setoff, defense or other right which the Borrower, any Subsidiary or any other Person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, any Agent, any Lender or any other Person in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or failing to comply with the Uniform Customs and Practices for Documentary Credits, as in effect from time to time, or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document which does not comply with the terms of such Letter of Credit; provided that such payment was not wrongfully made as a result of the gross negligence or willful misconduct of the Issuing Bank; and (v) any other act or omission or delay of any kind or any other circumstance or event whatsoever, whether or not similar to any of the foregoing and whether or not foreseeable, that might, but for the provisions of this Section 2.21(h), constitute a legal or equitable discharge of the Borrower's obligations hereunder. (i) It is expressly understood and agreed that, for purposes ofdetermining whether a wrongful payment under a Letter of Credit resulted fromthe Issuing Bank's gross negligence or willful misconduct, (i) the IssuingBank's acceptance of documents that appear on their face to be in order, withoutresponsibility for further investigation, regardless of any notice orinformation to the contrary, (ii) the Issuing Bank's exclusive reliance on thedocuments presented to it under such Letter of Credit as to any and all mattersset forth therein, including the amount of any draft presented under such Letterof Credit, whether or not the amount due to the beneficiary thereunder equalsthe amount of such draft and whether or not any document presented pursuant tosuch Letter of Credit proves to be insufficient in any respect (so long as suchdocument on its face appears to be in order), and whether or not any otherstatement or any other document presented pursuant to such Letter of Creditproves to be forged or invalid or any statement therein proves to be inaccurateor untrue in any respect whatsoever and (iii) any noncompliance in anyimmaterial respect of the documents presented under such Letter of Credit withthe terms thereof shall, in each case, be deemed not to constitute willfulmisconduct or gross negligence of the Issuing Bank. It is further understood andagreed that, notwithstanding the proviso to clause (iv) of Section 2.21(h), theBorrower's obligation hereunder to reimburse Letter of Credit Disbursements willnot be excused by the gross negligence or willful misconduct of the Issuing Bankto the extent that such Letter of Credit Disbursement actually discharged aliability of, or otherwise benefited, or was recovered by, the Borrower;provided that the foregoing shall not be construed to excuse the Issuing Bankfrom liability to the Borrower to the extent of any direct damages suffered bythe Borrower that are caused by the Issuing Bank's gross negligence or willfulmisconduct in determining whether drafts and other documents presented under aLetter of Credit comply with the terms thereof. (j) The Issuing Bank shall, promptly following its receipt thereof,examine all documents purporting to represent a demand for payment under aLetter of Credit, including as 66to compliance with the Uniform Customs and Practices for Documentary Credits, asthen in effect. The Issuing Bank shall as promptly as possible give telephonicnotification, confirmed by telex or telecopy, to the Administrative Agent andthe Borrower of such demand for payment and whether the Issuing Bank has made orwill make a Letter of Credit Disbursement thereunder, provided that the failureto give such notice shall not relieve the Borrower of its obligation toreimburse any such Letter of Credit Disbursement in accordance with this Section2.21. The Administrative Agent shall promptly give each Lender notice thereof. (k) In the event that the Borrower is required or elects pursuant tothe terms of this Agreement (other than Section 2.11(h) and Section 7.01) toprovide cash collateral in respect of the Letter of Credit Exposure of anyClass, the Borrower shall deposit in an account with the Administrative Agent anamount in cash equal to the Letter of Credit Exposure of such Class (or suchlesser amount as shall be required or elected hereunder). Any such deposit shallbe held by the Administrative Agent in accordance with the Cash CollateralAgreement. In the event that the Borrower is required pursuant to the terms ofSection 2.11(h) or Section 7.01 of this Agreement to provide cash collateral inrespect of the Letter of Credit Exposure of any Class, the Borrower shalldeposit such cash collateral in an account with the Trustee pursuant to theIntercreditor Agreement. Such deposit shall be held by the Trustee in accordancewith the Intercreditor Agreement. Any such deposit to be held by theAdministrative Agent or the Trustee, as provided herein, shall be accompanied bynotice from the Borrower, in form satisfactory to the Administrative Agent orthe Trustee, as the case may be, setting forth the basis for such deposit,identifying in reasonable detail the Letters of Credit to which such depositrelates, and setting forth any other information related to such depositreasonably requested by the Administrative Agent or the Trustee, as the case maybe. The Borrower shall promptly provide the Administrative Agent with a copy ofany such notice to the Trustee and shall promptly provide the Trustee with acopy of any such notice to the Borrower. ARTICLE III REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each of the Lenders that: Section 3.01. Organization; Powers. Each of the Borrower and the LoanParties (a) is a limited partnership (in the case of the Borrower and the PublicPartnership) or a limited liability company or a corporation (in the case of theother Loan Parties) duly organized, validly existing and in good standing underthe laws of the jurisdiction of its organization, (b) has all requisite powerand authority to own its property and assets and to carry on its business as nowconducted and as proposed to be conducted, (c) is duly qualified or registeredto do business and is in good standing as a foreign limited partnership (in thecase of the Borrower and the Public Partnership) or a limited liability companyor corporation (in the case of the other Loan Parties) in all jurisdictions inwhich the nature of their respective activities or the character of theproperties they own, lease or use makes such qualification or registrationnecessary and in which the failure so to qualify or to be so registered wouldhave a Material Adverse Effect (and the only such jurisdictions are, in the caseof the Borrower and the Public Partnership, Connecticut, Florida, Georgia,Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan,Minnesota, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, RhodeIsland, Texas, 67West Virginia and Wisconsin) and (d) has the power and authority to execute,deliver and perform its obligations under each of the Loan Documents and eachother agreement or instrument contemplated thereby to which it is or will be aparty to consummate the transactions contemplated hereunder and, in the case ofthe Borrower, to obtain extensions of credit hereunder. Section 3.02. Authorization. The execution, delivery and performanceby each of the Borrower and the Loan Parties of each of the Loan Documents towhich it is or will be a party, the consummation of the transactionscontemplated hereunder and, in the case of the Borrower, the extensions ofcredit hereunder (a) have been duly authorized by all requisite action and (b)will not (i) violate (A) any provision of law, statute, rule or regulation, orof the agreement of limited partnership, operating agreement, articles ofincorporation or other constitutive documents or by-laws of the Borrower and theother Loan Parties, (B) any order of any Governmental Authority or (C) anyprovision of any indenture, agreement or other instrument to which the Borroweror any of the other Loan Parties is a party or by which any of them or any oftheir property is or may be bound, including, without limitation, the NoteAgreement, the Parity Debt Credit Agreement and the other Parity DebtAgreements, (ii) be in conflict with, result in a breach of or constitute (aloneor with notice or lapse of time or both) a default or give rise to increased,additional, accelerated or guaranteed rights of any Person under any suchindenture, agreement or other instrument, including, without limitation, theNote Agreement, the Parity Debt Credit Agreement and the other Parity DebtAgreements or (iii) except for the Lien of the Collateral Documents, result inthe creation or imposition of any Lien upon or with respect to any property orassets now owned or hereafter acquired by the Borrower or any of the other LoanParties. Section 3.03. Enforceability. This Agreement has been duly executedand delivered by the Borrower and constitutes, and each other Loan Document whenexecuted and delivered by the Borrower or any of the other Loan Parties does orwill constitute, the legal, valid and binding obligation of such partyenforceable against such party in accordance with its terms. The General PartnerGuarantee Agreement and the Subsidiaries Guarantee Agreement are in full forceand effect and constitute the legal, valid and binding obligations of each LoanParty party thereto, and no default on the part of any party thereto existsthereunder. The Partners Security Agreement, the Borrower Security Agreement,the Cash Collateral Agreement and the Motor Vehicle Security Agreements are infull force and effect and (i) constitute the valid and binding obligation ofeach Loan Party party thereto, (ii) constitute a valid assignment of, and createa valid, presently effective security interest of record in the property coveredthereby and all interests described therein, subject to no prior securityinterest in any such personal property other than as specifically permittedtherein for the benefit of the Lenders under this Agreement, and (iii) nodefault on the part of any such party exists thereunder. The Mortgages are infull force and effort and (a) constitute legal, valid and binding obligations ofeach Loan Party party thereto, (b) constitute a valid first mortgage lien ofrecord on the real property and all other interests described therein which may be subjected to a mortgage lien, subject only to Permitted Exceptions for thebenefit of the Lenders under this Agreement, and (c) constitute a validassignment of, and create a valid, presently effective security interest ofrecord in equipment and all other interests (other than real property interests)described therein for the benefit of the Lenders under this Agreement, subjectto no prior security interest in such property other than as specificallypermitted therein, and no default on the part of any party thereto existsthereunder. 68The Intercreditor Agreement is in full force and effect and constitutes thelegal, valid and binding obligation of each Loan Party party thereto, and nodefault on the part of any party thereto shall exist thereunder. All OperativeAgreements, and all amendments thereto have been duly authorized, executed anddelivered by the respective parties thereto, are in full force and effect andconstitute the legal, valid and binding obligations of each Loan Party partythereto. Section 3.04. Consents and Governmental Approvals. No consent orapproval of, registration or filing with or any other action by (a) anyGovernmental Authority, (b) any creditor, including, without limitation, anycreditor or holder under the Note Agreements, the Parity Debt Credit Agreementsor the other Parity Debt Agreements, or holder of any Capital Stock of theBorrower, any of the other Loan Parties or any Affiliate thereof or (c) anyother Person is or will be required in connection with the transactionscontemplated hereby, the Facilities or the performance by the Borrower or any ofthe other Loan Parties of the Loan Documents to which it is or will be a party,in each case except such as have been made or obtained and are in full force andeffect. Section 3.05. Business; Financial Statements. (a) The Businessincludes, and has in the past included, only (whether conducted by the LoanParties or any of their predecessors) the sale, distribution or storage ofheating oil, propane gas, diesel fuel and gasoline) and other related derivativepetroleum products and the provision of services to customers, and the relatedretail sale of supplies and equipment, including home appliances. (b) The Borrower has delivered to the Agents the unaudited pro formabalance sheet of the Borrower as of June 30, 2003 (the "Pro Forma BalanceSheet"). The Pro Forma Balance Sheet presents fairly the financial condition ofthe Borrower as of that date in accordance with GAAP. (c) The Borrower has heretofore furnished to the Lenders (i) (x) theaudited consolidated balance sheets of the Public Partnership and itsSubsidiaries as at September 30, 2000, September 30, 2001 and September 30,2002, and the related consolidated statements of operations and of cash flowsfor the fiscal years ended on such dates contained in the Public Partnership'sAnnual Report on Form 10-K for the fiscal year ended September 30, 2002 filedwith the SEC, and (y) the audited consolidated balance sheets of the Borrowerand the Restricted Subsidiaries as at September 30, 2000, September 30, 2001 andSeptember 30, 2002, and the related consolidated statements of operations and ofcash flows for the fiscal years ended on such dates, in each case, accompaniedby the opinion of KPMG LLP, independent public accountants (collectively, theAudited Financial Statements") and (ii) (A) the unaudited consolidated balancesheet of the Borrower and its Subsidiaries as at June 30, 2003, and the relatedunaudited statements of operations and cash flows for the nine-month periodended on such date contained in the Public Partnership's Quarterly Report onForm 10-Q filed with the SEC for the fiscal quarter ended June 30, 2003 and (B)the consolidated and consolidating balance sheet of the Borrower and theRestricted Subsidiaries as at June 30, 2003, and the related consolidated andconsolidating statements conforming to the requirements of Section 5.02(a) (the"Unaudited Financial Statements"), and such Unaudited Financial Statementspresent fairly the consolidated financial condition of the Public Partnershipand its Subsidiaries or the Borrower and the Restricted Subsidiaries, as thecase may be, as at such date, and the consolidated results of its operations andits consolidated cash flows for the nine-month period then ended (subject to 69normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAPapplied consistently throughout the periods involved (except as disclosed by theaforementioned firm of accountants and disclosed therein). Except for borrowingsunder the Existing Credit Agreement and the Existing Parity Debt CreditAgreement, the balance sheets and the notes thereto included in the AuditedFinancial Statements disclose all material liabilities, actual or contingent, ofthe Loan Parties as of the dates thereof. Except for borrowings under theExisting Credit Agreement and the Existing Parity Debt Credit Agreement andliabilities incurred in the ordinary course of business since the date thereof(none of which, individually or in the aggregate, would have a Material AdverseEffect), the Borrower does not have any material guarantee obligations,contingent liabilities and liabilities for taxes, or any long-term leases orunusual forward or long-term commitments, including any interest rate or foreigncurrency swap or exchange transaction or other obligation in respect ofderivatives, that are not reflected in the most recent financial statementsreferred to in this paragraph. Notwithstanding the foregoing representation madein the two immediately preceding sentences, such representation will be deemedbreached (except for purposes of Article IV hereof) only to the extent that suchrepresentation involves undisclosed liabilities which could reasonably beexpected, individually or in the aggregate, to have a Material Adverse Effect.The Audited Financial Statements were prepared in accordance with GAAP appliedon a consistent basis during the periods involved (except as may be indicated inthe notes thereto). Section 3.06. No Material Adverse Change. As of the Closing Date,there has occurred since September 30, 2002, no material adverse change, andthere exists no condition, event or occurrence that, individually or in theaggregate, could reasonably be expected to result in a material adverse change,in the business, operations, property or condition (financial or otherwise) ofthe Loan Parties. Since the date of this Agreement, there has occurred nocondition, event or other occurrence that, individually or in the aggregate, hashad, and there exists no condition, event or other occurrence, that,individually or in the aggregate, could reasonably be expected to have, aMaterial Adverse Effect. Section 3.07. Title to Properties; Possession Under Leases. (a) TheBorrower and the Restricted Subsidiaries own or hold valid leasehold interestsin all the properties and assets used in the operation of the Business, exceptfor properties and assets set forth on Schedule 3.07(a). None of the propertiesand assets set forth on Schedule 3.07(a) is material to the Business. Each ofthe Borrower and the Restricted Subsidiaries has good and marketable title to,or valid leasehold interests in, all its properties and assets, free and clearof Liens, except for (i) minor defects in title that do not interfere with itsability to conduct its business as currently conducted or to utilize suchproperties and assets for their intended purposes and (ii) Liens permitted bySection 6.02. (b) Schedule 3.07(b) sets forth, as of the Closing Date, a true,complete and correct list of (i) all real property owned by the Borrower and theRestricted Subsidiaries; (ii) all real property leased by the Borrower or anyRestricted Subsidiary; and (iii) the location and use of each such property. (c) Each of the Borrower and the Restricted Subsidiaries has compliedwith all obligations under all material leases to which it is a party and allsuch leases are in full force 70and effect. Each of the Borrower and the Restricted Subsidiaries enjoys peacefuland undisturbed possession under all such material leases. Section 3.08. Subsidiaries. Schedule 3.08 sets forth as of the ClosingDate a list of all the Subsidiaries, the respective jurisdictions oforganization thereof and the percentage ownership interest, direct or indirect,of the Borrower therein. Section 3.09. Litigation; Compliance with Laws. (a) Except as setforth in Schedule 3.09, there are no actions, suits or proceedings at law or inequity or by or before any Governmental Authority now pending or, to theknowledge of the Borrower, threatened against or affecting the Borrower, anyother Loan Party or any business, property or rights of the Borrower or anyother Loan Party (i) which involve any Loan Document or the transactionscontemplated by this Agreement or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined,could be reasonably expected to result, individually or in the aggregate, in aMaterial Adverse Effect. (b) Neither the Borrower nor any other Loan Party is in violation ofany law, rule or regulation, or in default with respect to any judgment, writ,injunction or decree, of any Governmental Authority, where such violation ordefault could be reasonably expected to result, individually or in theaggregate, in a Material Adverse Effect. Except as set forth in Schedule 3.09,neither the Borrower nor any other Loan Party has received any writtencommunication during the past three years from any Governmental Authority thatalleges that the Borrower or any other Loan Party or the Business is not incompliance in any material respect with any law, rule or regulation or anyjudgment, writ, injunction or decree. Section 3.10. Agreements. Neither the Borrower nor any of the otherLoan Parties is a party to any agreement or instrument or subject to anycorporate restriction that has resulted or could reasonably be expected toresult, individually or in the aggregate, in a Material Adverse Effect. As ofthe date of this Agreement, neither the Borrower nor any of the RestrictedSubsidiaries is a party to any Material Contract and none of the assets orproperties of the Borrower or any Loan Party is or may be bound by any MaterialContract. Section 3.11. Federal Reserve Regulations. (a) Neither the Borrowernor any of the other Loan Parties is engaged principally, or as one of itsimportant activities, in the business of extending credit for the purpose ofpurchasing or carrying Margin Stock. (b) No part of the proceeds of any Loan and no Letter of Credit willbe used, whether directly or indirectly, and whether immediately, incidentallyor ultimately, for any purpose which entails a violation of, or which isinconsistent with, the provisions of the regulations of the Board, includingRegulation T, U and X. Section 3.12. Investment Company Act; Public Utility Holding CompanyAct. Neither the Borrower nor any of the other Loan Parties is (a) an"investment company" as defined in, or subject to regulation under, theInvestment Company Act of 1940, (b) a "holding company" as defined in, orsubject to regulation under, the Public Utility Holding Company Act of 1935 or(c) subject to regulation as a "public utility" or a "public servicecorporation" or the equivalent under any Federal or state law. 71 Section 3.13. Use of Proceeds. (a) The proceeds of all Tranche ARevolving Loans will be used solely for working capital, including the paymentof (x) principal and interest on the Mortgage Notes, the 2000 Parity Notes andthe 2001 Parity Notes and (y) interest on the Parity Debt. The Tranche A Lettersof Credit will be used (i) for working capital purposes, (ii) to supportobligations under workers' compensation laws, (iii) to support obligations tosuppliers of propane or energy commodity derivative providers in the ordinarycourse of business consistent with past practices and (iv) to repay Indebtednessof the Borrower and its Restricted Subsidiaries permitted to be incurred underthe Parent Indenture. (b) The proceeds of all Tranche B Revolving Loans and the Tranche BLetters of Credit will be used solely (i) to fund the purchase price of anyEligible Propane Acquisition by the Borrower or any Restricted Subsidiary or toreimburse the Borrower or any Restricted Subsidiary for cash amounts paid by theBorrower or such Restricted Subsidiary for the purchase price of any EligiblePropane Acquisition made by the Borrower or such Restricted Subsidiary withinthe six-month period immediately preceding the date of the Borrowing of theTranche B Revolving Loans to which such proceeds relate (provided, in the caseof an acquisition of Capital Stock, that the Person so acquired becomes aRestricted Subsidiary), (ii) to fund Growth-Related Capital Expenditures, (iii)to pay regularly scheduled principal payments (or any installments thereof) thendue and owing on the Mortgage Notes and (iv) with respect to the initialBorrowing on the Closing Date, to refinance the Existing Credit Agreement. Section 3.14. Tax Returns. Each of the Borrower and its Affiliates hasfiled all tax returns required by law to be filed by it and has paid all taxes,assessments and other governmental charges levied upon it or any of its properties, assets, income or franchises which are due and payable, other than(a) those which are not past due or are presently being contested in good faithby appropriate proceedings diligently conducted for which such reserves or otherappropriate provisions, if any, as shall be required by GAAP have been made and(b) in the case of any such Person other than the Borrower and the RestrictedSubsidiaries, those which could not reasonably be expected, individually or inthe aggregate, to have a Material Adverse Effect. The Borrower is a limitedpartnership not subject to taxation with respect to its income or gross receiptsunder applicable Federal laws. The Borrower is a limited partnership not subjectto taxation with respect to its income or gross receipts under applicable statelaws, except for laws of the states set forth on Schedule 3.14, none of whichwould, individually or in the aggregate, have a Material Adverse Effect. No taxLien has been filed, and, to the knowledge of the Borrower and its Affiliates,no claim is being asserted with respect to any such tax, fee or other charge. Section 3.15. No Material Misstatements. (a) No information, report,financial statement, exhibit or schedule furnished by or on behalf of theBorrower or any of its Affiliates to any Agent or Lender in connection with thenegotiation of any Loan Document or included therein or delivered pursuantthereto contained, contains or will contain any material misstatement of fact oromitted, omits or will omit to state any material fact necessary to make thestatements therein, in the light of the circumstances under which they were, areor will be made, not misleading. There is no fact known to the Borrower whichhas or in the future would (so far as the Borrower can now foresee) have aMaterial Adverse Effect which has not been set forth in this Agreement(including the schedules hereto). 72 (b) All representations and warranties of the Borrower and Star GasCorporation or Star Gas LLC, as applicable, set forth in the Note Agreements,the Parity Debt Credit Agreement and the other Parity Debt Agreements were trueand correct on and as of the date of such agreement and will be true and correctin all material respects on and as of the Closing Date with the same effect asthough made on and as of the Closing Date, except to the extent suchrepresentations and warranties expressly relate to an earlier date (in whichcase such representations and warranties were true and correct in all materialrespects on and as of such earlier date). Section 3.16. Employee Benefit Plans. Except as disclosed in Schedule3.16, none of the General Partner, the Borrower or any Related Person of theGeneral Partner or the Borrower has ever established, maintained, contributed toor been obligated to contribute to, and neither the Borrower nor any RelatedPerson of the Borrower has any liability or obligation with respect to, anyPlan. Except as disclosed in Schedule 3.16, neither the Borrower nor any RelatedPerson of the Borrower has assumed, either by agreement (including thePartnership Agreement and the Operative Agreements), by operation of law orotherwise, any liability or obligation with respect to any "employee benefitplan" (as defined in ERISA) or any other compensation or benefit arrangement,agreement, policy, practice or understanding. Neither the General Partner, northe Borrower nor any Related Person of the Borrower or the General Partner hasincurred any material liability under Title IV of ERISA with respect to any Planand no event or condition exists or has occurred as a result of which such aliability could reasonably be expected to be incurred. None of the GeneralPartner, the Borrower nor any Related Person of the General Partner or theBorrower has engaged in any transaction, including the transactions contemplatedhereunder, which could subject the Borrower or any Related Person of theBorrower to liability pursuant to Section 4069(a) or 4212(c) of ERISA. There hasbeen no reportable event (within the meaning of Section 4043(c) of ERISA) or anyother event or condition with respect to any Plan which presents a risk of thetermination of, or the appointment of a trustee to administer, any such Plan bythe PBGC. No prohibited transaction (within the meaning of Section 406 of ERISAor Section 4975 of the Code) exists or has occurred with respect to any Planwhich has subjected or could reasonably be expected to subject the GeneralPartner or the Borrower to a material liability under Section 502(i) or 502(l)of ERISA or Section 4975 of the Code. No liability to the PBGC (other thanliability for premiums not yet due) has been or is expected to be incurred withregard to any Plan by the General Partner, the Borrower or any Related Person.Neither the General Partner, nor the Borrower nor any Related Person of theGeneral Partner or the Borrower contributes or is obligated to contribute or hasever contributed or been obligated to contribute to any Single Employer Planthat has at least two contributing sponsors not under common control. TheBorrower is not, nor is it expected to become, a "substantial employer" as defined in Section 4001(a)(2) of ERISA with respect to any Plan. Neither theGeneral Partner nor the Borrower has ever maintained or contributed to any planor arrangement which provides post-employment welfare benefits or coverage(other than continuation coverage provided pursuant to Section 4980B of theCode). With respect to any post-employment welfare benefit plan or arrangement(other than continuation coverage provided pursuant to Section 4980B of theCode) established, maintained, or contributed to, by any Related Person (or withrespect to which a Related Person is obligated to contribute), (i) the FAS 106liabilities and the assumptions used therefor accurately reflect the costsassociated with the rights and benefits of all participants and (ii) suchbenefits may be terminated at any time without liability to the Borrower,General Partner or any Related Party. 73 Section 3.17. Environmental and Safety Matters. (a) Each of theBorrower and the General Partner is in compliance with all Environmental Lawsapplicable to it or to the Business or Assets except where such noncompliancewould not have a Material Adverse Effect. The Borrower has timely and properlyapplied for renewal of all environmental permits or licenses that have expiredor are about to expire and are necessary for the conduct of the Business as nowconducted and as proposed to be conducted, except where the failure to timelyand properly reapply would not have a Material Adverse Effect. Schedule 3.17lists (i) all notices from Federal, state or local environmental agencies to theBorrower, the General Partner or any Affiliate thereof citing environmentalviolations affecting the Business or Assets that have not been finally resolvedand disposed of, and no such violation, whether or not notice regarding suchviolation is listed on Schedule 3.17, if ultimately resolved against such party,would have a Material Adverse Effect and (ii) all current reports filed by theBorrower, the General Partner or any Affiliate thereof with respect to theBusiness or Assets with any Federal, state or local environmental agency havingjurisdiction over the Assets, true and complete copies of which reports havebeen made available to the Lenders. Notwithstanding any such notice, except formatters the consequences of which will not have a Material Adverse Effect, theBusiness and Assets are currently being operated in all respects within thelimits set forth in such environmental permits or licenses and any currentnoncompliance with such permits or licenses will not result in any liability orpenalty to the Borrower or the Subsidiaries or in the revocation, loss ortermination of any such environmental permits or licenses. (b) All facilities located on the real property owned or leased by theLoan Parties which are subject to regulation by RCRA are and have been operatedin compliance with RCRA, except where such noncompliance would not have aMaterial Adverse Effect and none of the Borrower, the General Partner and theirAffiliates has received, or, to the knowledge of the Borrower, been threatenedwith, a notice of violation of RCRA regarding such facilities. (c) No Hazardous Materials are or have been located or present at anyof the real property owned or leased by the Loan Parties or any previously ownedproperties in violation of any Environmental Law, which violation will have aMaterial Adverse Effect, or in such circumstances as to give rise to liability,which liability will have a Material Adverse Effect, and with respect to suchreal property there has not occurred (i) any release or threatened release ofany such hazardous substance, (ii) any discharge or threatened discharge of anysubstance into ground, surface, or navigable waters which violates anyEnvironmental Law or (iii) any assertion of any lien pursuant to EnvironmentalLaws resulting from any use, spill, discharge or clean-up of any hazardous ortoxic substance or waste, which occurrence referred to in clause (i), (ii) or(iii) above will have a Material Adverse Effect. (d) The Borrower has not received notice that it has been identifiedas a potentially responsible party under CERCLA or any comparable state, localor foreign law nor has the Borrower received any notification that any HazardousMaterials that it has used, generated, stored, treated, handled, transported ordisposed of or arranged for transport for disposal or treatment of, or arrangedfor disposal or treatment of, has been found at any site at which anyGovernmental Authority or private party is conducting or plans to conduct aremedial investigation or other action pursuant to any Environmental Law. 74 (e) None of the matters disclosed in Schedule 3.17, eitherindividually or in the aggregate, involves a violation of or a liability underany Environmental Law, the consequences of which will have a Material AdverseEffect. Section 3.18. Security Interests. The Trustee for the benefit of theSecured Parties will at all times have the Liens provided for in the CollateralDocuments and, subject to the filing by the Trustee of continuation statementsto the extent required by the Uniform Commercial Code, the Collateral Documentswill at all times constitute a valid and continuing lien of record and firstpriority perfected security interest in all the Collateral referred to therein.No filings or recordings, or amendments or supplements to any of the CollateralDocuments, are required in order to perfect the security interests created underthe Collateral Documents, except for amendments, supplements, filings orrecordings listed on Schedule 3.18. All such amendments, supplements, listedfilings and recordings were made on or prior to the Closing Date, except asotherwise expressly provided in Schedule 3.18. Section 3.19. Solvency. Upon the making of the initial Loan or theissuance of the initial Letter of Credit hereunder, each of the Borrower and theRestricted Subsidiaries will be Solvent. "Solvent" means, with respect to anyPerson, that (a) the sum of the assets of such Person, both at a fair valuationand at present fair saleable value, will exceed the liabilities of such Person,(b) such Person will have sufficient capital with which to conduct its businessas presently conducted and as proposed to be conducted and (c) such Person hasnot incurred debts, and does not intend to incur debts, beyond its ability topay such debts as they mature. For purposes of the foregoing definition, "debts"means any liabilities on claims, and "claim" means (i) a right to payment,whether or not such right is reduced to judgment, liquidated, unliquidated,fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,secured or unsecured or (ii) a right to an equitable remedy for breach ofperformance if such breach gives rise to a payment, whether or not such right toan equitable remedy is reduced to judgment, fixed, contingent, matured,unmatured, disputed, undisputed, secured or unsecured. With respect to anycontingent liabilities, such liabilities shall be computed at the amount which,in light of all the facts and circumstances existing at the time, represents theamount which can reasonably be expected to become an actual or maturedliability. Section 3.20. Transactions with Affiliates. Except as set forth inSchedule 3.20 and except for agreements and arrangements among the Borrower andWholly Owned Restricted Subsidiaries or among Wholly Owned RestrictedSubsidiaries, neither the Borrower nor any of the Subsidiaries is a party to,and none of the properties and assets of the Borrower or any of the Subsidiariesis subject to or bound by, any agreement or arrangement with, and neither theBorrower nor any of the Subsidiaries is engaged in any transaction with, (a) anyAffiliate of the Borrower or any of the Subsidiaries or (b) any Affiliate ofPetro or the General Partner. Section 3.21. Ownership. The only general partner of the Borrower isthe General Partner. The General Partner owns approximately 0.01% generalpartnership interest in the Borrower. The only limited partner of the Borroweris the Public Partnership. The Public Partnership owns a 99.99% limited partnerinterest in the Borrower. The only general partner of the Public Partnership isthe General Partner. 75 Section 3.22. Insurance. The Borrower and the Subsidiaries maintainwith Permitted Insurers policies of fire and casualty, liability, businessinterruption and other forms of insurance in such amounts, with such deductiblesand against such risks and losses as are reasonable for the business and assetsof the Borrower and the Subsidiaries. All such policies are in full force andeffect, all premiums due and payable thereon have been paid (other thanretroactive or retrospective premium adjustments that are not yet, but may be,required to be paid with respect to any period ending prior to the Closing Dateunder comprehensive general liability and workmen's compensation insurancepolicies), and no notice of cancellation or termination has been received withrespect to any such policy which has not been replaced on substantially similarterms prior to the date of such cancellation. The activities and operations ofthe Borrower and the Subsidiaries have been conducted in a manner so as toconform in all material respects to all applicable provisions of such insurancepolicies. Section 3.23. Labor Relations. Neither the Borrower nor any of theSubsidiaries is engaged in unfair labor practice that could reasonably beexpected to have, individually or in the aggregate, a Material Adverse Effect.There is (a) no unfair labor practice complaint pending against the Borrower orany of the Subsidiaries or affecting the Business or, to the knowledge of theBorrower, threatened against any of them, before the National Labor RelationsBoard, (b) no grievance or arbitration proceeding arising out of or under anycollective bargaining agreement pending against the Borrower or any of theSubsidiaries or affecting the Business or, to the knowledge of the Borrower,threatened against any of them, (c) no strike, labor dispute, slowdown orstoppage pending against the Borrower or any of the Subsidiaries or, to theknowledge of the Borrower, threatened against the Borrower or any of theSubsidiaries, (d) to the knowledge of the Borrower, no union representationquestion existing with respect to the employees of the Borrower or any of theSubsidiaries and (e) to the knowledge of the Borrower, no union organizingactivities are taking place. Section 3.24. Changes, etc. Except as contemplated by this Agreementor the other Loan Documents, the Borrower and the other Loan Parties have notincurred any material liabilities or obligations, direct or contingent, orentered into any material transaction not in the ordinary course of business,and no events have occurred which, individually or in the aggregate, could havea Material Adverse Effect, and there has not been any Restricted Payment of anykind declared, paid or made by the Borrower or the General Partner. Section 3.25. Indebtedness. Other than the Indebtedness represented bythe Mortgage Notes and the Parity Debt or incurred hereunder, none of theBorrower and the Restricted Subsidiaries has any secured or unsecuredIndebtedness outstanding as of the Closing Date. As of the Closing Date, noinstrument or agreement to which the Borrower or any of the Subsidiaries is aparty or by which the Borrower or any of the Subsidiaries is bound or which isapplicable to the Borrower or any of the Subsidiaries (other than thisAgreement, the Note Agreements, other Parity Debt Agreements and the ParentIndenture) contains any restrictions on the incurrence by the Borrower or any ofthe Restricted Subsidiaries of additional Indebtedness. Section 3.26. Assets and Business. (a) The Borrower is in possessionof and operating in compliance in all respects with all franchises, grants,authorizations, approvals, licenses, permits, easements, rights-of-way,consents, certificates and orders required to own, lease or use its propertiesand to permit the conduct of the Business as now conducted and 76proposed to be conducted, except for those franchises, grants, authorizations,approvals, licenses, permits, easements, rights-of-way, consents, certificatesand orders (collectively, "Permitted Exceptions") (i) which are not required atthis time and are routine or administrative in nature and are expected in thereasonable judgment of the Borrower to be obtained or given in the ordinarycourse of business after the Closing Date, or (ii) which, if not obtained orgiven, would not, individually or in the aggregate, have a Material AdverseEffect. (b) The Borrower has good and marketable title to all of its assetsand properties, subject to no Liens except those permitted under Section 6.02.The Assets currently owned by the Borrower are all of the assets and propertiesnecessary to enable the Borrower to conduct the Business. (c) (i) The Borrower has beneficial and (except in the case of motorvehicles covered by certificates of title where the certificates of title havebeen duly executed in favor of the Borrower, the Lien of the Trustee has beenduly provided for thereon and such certificates of title have been delivered tothe Borrower and/or the Trustee), record ownership of all properties (includingtrademarks, tradenames and other intellectual property used in the Business),easements and licenses comprising the Business and (ii) the Collateral Documents(other than the Intercreditor Agreement), or proper notices, statements or otherinstruments in respect thereof, have been duly recorded, published, registeredand filed as required by Section 4.01(g) and (h). The Borrower holds all right,title and interest in and to the trade name "Star Gas" necessary to conduct theBusiness, and all other trademarks and trade names used in the Business andholds exclusive right, title and interest in and to all customer lists used inthe Business. Section 3.27. Chief Executive Office. The chief executive office ofthe Borrower and the General Partner and the office where each maintains itsrecords relating to the transactions contemplated by the Loan Documents and theOperative Agreements are located at 2187 Atlantic Street, Stamford, CT 06902.The Borrower is only organized in the State of Delaware and "Star Gas Propane,L.P." is the name as it appears in official filings in the State of Delaware.The General Partner is only organized in the State of Delaware and "Star GasLLC" is the name as it appears in official filings. Section 3.28. Fixed Price Supply Contracts. None of the Borrower orthe Restricted Subsidiaries is a party to any contract for the purchase orsupply by such parties of propane or other product except where (a) the purchaseprice is set with reference to a spot index or indices substantiallycontemporaneously with the delivery of such product or (b) delivery of suchpropane or other product is to be made no more than one year after the purchaseprice is agreed to. All such contracts referred to in the foregoing clause (b)which are in effect on the Closing Date are set forth in Schedule 3.28. Section 3.29. Trading and Inventory Policies. The Borrower maintains atrading policy to the effect that neither it nor any of the RestrictedSubsidiaries will trade any commodities. The Borrower maintains a supplyinventory position policy to the effect that neither it nor any of theRestricted Subsidiaries will hold on hand, as of any date, more CommoditiesInventory than will be sold in the normal course of business during thefollowing 90 days. The Borrower and the Restricted Subsidiaries are incompliance with such policies. 77 ARTICLE IV CONDITIONS OF LENDING Section 4.01. Effectiveness. This Agreement shall become effectivewhen all of the conditions precedent set forth in this Section 4.01 shall havebeen satisfied: (a) Each Lender shall have received counterparts of this Agreementsigned by each of the parties hereto. (b) Each Lender shall have received duly executed Notes, dated theClosing Date, complying with the provisions of Section 2.04. (c) Each Lender shall have received duly authorized, executed anddelivered counterparts of (i) the General Partner Guarantee Agreement, and theGeneral Partner Consent Agreement dated the Closing Date and (ii) theSubsidiaries Guarantee Agreement, and the Subsidiaries Consent and Agreementdated the Closing Date. (d) The Administrative Agent shall have received written consents fromeach Lender (as defined in the Existing Credit Agreement) under the ExistingCredit Agreement to the execution and delivery of this Agreement and theconsummation of the transactions contemplated hereby (it being agreed that theexecution of this Agreement shall constitute such written consent). (e) The Administrative Agent shall have received evidence reasonablysatisfactory to it that (i) Bank of America, N.A. and any other Lender (asdefined in the Existing Credit Agreement) which will not become parties hereto(collectively, the "Exiting Lenders") shall have been or shall concurrently berelieved of all obligations in respect of their Commitments (as defined in theExisting Credit Agreement) and (ii) each Lender's Revolving Loans (as defined inthe Existing Credit Agreement) outstanding under the Existing Credit Agreementshall have been or shall concurrently be repaid in full, together with anyaccrued interest thereon and any accrued fees payable under the Existing CreditAgreement to but excluding the Closing Date. (f) The Administrative Agent shall have received satisfactory evidencethat the Parity Debt Credit Agreement shall have become effective in accordancewith its terms. (g) The Trustee on behalf of the Secured Parties shall have a securityinterest in the Collateral of the type and priority described in each Collateral Document, perfected to the extent contemplated by Section 3.18 and each Lendershall have received: (i) duly authorized, executed and delivered counterparts of (A) the Partners Security Agreement, duly executed by the General Partner and the Public Partnership and any documents related thereto, (B) the Borrower Security Agreement, duly executed by the Borrower, the General Partner and the Restricted Subsidiaries and any documents related thereto, (C) the Public Partnership Consent and Agreement dated the Closing Date, (D) the Cash Collateral Agreement, duly executed by the Borrower, (E) the Motor Vehicle Security Agreements duly executed by the Borrower or the Restricted 78 Subsidiary, as the case may be, and (F) a duly completed and executed Perfection Certificate from the Borrower dated the Closing Date; (ii) acknowledgment copies of Uniform Commercial Code financing statements which create in favor of the Trustee for the benefit of the Secured Parties a valid, legal and perfected security interest in or lien on the Collateral that is the subject of the Security Agreements; (iii) certified copies of Requests for Information (form UCC-11), or equivalent reports from an independent search service satisfactory to the Lenders, listing (A) any judgment naming any Loan Party as judgment debtor, (B) any tax lien that names any Loan Party as a delinquent taxpayer in any of the jurisdictions referred to in clause (ii) above and (C) any Uniform Commercial Code financing statement that names any Loan Party as debtor or seller filed in any of the jurisdictions referred to in clause (ii) above; (iv) duly authorized, executed and delivered counterparts of each Mortgage (including any amendments or supplements thereto) filed by the Borrower, along with duly executed copies of all related documents, including landlord waivers, subordination agreements and estoppel certificates and legal opinions; and (v) satisfactory evidence that the Intercreditor Agreement and the Collateral Documents shall have been amended, to the extent necessary, to secure the Facilities Obligations on a pari passu basis with the Mortgage Notes, the 2000 Parity Notes, the 2001 Parity Notes and other Parity Debt, in each case, together with certified true and complete copies of such agreements. (h) The Trustee shall have received: (i) a mortgagee's policy of title insurance, including mechanic's lien coverage, with respect to the properties and facilities so identified on Schedule 3.07(b), issued by a Title Company or Companies authorized to issue title insurance in the states in which such properties or facilities are located with satisfactory provisions for coinsurance or reinsurance, insuring the interest of the Trustee under the Collateral Documents as valid first liens on the Mortgaged Properties, free of Liens (other than Liens permitted by Section 6.02) or other exceptions to title not approved and accepted by the Lenders, such policies to be in an amount at least equal to the amounts set forth opposite each of the individual properties and facilities so identified on Schedule 3.07(b); and (ii) satisfactory copies of "As-Built" ALTA surveys with respect to the properties and facilities so identified on Schedule 3.07(b), certified to the Trustee and the Title Company or Companies; (iii) satisfactory environmental reviews, audits and appraisals of the properties of the Borrower and the Subsidiaries; 79 (iv) the original stock certificates representing all outstanding Capital Stock of the Subsidiaries, along with undated stock powers endorsed in blank and duly executed Intercompany Notes; (v) each of (A) the original Intercompany Note, dated as of the Closing Date, in the face amount of $10,000,000, made by each of Star/Petro, Stellar Propane Service Corp. and Ohio Gas & Appliance Company in favor of the Borrower and the General Partner, (B) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Star/Petro in favor of the Borrower, (C) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Stellar Propane Service Corp. in favor of the Borrower and (D) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Ohio Gas & Appliance Company in favor of the Borrower, in each case, endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof; (vi) a certificate of the Borrower dated as of the Closing Date duly executed by the Borrower addressed to the Trustee complying with Section 6 of the Intercreditor Agreement, which shall specify the date and principal amount of the Notes, the name, address and tax payer identification number of the Lenders and which shall state that this Agreement is the "Credit Agreement", that this Agreement is entitled to the benefits of the Intercreditor Agreement and of the Security (as defined in the Intercreditor Agreement) and funds held under Section 4 of the Intercreditor Agreement and that this Agreement are subject to the terms of the Intercreditor Agreement; and (vii) a duly executed Agreement of the Lenders and Supplement to Intercreditor Agreement. (i) The Lenders shall have received opinions of Phillips Nizer LLP,counsel to the Borrower, substantially in the form of Exhibit F-1 hereto and(ii) local counsel to the Borrower satisfactory to the Lenders in eachjurisdiction requested by the Lenders, substantially in the form of Exhibit F-2hereto. (j) The Administrative Agent shall have received: (i) a certificate, dated the Closing Date and signed by a Responsible Officer of each of the Loan Parties, confirming compliance with the conditions precedent set forth in this Section 4.01; (ii) a copy of the partnership agreement, certificate of incorporation or other constitutive documents, including all amendments thereto, of each of the Loan Parties, certified, to the extent applicable, as of a recent date by the Secretary of State of the State of its organization, and, to the extent applicable, a certificate as to the good standing of each such party as of a recent date, from such Secretary of State; (iii) a certificate of the Secretary or Assistant Secretary of each of the Loan Parties dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws, operating agreement or partnership agreement of such 80 party, as applicable, (or, in the case of the Borrower and the Public Partnership, of the General Partner) as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party (or, in the case of the Borrower and the Public Partnership, of the General Partner) authorizing the execution, delivery and performance of the Loan Documents to which such Loan Party is or will be a party and, in the case of the Borrower, the extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation or other constitutive documents of such Loan Party (or, in the case of the Borrower and the Public Partnership, of the General Partner) have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (ii) above and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party (or, in the case of the Borrower and the Public Partnership, of the General Partner); (iv) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (iii) above; (v) a certified true and complete copy of the Note Agreements, all other Parity Debt Agreements and the Existing Credit Agreement , together with all amendments and supplements thereto through the Closing Date and, as requested by the Lenders, other Operative Agreements; (vi) to the extent applicable, evidence demonstrating fulfillment of the conditions set forth in the Note Agreement, if any, including, without limitation, (1) the opinion referred to in Section 4.01(i) hereof, (2) a copy of the opinion of Phillips Nizer LLP delivered to the Trustee to the effect that the Lien of the Security Documents (as defined in the Intercreditor Agreement) has attached and is perfected to the extent additional property and assets are being acquired on the Closing Date and (3) a copy of the certificate of the Borrower to the Trustee, in form and substance satisfactory to the Lenders in their sole discretion, to the extent additional property and assets are being acquired on the Closing Date, demonstrating that the principal amount of the Indebtedness incurred hereunder does not exceed the lesser of the cost to the Borrower of such property or assets and the fair market value of such property or assets (as determined in good faith by the General Partner); and (vii) such other documents, opinions, certificates and agreements in connection with the Facilities, in form and substance satisfactory to the Lenders, as they or their counsel shall reasonably request, including counterpart originals or certified copies of all the other Operative Agreements. (k) Each Lender shall be satisfied with each of the following (itbeing agreed that the execution of this Agreement shall demonstrate suchsatisfaction): 81 (i) the results of, its due diligence investigation of (A) the business, assets, condition (financial and otherwise), liabilities (actual and contingent) and prospects of the Borrower, (B) litigation, tax, accounting, labor, health and safety, environmental, insurance, pension and other employee benefit matters and (C) real estate leases, material contracts, debt agreements, property ownership, and contingent liabilities of the Borrower and the Subsidiaries; (ii) (A) the amount, terms and conditions (including maturity, amortization, interest rates and fees, covenants, events of default, redemption and other provisions) of the Mortgage Notes and the Parity Debt Agreements and (B) the ownership structure of the Borrower, the Public Partnership and the General Partner; (iii) there shall not have occurred and be continuing since the date of the Letter Agreement a material adverse change in the market for bank credit facilities similar in nature to the Facilities or a material disruption of, or a material adverse change in, financial, banking or capital market conditions; (iv) all legal matters and documentation incident to the Facilities and all corporate and other proceedings taken or to be taken in connection therewith; (v) (A) such information as the Lenders may request as to the aging and concentration of the accounts receivable of the Borrower and the Subsidiaries and as to their inventory, and shall have completed and be satisfied with their review thereof and (B) a satisfactory Borrowing Base Certificate for the most recent calendar month ending on or prior to the 20th day prior to the Closing Date; (vi) insurance, which shall be in full force and effect and which complies with the provisions of this Agreement and the Collateral Documents, and a report, on or prior to the Closing Date, from the Borrower's independent insurance broker, Weeks & Calloway, together with any other evidence reasonably requested by the Agents, demonstrating that the insurance required by Section 6.11 and by the terms of the other Loan Documents is in effect and a certificate from a Responsible Officer of the Borrower stating that the Public Partnership and its Subsidiaries have in effect weather insurance coverage of at least $12,500,000 on a consolidated basis; and (vii) all agreements and transactions between any of the Borrower and the Subsidiaries, on the one hand, and any of their Affiliates, on the other hand. (l) Since September 30, 2002, (i) there shall not have occurred orbecome known any material adverse change or prospective material adverse changewith respect to the business, assets, operations, properties, condition(financial or otherwise), liabilities (actual or contingent) or prospects of theBorrower from that shown in the information and projections contained in theConfidential Information Memorandum and (ii) there has been no development orevent that has had or could reasonably be expected to have a Parent MaterialAdverse Effect. (m) In the case of each Lender, each other Lender, the AdministrativeAgent, the Issuing Bank, the Syndication Agent and the Documentation Agent shallhave simultaneously executed and delivered this Agreement. 82 (n) (i) The Borrower and the Restricted Subsidiaries shall have noindebtedness or other liabilities to third parties (including affiliates),whether accrued, absolute, contingent or threatened, and whether due or tobecome due, except in respect of (A) the Facilities, (B) the Mortgage Notes andthe Parity Debt, (C) accounts payable and other liabilities disclosed in thefinancial statements referred to in Section 4.01(r) and satisfactory in allrespects to the Lenders, (D) intercompany Indebtedness permitted by Section 6.01and (E) liabilities (other than indebtedness for borrowed money) incurred in theordinary course of business since June 30, 2003 (none of which otherliabilities, individually or in the aggregate, could have a Material AdverseEffect) and (ii) any liens on or claims or encumbrances affecting any assets orproperties of the Borrower and the Subsidiaries or any other Collateral(including the Capital Stock of the Borrower) shall have been released in amanner satisfactory to the Agents. (o) The Lenders shall have received (i) the Pro Forma Balance Sheet,the Audited Financial Statements and the Unaudited Financial Statements referredto in Section 3.05, and such financial statements shall not, in the reasonablejudgment of the Lenders, reflect any material adverse change in the consolidatedfinancial condition of Borrower and its consolidated Subsidiaries, as reflectedin the financial statements or projections contained in the ConfidentialInformation Memorandum and (ii) satisfactory projections for the Borrower andits Subsidiaries through the 2007 fiscal year. (p) All governmental, regulatory, shareholder and third party consents(including under the Intercreditor Agreement, the Parent Indenture and the NoteAgreements), approvals, filings, registrations and other actions required inorder to consummate the transactions contemplated by the Facilities shall havebeen obtained or made, as applicable, and shall remain in full force and effect,in each case without the imposition of any condition or restriction which is, inthe judgment of the Lenders, materially adverse to the Borrower or any of theSubsidiaries. (q) There shall not be any pending proceeding requesting an injunctionor restraining order with respect to the Facilities or challenging the validityor enforceability of the Facilities. (r) The representations and warranties set forth in Article III hereofand the representations and warranties of the Borrower and the other LoanParties set forth in the other Loan Documents shall be true and correct in allmaterial respects on and as of the Closing Date with the same effect as thoughmade on and as of the Closing Date, except to the extent such representationsand warranties expressly relate to an earlier date (in which case suchrepresentations and warranties shall be true and correct in all materialrespects on and as of such earlier date). No Default or Event of Default shallhave occurred and be continuing. (s) The Administrative Agent shall have received a satisfactorysolvency certificate from the Chief Financial Officer of the Borrower, substantially in the form of Exhibit M certifying as to the solvency of theBorrower and its Subsidiaries after giving effect to the transactionscontemplated hereby. (t) The Borrower shall have paid all Fees and other amounts due andpayable to any Agent or Lender on or prior to the Closing Date (including thecommitment fees required 83to be paid pursuant to Section 2.05 of the Existing Credit Agreement), includingreimbursement or payments of all reasonable out-of-pocket expenses required tobe reimbursed or paid by the Borrower under the Letter Agreement or under anyLoan Document, including, without limitation, all reasonable fees and expensesof legal counsel to the Administrative Agent and the Lenders and all search andfiling fees of a company acceptable to the Lenders (to the extent invoices orstatements therefor have been received on or prior to the Closing Date). (u) On the Closing Date, the commitments under the Existing ParityDebt Credit Agreement shall have been terminated, all loans outstandingthereunder shall have been repaid in full, together with accrued interestthereon, all letters of credit issued thereunder shall have been terminated andall other amounts owing pursuant to the Existing Parity Debt Credit Agreementshall have been repaid in full, and the Administrative Agent shall have receivedevidence in form, scope and substance satisfactory to it that the matters setforth in this subsection have been satisfied at such time. Section 4.02. All Extensions of Credit. The obligations of the Lendersto make Loans hereunder, and the obligation of the Issuing Bank to issue Lettersof Credit hereunder, are subject to the satisfaction of the conditions precedentset forth in this Section 4.02 on the date of each Borrowing and on the date ofissuance of each Letter of Credit: (a) The Administrative Agent shall have received a notice of suchBorrowing as required by Section 2.03 or a notice requesting the issuance of aLetter of Credit as required by Section 2.21(c), as applicable. (b) The representations and warranties set forth in Article III hereofand the representations and warranties of the Borrower and the other LoanParties set forth in the other Loan Documents shall be true and correct in allmaterial respects on and as of the date of such Borrowing or the date of theissuance of such Letter of Credit with the same effect as though made on and asof such date, except to the extent such representations and warranties expresslyrelate to an earlier date (in which case such representations and warrantiesshall be true and correct in all material respects on and as of such earlierdate). (c) At the time of and immediately after such Borrowing or theissuance of such Letter of Credit, the aggregate outstanding principal amount ofthe Loans of each Class and the Letter of Credit Exposure of each Class will notexceed the limitations set forth in Section 2.01 and Section 2.21, respectively. (d) At the time of and immediately after such Borrowing or theissuance of such Letter of Credit, no Default or Event of Default shall haveoccurred and be continuing. (e) In the case of each Tranche A Revolving Credit Borrowing and eachrequest for the issuance of a Tranche A Letter of Credit, the AdministrativeAgent shall have received the most recent Borrowing Base Certificate required inaccordance with Section 5.02(k). (f) The Administrative Agent shall have received a certificate,substantially in the form of Exhibit I-2 hereto, of a Responsible Officer of theBorrower dated as of the date of such Borrowing or the date of such issuance ofLetter of Credit, certifying as of such date, that: 84 (i) (x) the proposed use of proceeds of such Borrowing or such Letter of Credit complies with Section 3.13(a) or (b), as applicable, describing such proposed use and specifying the basis for such conclusion in reasonable detail, and (y) such Borrowing or Letter of Credit is permitted under the Note Agreements and the Parent Indenture, specifying the relevant exceptions thereunder for such purpose (together with supporting calculations and pro forma financial statements demonstrating fulfillment of such condition to the satisfaction of the Agents); (ii) after giving effect to such Borrowing or issuance of Letter of Credit requested to be made or issued hereunder, the ratio of Parent Consolidated Funded Debt to Parent Consolidated Cash Flow as of the proposed date of such Borrowing or issuance of such Letter of Credit, as applicable, shall be no greater than 5.00 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating fulfillment of such condition to the satisfaction of the Agents); (iii) neither the Borrower nor any of its Subsidiaries shall have made any Restricted Payment since the date of the most recent Borrowing or issuance of Letter of Credit if, on the date of such Restricted Payment, the ratio of (x) Parent Consolidated Cash Flow to (y) Parent Consolidated Interest Expense plus the aggregate amount of Restricted Payments made by the Public Partnership to its equityholders during the Reference Period with respect to such date, was less than 0.75 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating fulfillment of such condition to the satisfaction of the Agents); (iv) as of the date of such Borrowing or issuance of such Letter of Credit, the Public Partnership and its Subsidiaries shall have in effect minimum weather insurance coverage of $12,500,000 on a consolidated basis; and (v) with respect to the Plans as to which any of Star Gas Partners, L.P., the Borrower or any of their respective Subsidiaries or Related Person of Star Gas Partners, L.P. or the Borrower may have any liability, the excess of the present value of the accrued benefits (vested and unvested) of the participants in each such Plan over the assets of each such plan (each as determined on a projected benefit obligation basis, based on the actuarial methods and assumptions indicated in the most recent applicable actuarial valuation reports), does not exceed an aggregate amount equal to $7,500,000 on such date. (g) During the most recent period referred to in Section 2.11(d),neither the Borrower nor any Restricted Subsidiary shall have either (x) anyoutstanding Indebtedness owed to Petro Holdings or any of its subsidiaries or(y) permitted to exist, or have become the beneficiary of, any Investment byPetro Holdings or any of its subsidiaries in the Borrower or any of theRestricted Subsidiaries. (h) Since September 30, 2002, there has been no development or eventthat has had or could reasonably be expected to have a Parent Material AdverseEffect. 85 (i) Within 90 days after the Closing Date, the Borrower shall haveprovided evidence satisfactory to the Administrative Agent with respect to eachaccount of the Borrower covered by an effective Lockbox Agreement under theExisting Credit Agreement as of the Closing Date either that (i) the depositarybanks under such Lockbox Agreement has been notified that JPMorgan Chase Bankhas replaced Fleet National Bank as the administrative agent and has beeninstructed to redirect the monies required to be transferred to an account ofthe Borrower with Fleet National Bank pursuant to the terms of such LockboxAgreement to an account of the Borrower with JPMorgan Chase Bank, acknowledgedin writing by such depositary bank or (ii) such account has been closed.Each Borrowing hereunder and each request for the issuance of a Letter of Credithereunder shall be deemed to constitute a representation and warranty by theBorrower on the date of such Borrowing or issuance that the conditions in thisSection 4.02 have been satisfied. For purposes of Section 4.02, the "issuance"of a Letter of Credit shall include any extension, renewal or amendment of aLetter of Credit. Section 4.03. Tranche B Extensions of Credit. The obligations of theLenders to make Tranche B Revolving Loans hereunder, and the obligation of theIssuing Bank to issue Tranche B Letters of Credit hereunder, are subject to the satisfaction of the conditions precedent set forth in this Section 4.03 and theadditional conditions precedent set forth under Section 4.02 on the date of eachTranche B Revolving Credit Borrowing and on the date of issuance of each TrancheB Letter of Credit: (a) At the time of and immediately after any Tranche B RevolvingCredit Borrowing made or any Tranche B Letter of Credit issued, the LeverageRatio as of the date of such Borrowing or issuance (after giving effect to anyacquisition or Growth-Related Capital Expenditure for which such Borrowing orLetter of Credit is being used) shall be no greater than 4.50 to 1.00; and, inthe case of each such Borrowing or issuance of each such Letter of Credit, theBorrower shall have prepared and furnished to the Agents prior to such Borrowingor issuance pro forma financial statements demonstrating the fulfillment of suchcondition to the satisfaction of the Agents. For purposes of calculating theLeverage Ratio as required by this Section 4.03(a), Consolidated Cash Flow forthe Reference Period shall mean the greater of (A) Consolidated Cash Flow forthe most recent period of four consecutive fiscal quarters prior to the date ofdetermination and (B) 50% of Consolidated Cash Flow for the most recent periodof eight consecutive fiscal quarters prior to the date of determination. (b) If Capital Stock is being purchased with proceeds from suchTranche B Revolving Credit Borrowing, the Agents and the Trustee shall havereceived counterparts of a Supplemental Agreement duly executed by the issuer ofsuch Capital Stock (and all terms of such Supplemental Agreement shall have beensatisfied). (c) In the case of any Revolving Credit Borrowing (as defined in theParity Debt Credit Agreement) or Tranche B Revolving Credit Borrowing (or seriesof related Revolving Credit Borrowings (as defined in the Parity Debt CreditAgreement) or Tranche B Revolving Credit Borrowings not in the ordinary courseof business consistent with past practice) in a principal amount, and/or anyLetter of Credit (as defined in the Parity Debt Credit Agreement) and/or TrancheB Letter of Credit (or series of related Letters of Credit (as defined 86in the Parity Debt Credit Agreement) or Tranche B Letters of Credit not in theordinary course of business consistent with past practice) having a face amount,in excess of $1,500,000 to be used for Growth-Related Capital Expenditures, (i)the Agents shall be satisfied with all aspects of such Growth-Related CapitalExpenditures, including all legal, tax and accounting matters relating suchGrowth-Related Capital Expenditures and the terms of all agreements andinstruments to be entered into in connection with such Growth-Related CapitalExpenditures, (ii) the Agents shall be satisfied with all legal matters anddocumentation incident to such Growth-Related Capital Expenditures and allcorporate and other proceedings taken or to be taken in connection therewith and(iii) the Agents shall have received (A) all financial information reasonablyrequested by the Agents in connection with such Growth-Related CapitalExpenditures and (B) a statement of sources and uses of funds in connection withsuch Growth-Related Capital Expenditures, in each case certified by a FinancialOfficer of the Borrower. (d) All components of such acquisition or Growth-Related CapitalExpenditure shall be consummated in accordance with applicable laws andregulations. (e) All governmental, regulatory, shareholder and third partyconsents, approvals, filings, registrations and other actions required in orderto consummate such acquisition or Growth-Related Capital Expenditure (other thanany such actions the absence of which could not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect) shall havebeen obtained or made and shall remain in full force and effect, without theimposition of any condition or restriction which is, materially adverse to theBorrower or any of the Subsidiaries. (f) There shall not be any pending proceeding requesting an injunctionor restraining order with respect to such acquisition or Growth-Related CapitalExpenditure or challenging the validity or enforceability of such acquisition orGrowth-Related Capital Expenditure. (g) No Default or Event of Default shall have occurred and becontinuing at the time of the making of such Tranche B Revolving CreditBorrowing or the issuance of such Tranche B Letter of Credit (on a pro forma basis as if such Borrowing or issuance and the acquisition or Growth-RelatedCapital Expenditure for which such Borrowing or Letter of Credit is being used,had occurred on the first day of the applicable Reference Period for purposes ofSection 6.29), and the Borrower shall have prepared and furnished to the Agentsprior to such Borrowing or issuance pro forma financial statements demonstratingthe fulfillment of such condition in reasonable detail. (h) The Agents shall have received an Officers' Certificate, dated thedate of such Tranche B Revolving Credit Borrowing or issuance of such Tranche BLetter of Credit, certifying as to (x) the proposed use of proceeds of suchBorrowing or such Letter of Credit and compliance with Section 3.13(b),specifying the basis for such conclusion in reasonable detail, (y) the relevantexceptions under each of the Note Agreements and the Parent Indenture for suchpurpose and (z) compliance with such exceptions referred to in clause (y),together with supporting calculations. 87 (i) In the case of any issuance of a Tranche B Letter of Credit,immediately following the issuance of such Tranche B Letter of Credit, theaggregate undrawn amount of the sum of all outstanding Tranche B Letters ofCredit and all Letters of Credit (as defined in the Parity Debt CreditAgreement) shall not exceed $12,500,000.Each Tranche B Revolving Credit Borrowing hereunder and each request for theissuance of a Tranche B Letter of Credit hereunder shall be deemed to constitutea representation and warranty by the Borrower on the date of such Borrowing orissuance that the conditions in this Section 4.03 have been satisfied. Forpurposes of this Section 4.03, the "issuance" of a Tranche B Letter of Creditshall include any extension, renewal or amendment of a Tranche B Letter ofCredit. ARTICLE V ACCOUNTING; FINANCIAL STATEMENTS; INSPECTION The Borrower covenants and agrees with each Lender that so long asthis Agreement shall remain in effect or any Facilities Obligations shall beunpaid, and until the Commitments have been terminated and the Loans, togetherwith interest, Fees and all other Facilities Obligations have been paid in full,all Letters of Credit have been cancelled or have expired and all Letter ofCredit Disbursements have been reimbursed in full, unless the Required Lendersshall otherwise consent in writing: Section 5.01. Accounting. The Borrower will maintain, and will causeeach Restricted Subsidiary to maintain, a system of accounting established andadministered in accordance with GAAP, and will accrue, and will cause eachRestricted Subsidiary to accrue, all such liabilities as shall be required byGAAP. Section 5.02. Financial Statements. The Borrower will deliver to theLenders: (a) (i) as soon as practicable, but in any event within 45 days afterthe end of each of the first three quarterly fiscal periods in each fiscal yearof the Borrower, consolidated (and (A) if the Restricted Subsidiaries constitutea Substantial Portion, then as to the Restricted Subsidiaries or (B) if theRestricted Subsidiaries do not constitute a Substantial Portion, but one or moreRestricted Subsidiaries have outstanding Indebtedness owing to Persons otherthan the Borrower or any Restricted Subsidiary, other than the Star/PetroIntercompany Subordinated Debt, then as to such Restricted Subsidiaries,consolidating) balance sheets of the Borrower and the Restricted Subsidiaries asat the end of such period and the related consolidated (and, as to statements ofincome and cash flows, if applicable and as appropriate, consolidating)statements of income, surplus or partners' capital, cash flows and stockholders'equity of the Borrower and the Restricted Subsidiaries for such period and forthe period from the beginning of the current fiscal year to the end of suchquarterly period, setting forth in each case in comparative form theconsolidated and, where applicable and as appropriate, consolidating figures forthe corresponding periods of the previous fiscal year, all in reasonable detailand certified by the principal financial officer of the General Partner aspresenting fairly, in all material respects, the information contained therein(subject to changes resulting from normal year-end adjustments), in accordance with GAAP (except as noted in the proviso that follows) applied on a basis 88consistent with prior fiscal periods; provided that, it is understood that thefinancial statements provided in accordance with this clause (i) shall notconsolidate Petro Holdings or its Subsidiaries with the Borrower and (ii) assoon as practicable, but in any event within 45 days after the end of each ofthe first three quarterly fiscal periods in each fiscal year of the Borrower,financial statements of the type described in clause(i) but adjusted to showPetro Holdings as consolidated with the Borrower; provided that delivery withinthe time period specified above of copies of the Public Partnership's QuarterlyReport on Form 10-Q prepared in compliance with the requirements therefor andfiled with the SEC shall be deemed to satisfy the requirements hereof, but onlyto the extent such reports otherwise satisfy the requirements of clause (i) andclause (ii) of this Section 5.02(a), so long as the Public Partnership does notconduct any material business or activity other than holding Capital Stock ofthe Borrower; and provided, further, that, for purposes of this Section 5.02,"Substantial Portion" shall mean that either (X) the book value of the assets ofthe Restricted Subsidiaries exceeds 5% of the book value of the consolidatedassets of the Borrower and the Restricted Subsidiaries or (Y) the RestrictedSubsidiaries account for more than 5% of the Consolidated Net Income of theBorrower and its Restricted Subsidiaries (it being agreed that the net income ofUnrestricted Subsidiaries shall not be consolidated with the Borrower and theRestricted Subsidiaries for purposes of this calculation of Consolidated NetIncome), in each case in respect of the four fiscal quarters ended as of thedate of the applicable financial statement; provided that, with respect toStar/Petro, (i) the book value of the common stock of Petro Holdings shall beexcluded from the determination of Substantial Portion in clause (X) above and(ii) the income of Petro Holdings shall be excluded from the determination ofSubstantial Portion in clause (Y) above; (b) (i) as soon as practicable, but in any event within 90 days afterthe end of each fiscal year of the Borrower ending after the date of thisAgreement, consolidated (and (A) if the Restricted Subsidiaries constitute aSubstantial Portion, then as to the Restricted Subsidiaries or (B) if theRestricted Subsidiaries do not constitute a Substantial Portion, but one or moreRestricted Subsidiaries have outstanding Indebtedness owing to Persons otherthan the Borrower or any Restricted Subsidiary other than the Star/PetroIntercompany Subordinated Debt, then as to such Restricted Subsidiaries,consolidating) balance sheets of the Borrower and the Restricted Subsidiariesand the consolidated balance sheet of the General Partner as at the end of suchyear and the related consolidated (and, as to statements of income and cashflows, if applicable and as appropriate, consolidating) statements of income,partners' capital, cash flows and stockholders' equity of the Borrower and theRestricted Subsidiaries and the consolidated statements of income, surplus, cashflow and stockholders' equity of the General Partner for such fiscal year,setting forth in each case in comparative form the consolidated and, whereapplicable and as appropriate, consolidating figures for the previous fiscalyear, all in reasonable detail; provided that, it is understood that thefinancial statements provided in accordance with this clause (i) shall notconsolidate Petro Holdings or its Subsidiaries with the Borrower, and (ii) assoon as practicable, but in any event within 90 days after the end of eachfiscal year of the Borrower, financial statements of the type described inclause (i) but adjusted to show Petro Holdings as consolidated with theBorrower, provided that delivery within the time periods specified above ofcopies of the Public Partnership's Annual Report on Form 10-K prepared incompliance with the requirements therefor and filed with the SEC shall be deemedto satisfy the requirements hereof, but only to the extent such reportsotherwise satisfy the requirements of clause (i) and clause (ii) of this Section5.02(b) so long as the Public Partnership does not conduct any material businessor activity other than holding Capital Stock of the Borrower, and (X) in thecase of such 89consolidated financial statements of the Borrower specified in clause (i) andwith respect to the financial statements specified in clause (ii), accompaniedby a report thereon of KPMG LLP or other independent public accountants ofrecognized national standing selected by the Borrower and acceptable to theRequired Lenders, which report shall state that such consolidated financial statements present fairly the financial position of the Borrower and itsRestricted Subsidiaries as at the dates indicated and the results of theiroperations and cash flows for the periods indicated in conformity with GAAPapplied on a basis consistent with prior years and that the audit by suchaccountants in connection with such consolidated financial statements has beenmade in accordance with GAAP (except that with respect to the financialstatements specified in clause (ii), Petro Holdings and its subsidiaries havenot been consolidated) and (Y) in the case of such consolidated financialstatements of the General Partner and such consolidating financial statements ofthe Borrower as described in clause (i), and the financial statements specifiedin clause (ii), certified by the principal financial officer of the GeneralPartner, as presenting fairly the information contained therein, in accordancewith GAAP applied on a basis consistent with prior fiscal periods; (c) together with each delivery of financial statements pursuant toparagraphs (a) and (b) of this Section 5.02 (or, in the case of clause (vi)below only, within 15 days thereafter), an Officers' Certificate of the Borrowerin the form of Exhibit K hereto (i) stating that the signers have reviewed theterms of this Agreement and the other Loan Documents, and have made, or causedto be made under their supervision, a review in reasonable detail of thetransactions and condition of the Borrower and the Restricted Subsidiariesduring the accounting period covered by such financial statements and that thesigners do not have knowledge of the existence and continuance as at the date ofsuch Officers' Certificate of any condition or event which constitutes an Eventof Default or Default or, if any such condition or event exists, specifying thenature and period of existence thereof and what action the Borrower has taken oris taking or proposes to take with respect thereto, (ii) stating whether, sincethe date of the most recent financial statements previously delivered, there hasbeen any material change in GAAP applied in the preparation of the Borrower'sfinancial statements and, if so, describing such change, (iii) specifying theamount available at the end of such accounting period for Restricted Payments incompliance with Section 6.04 and showing in reasonable detail all calculationsrequired in arriving at such amount, (iv) demonstrating in reasonable detail, ifapplicable, compliance during and at the end of such accounting period with therestrictions contained in Section 6.01(b), (d), (f) and (g), the last paragraphof Section 6.01, Section 6.02(i), Section 6.03(iv), Section 6.07(c)(iii) andSection 6.29, (v) if not specified in the related financial statements beingdelivered pursuant to paragraphs (a) and (b) above, specifying the aggregateamount of interest paid or accrued by the Borrower and the RestrictedSubsidiaries, and the aggregate amount of depreciation, depletion andamortization charged on the books of the Borrower and the RestrictedSubsidiaries, during the fiscal period covered by such financial statements,(vi) describing in reasonable detail the number and nature of the parcels ofreal property, or rights thereto or interests therein, caused to be released bythe Borrower from the liens of the Security Documents pursuant to theIntercreditor Agreement and in the case of the fee owned property, the salesprice of the fee owned property caused to be released by the Borrower duringsuch accounting period and (vii) specifying any adjustments that were made tothe definitions of "Consolidated Net Income" or "Consolidated Cash Flow" for anynon-cash gains or losses recognized as a result of Statement of FinancialAccounting Standard Numbers 133, 141 and 142; 90 (d) together with each delivery of consolidated financial statementspursuant to paragraph (b) of this Section 5.02, a written statement by theindependent public accountants giving the report thereon (i) stating that inconnection with their audit examination, the terms of this Agreement and theother Loan Documents were reviewed to the extent considered necessary for thepurpose of expression of an opinion on the consolidated financial statements andfor making the statement contained in clause (ii) of this paragraph (d) (itbeing understood that no special audit procedures in addition to those requiredby generally accepted auditing standards then in effect in the United Statesshall be required) and (ii) stating whether, in the course of their auditexamination, they obtained knowledge (and whether, as of the date of suchwritten statement, they have knowledge) of the existence and continuance of anycondition or event which constitutes an Event of Default or Default, and, if so,specifying the nature and period of existence thereof; (e) promptly upon receipt thereof, copies of all reports submitted tothe Borrower by independent public accountants in connection with each specialaudit or each annual or interim audit of the books of the Borrower or anyRestricted Subsidiary made by such accountants, including the comment letter submitted by the accountants to management in connection with their annualaudit; (f) promptly upon their becoming publicly available, copies of allfinancial statements, reports, notices and proxy statements sent or madeavailable by the Borrower, the General Partner or the Public Partnership to allof its security holders in compliance with the Exchange Act or any comparableFederal or state laws relating to the disclosure by any Person of information toits security holders, of all regular and periodic reports and all registrationstatements and prospectuses filed by the Borrower, the General Partner or thePublic Partnership with any securities exchange or with the SEC (other thanregistration statements on Form S-8), and of all press releases and otherstatements made available by the Borrower, the General Partner or the PublicPartnership to the public concerning material developments in the business ofthe Borrower, the General Partner or the Public Partnership, as the case may be; (g) promptly, but in any event within five days, after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know that (i) any condition or event which constitutes an Event ofDefault or Default has occurred or exists, or is expected to occur or exist,(ii) any Lender has given any notice or taken any other action with respect to aclaimed Event of Default or Default or (iii) any Person has given any notice tothe Borrower or any Restricted Subsidiary or taken any other action with respectto a claimed default or event or condition of the type referred to in Section7.01(f) an Officers' Certificate of the Borrower describing the same and theperiod of existence thereof and what action the Borrower has taken, is takingand proposes to take with respect thereto; (h) promptly, but in any event within five days, after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know of (i) the commencement of or significant development in anymaterial litigation or material proceeding (including those regardingenvironmental matters) with respect to the Borrower or affecting the Borrower,any Restricted Subsidiary or any of their assets, a written notice describing inreasonable detail such commencement of or significant development in suchlitigation or 91proceeding or (ii) any development that has resulted in, or could reasonably beexpected to result in, a Material Adverse Effect, a written notice describing inreasonable detail such development; (i) promptly, but in any event within five days after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know that any of the events or conditions specified below with respectto any Plan has occurred or exists, or is expected to occur or exist, astatement setting forth details respecting such event or condition and theaction, if any, that the Borrower or any Related Person has taken, is taking andproposes to take or cause to be taken with respect thereto (and a copy of anynotice or report filed with or given to or communication received from the PBGC,the Internal Revenue Service or the Department of Labor with respect to suchevent or condition): (i) any reportable event, as defined in Section 4043(c) of ERISA and the regulations issued thereunder; (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) a substantial cessation of operations within the meaning of Section 4062(e) of ERISA under circumstances which could result in the treatment of the Borrower or any Related Person as a substantial employer under a "multiple employer plan" or the application of the provisions of Section 4062, 4063 or 4064 of ERISA to the Borrower or any Related Person; (iv) the taking of any steps by the PBGC or the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Borrower or any Related Person of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (v) the complete or partial withdrawal by the Borrower or any Related Person under Section 4063, 4203 or 4205 of ERISA from a Plan which is a "multiple employer plan" or a Multiemployer Plan, or the receipt by the Borrower or any Related Person of notice from a Multiemployer Plan regarding any alleged withdrawal or that it intends to impose withdrawal liability on the Borrower or any Related Person or that it is in reorganization or is insolvent within the meaning of Section 4241 or 4245 of ERISA or that it intends to terminate under Section 404lA of ERISA or from a "multiple employer plan" that it intends to terminate; (vi) the taking of any steps concerning the threat or the institution of a proceeding against the Borrower or any Related Person to enforce Section 515 of ERISA; (vii) the occurrence or existence of any event or series of events which could result in a liability to the Borrower or any Related Person pursuant to Section 4069(a) or 4212(c) of ERISA; (viii) the failure to make a contribution to any Plan, which failure, either alone or when taken together with any other such failure, is sufficient to result in the imposition 92 of a lien on any property of the Borrower or any Related Person pursuant to Section 302 of ERISA or Section 412(n) of the Code or could result in the imposition of a material tax or material penalty pursuant to Section 4971 of the Code on the Borrower or any Related Person; (ix) the amendment of any Plan in a manner which would be treated as a termination of such Plan under Section 4041 of ERISA or require the Borrower or any Related Person to provide security to such Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or (x) the incurrence of liability in connection with the occurrence of a "prohibited transaction" (within the meaning of Section 406 of ERISA or Section 4975 of the Code); (j) promptly, but in any event within five days, after an officer ofany of the Borrower, any Subsidiary or the General Partner receives any noticeor request from any Person (other than any agent, attorney or similar partyemployed by the Borrower or the General Partner) for information, or if theBorrower, any Subsidiary or the General Partner by an officer provides anynotice or information to any such Person (other than any agent, attorney orsimilar party employed by the Borrower or the General Partner), concerning thepresence or release of any hazardous substance (as defined in CERCLA) orhazardous waste (as defined in RCRA) or other contaminants (as defined by anyapplicable Federal, state, local or foreign laws) within, on, from, relating toor affecting any property owned, leased, or subleased by the Borrower or anySubsidiary, copies of each such notice, request or information; (k) as soon as available, and in any event within 20 days after thelast day of each fiscal month, (i) a Borrowing Base Certificate as of the lastday of such preceding month and (ii) reports as of the last day of such month asto the aging and concentration of the accounts receivable of the Borrower andits Restricted Subsidiaries and as to their inventory, in substantially the formof the reports delivered pursuant to Section 4.01(k)(v); (l) as soon as available, and in any event no later than 30 days afterthe end of each fiscal year of the Borrower, quarterly financial projections forthe next fiscal year, including all material assumptions to such projections; (m) within 15 days of receipt, any management letter issued orprovided by the auditors of the Borrower or any Restricted Subsidiary; and (n) promptly, from time to time, such other information regarding theoperations, business affairs and financial condition of the Borrower, any otherLoan Party or (to the extent such information relates to environmental mattersor any material litigation or proceeding) any Unrestricted Subsidiary, or in anyevent compliance with the terms of any Loan Document, as any Lender mayreasonably request. Section 5.03. Inspection. The Borrower will permit, or cause the General Partner to permit, any authorized representatives designated by theLenders to visit and inspect any of the properties of the Borrower, anyRestricted Subsidiary and (to the extent relating to environmental or litigationmatters) any Unrestricted Subsidiary, and in any event any properties 93of the General Partner or of the General Partner's subsidiaries relating to theBusiness, including the books of account of the Borrower, the RestrictedSubsidiaries, such Unrestricted Subsidiaries, the General Partner and theGeneral Partner's subsidiaries, and to make copies and take extracts therefrom,and to discuss its and their affairs, finances and accounts with its and theirofficers and (with reasonable notice) independent public accountants (and bythis provision each of the Borrower and the General Partner authorizes suchaccountants to discuss with such representatives the affairs, finances andaccounts of the Borrower, any Restricted Subsidiary, such UnrestrictedSubsidiaries, the General Partner or any of such subsidiaries of the GeneralPartner, as the case may be, all at such times and as often as may berequested), provided that the Borrower will bear the expense for the foregoingif an Event of Default or Default has occurred and is continuing. Withoutlimitation of the foregoing, the Agents shall have the right to conduct an auditof the accounts receivable and inventory of the Borrower and its RestrictedSubsidiaries from time to time. The Borrower shall pay the expenses of theAgents for up to two such audits in any 12-month period and for any additionalaudit conducted during the continuance of an Event of Default. ARTICLE VI BUSINESS AND FINANCIAL COVENANTS The Borrower covenants and agrees with each Lender that so long asthis Agreement shall remain in effect or any Facilities Obligations shall beunpaid, and until the Commitments have been terminated and the Loans, togetherwith interest, Fees and all other Facilities Obligations have been paid in full,all Letters of Credit have been cancelled or have expired and all Letter ofCredit Disbursements have been reimbursed in full, unless the Required Lendersshall otherwise consent in writing: Section 6.01. Indebtedness. The Borrower will not, and will not permitany Restricted Subsidiary to, directly or indirectly, create, incur, assume,guarantee or otherwise become or remain directly or indirectly liable withrespect to (collectively, "incur"), any Indebtedness, except that: (a) the Borrower may become liable and remain liable with respect tothe Indebtedness evidenced by the Mortgage Notes, the 2000 Parity Notes and the2001 Parity Notes; (b) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Funded Debt incurred by the Borrower and the RestrictedSubsidiaries to finance the making of expenditures for the improvement, repairor alteration of any Assets, or the replacement of any Assets due toobsolescence with like-kind property, or to renew, refund, refinance or replaceany such Funded Debt; provided that (i) such Funded Debt is incurred to financeimprovements, repairs, alterations or replacements made within the period of 365days ending on the date such Funded Debt is incurred, (ii) the aggregateprincipal amount of such Funded Debt does not exceed the amount of CapitalContributions made during such 365-day period which are applied to finance themaking of such improvements, repairs, alterations or replacements, (iii) if suchFunded Debt is to be secured under the Collateral Documents as provided inSection 6.02(h), the agreement or instrument pursuant to which such Funded Debtis 94incurred (A) contains no financial or business covenants that are morerestrictive on the Borrower or its Subsidiaries than or that are in addition tothose contained in Section 10 of the Note Agreements (unless prior to orsimultaneously with the incurrence of such Funded Debt, this Agreement, the NoteAgreements, the other Loan Documents and the Parity Debt Credit Agreement andthe other loan documents related thereto are amended to provide the benefits ofsuch more restrictive covenants to the Secured Parties thereunder) and (B) specifies no events of default (other than with respect to the payment ofprincipal and interest on such Funded Debt or the accuracy of representationsand warranties made in connection with such agreement or instrument) which arecapable of occurring prior to the occurrence of the Events of Default specifiedin Section 11 of the Note Agreements (unless prior to or simultaneously with theincurrence of such Funded Debt, this Agreement, the Note Agreements, the otherLoan Documents and the Parity Debt Credit Agreement and the other loan documentsrelated thereto are amended to provide the benefits of such events of default tothe holders of the Notes, the Mortgage Notes, the 2000 Parity Notes, the 2001Parity Notes and the other Parity Debt, as applicable); (c) any Restricted Subsidiary may become and remain liable withrespect to unsecured Indebtedness of such Restricted Subsidiary owing to theBorrower or to another Restricted Subsidiary; provided that such Indebtedness iscreated and is outstanding under an agreement or instrument pursuant to whichsuch Indebtedness is subordinated to the Notes and the Indebtedness secured bythe Collateral Documents and is evidenced by an Intercompany Note pledged to theTrustee pursuant to the Borrower Security Agreement; (d) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to unsecured Indebtedness (including, without limitation, inthe case of Indebtedness of Star/Petro, the Star/Petro Intercompany SubordinatedDebt) owing to the General Partner or the Public Partnership; provided that (i)the aggregate principal amount of such Indebtedness of the Borrower and theRestricted Subsidiaries outstanding at any time shall not be in excess of$10,000,000 (plus the Star/Petro Intercompany Subordinated Debt), (ii) suchIndebtedness is created and is outstanding under an agreement or instrument, orthe Star/Petro Intercompany Subordinated Note, as the case may be, pursuant towhich such Indebtedness is subordinated to the Indebtedness secured under theCollateral Documents at least to the extent provided in the subordinationprovisions set forth in Exhibit D and (iii) such Indebtedness is evidenced by apromissory note, or the Star/Petro Intercompany Subordinated Note, as the casemay be, in form and substance satisfactory to the Required Lenders which ispledged to the Trustee pursuant to the Partners Security Agreement; (e) the Borrower may become and remain liable with respect toIndebtedness incurred under this Agreement and the other Loan Documents,including any amendment hereof increasing the aggregate amount of credit whichmay be extended hereunder, provided that such amendment is entered into inaccordance with Section 9.08; (f) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Indebtedness, in addition to that otherwise permitted bythe foregoing paragraphs of this Section 6.01, if on the date the Borrower or aRestricted Subsidiary becomes liable with respect to any such additionalIndebtedness and immediately after giving effect thereto and to thesubstantially concurrent repayment of any other Indebtedness (i) the ratio of 95Consolidated Cash Flow to Consolidated Pro Forma Debt Service is greater than2.50 to 1.00 and (ii) the ratio of Consolidated Cash Flow to MaximumConsolidated Pro Forma Debt Service is greater than 1.25 to 1.00; provided that,in addition to the foregoing, if such Indebtedness is Funded Debt incurred bythe Borrower or any Restricted Subsidiary to finance the making of expendituresfor the improvement, repair or alteration of any Assets, or additions to theAssets, and if such Indebtedness is to be secured under the Collateral Documentsas provided in Section 6.02(h), such Indebtedness shall be incurred pursuant toan agreement or instrument which complies with the requirements set forth inclause (iii) of the proviso to Section 6.01(b); (g) the Borrower and any Restricted Subsidiary may become and remainliable with respect to pre-existing Indebtedness relating to any Person,business or assets acquired by the Borrower or such Restricted Subsidiary, asthe case may be; provided that (i) after giving effect to such acquisition andsuch Indebtedness (on a pro forma basis as if such acquisition and theincurrence of such Indebtedness had occurred on the first day of the applicableReference Period for purposes of Section 6.29), no condition or event shallexist which constitutes an Event of Default or Default, (ii) such Indebtednesswas not incurred in anticipation of the acquisition of such Person, business orassets, (iii) after giving effect to such Person becoming a RestrictedSubsidiary, or the acquisition of such business or assets, the Borrower or suchRestricted Subsidiary could incur at least $1.00 of additional Indebtedness in compliance with the requirements set forth in clauses (i) and (ii) of Section6.01(f) and (iv) the acquisition of such Person, business or assets is permittedby all other applicable provisions of the Loan Documents, including Section 6.03and Section 6.24; (h) so long as no Event of Default or Default has occurred and iscontinuing, the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Indebtedness evidenced by Funded Debt incurred for anyrefinancing, refunding or replacement of Indebtedness permitted pursuant toclause (a) or (m) of this Section 6.01; provided that (i) the aggregateprincipal amount of such Funded Debt shall not exceed the aggregate principalamount of such outstanding Indebtedness being refinanced, refunded or replacedtogether with any accrued interest and, in the case of Section 6.01(a), MakeWhole Amount with respect thereto, (ii) such Funded Debt could be incurred incompliance with the requirements set forth in clause (i) of Section 6.01(f),(iii) if such Funded Debt is to be secured under the Collateral Documents asprovided in Section 6.02(h), such Funded Debt is incurred pursuant to anagreement or instrument which complies with the requirements set forth in clause(iii) of the proviso to Section 6.01(b), (iv) such Funded Debt shall not matureprior to the stated maturity of the Indebtedness being refinanced, refunded orreplaced, (v) such Funded Debt shall be secured on a pari passu basis with theIndebtedness secured by the Collateral Documents, (vi) such Funded Debt shallhave an Average Life equal to or greater than the remaining Average Life of theIndebtedness being refinanced, refunded or replaced; and (vii) the proceeds ofsuch Funded Debt are used to refinance, refund or replace such existing FundedDebt within 45 days after the incurrence of such Funded Debt (such proceeds areto be held in a bank account with the Administrative Agent (other than anaccount subject to the Cash Collateral Agreement) and such proceeds shall beremitted to the Borrower only upon delivery to the Administrative Agent by theBorrower of a certificate certifying that such proceeds will be used solely torefinance, refund or replace existing Funded Debt pursuant to this Section6.01(h)), provided further, that such Funded Debt incurred pursuant to thisclause (h) shall not be deemed to be outstanding Indebtedness of the Borrowerfor any purpose during the 45-day or lesser period referred to 96above while such proceeds are held by the Administrative Agent so long as suchproceeds of such Funded Debt are placed in such account at the time ofincurrence and applied to such refinancing, refunding or replacement within the45-day period; (i) so long as no Event of Default or Default has occurred and iscontinuing, the Borrower and the Restricted Subsidiaries may become and remainliable with respect to unsecured Indebtedness incurred for any extension,renewal, refunding, refinancing or replacement of Indebtedness permittedpursuant to subdivisions (a), (b), (f) or (g) of this Section 6.01; providedthat (i) the principal amount of such unsecured Indebtedness to be incurredshall not exceed the principal amount of such Indebtedness being extended,renewed or refunded together with any accrued interest and, in the case ofSection 6.01(a), Make Whole Amount with respect thereto, (ii) such unsecuredIndebtedness to be incurred shall not mature prior to the stated maturity ofsuch Indebtedness being extended, renewed or refunded, (iii) such unsecuredIndebtedness to be incurred shall have an Average Life equal to or greater thanthe remaining Average Life of such Indebtedness being extended, renewed orrefunded and (iv) in the case of any such Indebtedness incurred for anyextension, renewal, refunding or replacement of Indebtedness permitted pursuantto subdivision (g) of this Section 6.01, such Indebtedness incurred thereforshall be permitted only to the extent, if any, that the total principal amountthereof to be incurred exceeds the aggregate amount of the unused Tranche BRevolving Credit Commitments on the date of such incurrence; (j) the Borrower may create and become liable with respect to anyHedging Agreements and Commodity Hedging Agreements; (k) any Restricted Subsidiary may become and remain liable withrespect to Indebtedness evidenced by the Collateral Documents; (l) the Borrower may become and remain liable with respect tounsecured Indebtedness owing to a Seller in connection with the acquisition ofan Acquired Business Entity from such Seller, provided that, (i) the aggregateprincipal amount of such Indebtedness of the Borrower at any time shall notexceed $5,000,000, and (ii) the aggregate Consolidated Cash Flow generated by such Acquired Business Entity for so long as such Indebtedness is outstandingshall exceed the aggregate amount of all principal and interest that will becomedue and payable on such Indebtedness until such Indebtedness is repaid in full;and (m) the Borrower and the Restricted Subsidiary may become and remainliable with respect to Indebtedness evidenced by the Parity Debt CreditAgreement, provided, that, no Indebtedness shall be incurred under such ParityDebt Credit Agreement unless such Indebtedness is incurred within thelimitations of Section 6.01(b) or Section 6.01(f).Notwithstanding the foregoing, (I) the aggregate principal amount of allIndebtedness of all Restricted Subsidiaries at any time outstanding (other thanIndebtedness secured by the Collateral Documents) shall not exceed $10,000,000(plus the Star/Petro Intercompany Subordinated Debt) and (II) neither theBorrower nor any of the Restricted Subsidiaries shall, directly or indirectly,incur any Indebtedness to be used directly or indirectly to renew, refund orrefinance Facility A in whole or in part. For the purpose of this Section 6.01,any Person becoming a Restricted Subsidiary after the date of this Agreementshall be deemed to have 97become liable with respect to all of its then outstanding Indebtedness at thetime it becomes a Restricted Subsidiary, and any Person extending, renewing orrefunding any Indebtedness shall be deemed to have become liable with respect tosuch Indebtedness at the time of such extension, renewal or refunding. TheBorrower or any Restricted Subsidiary shall be deemed to have become liable withrespect to any Indebtedness securing any real property acquired by the Borroweror such Restricted Subsidiary, as the case may be, at the time of suchacquisition. Section 6.02. Liens, etc. The Borrower will not, and will not permitany Restricted Subsidiary to, directly or indirectly create, incur, assume orpermit to exist any Lien on or with respect to any property or asset (includingany document or instrument in respect of goods or accounts receivable) of theBorrower or any Restricted Subsidiary, whether now owned or held or hereafteracquired, or any income or profits therefrom (whether or not provision is madefor the equal and ratable securing of the Facilities Obligations in accordancewith the provisions of Section 6.14), except: (a) Liens for taxes, assessments or other governmental charges thepayment of which is not at the time required by Section 6.09; (b) Liens of landlords and carriers, vendors, warehousemen, mechanics,materialmen, repairmen and other like Liens incurred in the ordinary course ofbusiness for sums not yet due or the payment of which is not at the timerequired by Section 6.09, in each case not incurred or made in connection withthe borrowing of money, the obtaining of advances or credit or the payment ofthe deferred purchase price of property; (c) Liens (other than any Lien imposed by ERISA) incurred or depositsmade in the ordinary course of business (i) in connection with workers'compensation, unemployment insurance and other types of social security or (ii)to secure (or to obtain letters of credit that secure) the performance oftenders, statutory obligations, surety and appeal bonds, bids, leases,performance bonds, purchase, construction or sales contracts and other similarobligations, in each case not incurred or made in connection with the borrowingof money, the obtaining of advances or credit or the payment of the deferredpurchase price of property; (d) any attachment or judgment Lien, unless the judgment it securesshall not, within 60 days after the entry thereof, have been discharged orexecution thereof stayed pending appeal, or shall not have been dischargedwithin 60 days after expiration of any such stay; (e) leases or subleases granted to others, easements, rights-of-way,restrictions and other similar charges or encumbrances, which, in each case aregranted, entered into or created in the ordinary course of the business of theBorrower or any Restricted Subsidiary and which do not interfere with theordinary conduct of the business of the Borrower or any Restricted Subsidiary; (f) Liens on property or assets of any Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary owing to the Borrower or any otherRestricted Subsidiary; (g) Liens created by any of the Collateral Documents securing theFacilities Obligations, the Mortgage Notes and the Parity Debt; 98 (h) Liens created by any of the Collateral Documents securingIndebtedness incurred in accordance with Section 6.01(b), Section 6.01(h) orSection 6.01(j) (but only to the extent such Indebtedness under Section 6.01(j)is incurred to any Lender) or, to the extent incurred to finance the making ofcapital improvements, repairs and additions to the Borrower's Assets, Section6.01(f) (but only to the extent such Liens comply with the requirementsthereof), provided that (i) such Liens are effected through an amendment to theCollateral Documents to the extent necessary to provide the holders of suchIndebtedness equal and ratable security in the property and assets subject tothe Collateral Documents with the Secured Parties, (ii) the Collateral Documentsare amended to the extent necessary to extend the Lien thereof to any propertyor assets acquired or otherwise financed with the proceeds of such Indebtedness,(iii) the Borrower has delivered to the Trustee an Officers' Certificatedemonstrating that the principal amount of such Indebtedness does not exceed thelesser of the cost to the Borrower of such property or assets and the fairmarket value of such property or assets (as determined in good faith by theGeneral Partner) and to the effect that the amendments to the CollateralDocuments required by this Section 6.02(h) and the filing and recordation ofsuch amendments and related supplements will not have a Material Adverse Effectand that such incurrence of Indebtedness pursuant to Section 6.01(b), Section6.01(f), Section 6.01(h) or Section 6.01(j), as the case may be, complies in allrespects with the requirements of such Section and (iv) the Borrower hasdelivered to the Trustee an opinion of counsel reasonably satisfactory to theTrustee to the effect that the Lien of the Collateral Documents has attached andis perfected with respect to such additional property and assets; (i) Liens existing on any property of a newly-acquired RestrictedSubsidiary at the time of acquisition or existing prior to the time ofacquisition (and not created in anticipation of such acquisition) upon anyproperty acquired by the Borrower or any Restricted Subsidiary; provided that(i) any such Lien shall be confined solely to the item or items of property soacquired and, if required by the terms of the instrument originally creatingsuch Lien, other property which is an improvement to or is acquired for specificuse in connection with such acquired property, (ii) the Indebtedness secured byany such Lien is permitted under Section 6.01(f) or (g) and, in the case of anysuch Indebtedness incurred under Section 6.01(f), the total principal amountthereof is no greater than the excess, if any, of such amount over the aggregateamount of the unused Tranche B Revolving Credit Commitments on the date ofincurrence thereof, (iii) the principal amount of the Indebtedness secured byany such Lien shall at no time exceed an amount equal to the lesser of (A) thecost of such property to the Borrower or such Restricted Subsidiary, as the casemay be, and (B) the fair market value of such property (as determined in goodfaith by the General Partner) at the time of such acquisition by the Borrower orsuch Restricted Subsidiary, (iv) the aggregate principal amount of allIndebtedness secured by any such Liens shall at no time exceed $5,000,000 and(v) any such Lien shall not have been created or assumed in contemplation ofsuch acquisition of a Restricted Subsidiary or property by the Borrower or anyRestricted Subsidiary; (j) Liens in amounts not exceeding $100,000 incurred, required orprovided for under state law in connection with self-insurance arrangements; (k) Liens arising from or constituting encumbrances or exceptions totitle to the Assets expressly permitted by the Collateral Documents; 99 (l) Liens securing Capital Lease Obligations of the Borrower or anyother Restricted Subsidiary, including, without limitation, protective filings,provided that, (i) such Capital Lease Obligation is permitted under Section6.01, (ii) such Liens shall be created substantially simultaneously with thelease of fixed or capital assets, (iii) such Liens do not at any time encumberany property other than the property financed by such Indebtedness and (iv) the amount of Indebtedness secured thereby is not increased; and (m) any Lien renewing, extending or refunding any Lien permitted bythe foregoing paragraphs of this Section 6.02; provided that (i) theIndebtedness secured by any such Lien shall not exceed the amount of suchIndebtedness outstanding immediately prior to the renewal, extension orrefunding of such Lien, (ii) no Assets encumbered by any such Lien other thanthe Assets encumbered immediately prior to such renewal, extension or refundingshall be encumbered thereby, (iii) the Indebtedness secured by any such Lienshall not mature prior to the stated maturity of such Indebtedness outstandingimmediately prior to the renewal, extension or refunding of such Lien and (iv)the Indebtedness secured by any such Lien shall have an Average Life equal to orgreater than the remaining Average Life of such Indebtedness outstandingimmediately prior to the renewal, extension or refunding of such Lien. Section 6.03. Investments, Guaranties, etc. The Borrower will not, andwill not permit any Restricted Subsidiary to, directly or indirectly (a) make orown any Investment in any Person or (b) create or become liable with respect toany Guaranty, except: (i) the Borrower or any Restricted Subsidiary may make and own Investments in Cash Equivalents; (ii) the Borrower and any Restricted Subsidiary may make and own Investments in any Restricted Subsidiary or Investments in Capital Stock of any Person which simultaneously therewith becomes a Restricted Subsidiary; provided that (A) no Event of Default or Default has occurred and is continuing at the time of any such Investment or would occur immediately after giving effect thereto (on a pro forma basis as if such Investment had occurred on the first day of the applicable Reference Period for purposes of Section 6.29) and (B) in the case of any such Investment in any Person which simultaneously therewith becomes a Restricted Subsidiary, the Borrower shall have prepared and furnished to the Agents prior to the consummation of such Investment pro forma financial statements demonstrating to the satisfaction of the Agents that the covenant in Section 6.29 will not be violated after giving pro forma effect to such proposed Investment; (iii) any Restricted Subsidiary may make and permit to be outstanding Investments in the Borrower and may create or become liable with respect to any Guarantee in respect of the Facilities Obligations, the Mortgage Notes and the Parity Debt; (iv) (A) the Borrower or any Restricted Subsidiary may make and own Investments in the Capital Stock of, or contributions to capital in the ordinary course of business of, any Unrestricted Subsidiary or joint venture, except Petro Holdings and its subsidiaries, if immediately after giving effect to the making of any such Investment, the 100 aggregate amount of all such Investments made and outstanding pursuant to this paragraph (iv) shall not at any time exceed $5,000,000, net of cash distributions received from all Unrestricted Subsidiaries and joint ventures, excluding Petro Holdings, since the date hereof, and (B) Star/Petro may make and own Investments in Petro Holdings, but only with the proceeds of (x) borrowings constituting Star/Petro Intercompany Subordinated Debt or (y) capital contributions or equity investments indirectly made by the Public Partnership in Star/Petro on or after March 25, 1999; (v) the Borrower or any Restricted Subsidiary may make and own Investments (A) constituting trade credits or advances to any Person incurred in the ordinary course of business, (B) arising out of loans and advances to employees for travel, entertainment and relocation expenses, in each case incurred in the ordinary course of business or (C) acquired by reason of the exercise of customary creditors' rights upon default or pursuant to the bankruptcy, insolvency or reorganization of a debtor; (vi) the Borrower or any Restricted Subsidiary may create or become liable with respect to any Guaranty constituting an obligation, warranty or indemnity, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business; and (vii) the Borrower may create and become liable with respect to Hedging Agreements and Commodity Hedging Agreements. Section 6.04. Restricted Payments. (a) The Borrower will not directlyor indirectly declare, order, pay, make or set apart any sum for any RestrictedPayment, except that the Borrower may make, pay or set apart once during eachcalendar quarter a Restricted Payment if (i) such Restricted Payment is in anamount not exceeding Available Cash for the immediately preceding calendarquarter determined as of the last day of such calendar quarter or thereafter upto the date of declaration of such Restricted Payment, (ii) prior to andimmediately after giving effect to any such proposed action no condition orevent shall exist which constitutes an Event of Default or Default, (iii) theratio of Consolidated Cash Flow to Consolidated Interest Expense for theReference Period with respect to the date of such payment is greater than 1.75to 1.00 and (iv) the Borrower shall have delivered to the Lenders, not laterthan the date such Restricted Payment is declared (which declaration date shallbe at least ten days prior to the date such Restricted Payment is made) anOfficers' Certificate to the effect that such Restricted Payment is permittedunder this Section 6.04 and showing in reasonable detail all calculationsrequired in arriving at such conclusion, including the calculation of theaggregate amount available at the end of the preceding quarter for payment ofcash distributions in compliance with this Section 6.04; provided thatStar/Petro may prepay principal amounts outstanding under the Star/PetroIntercompany Subordinated Debt if and only if (x) the funds used for suchprepayment have been received by Star/Petro directly or indirectly as a capitalcontribution made by the Public Partnership or as a dividend from Petro Holdingson or after March 25, 1999 and (y) prior to and immediately after giving effectto any such prepayment no condition or event shall exist which constitutes anEvent of Default or Default. The Borrower will not, in any event, directly orindirectly declare, order, pay or make any Restricted Payment except for cashdistributions payable to the holders of its Capital Stock. The Borrower will notpermit any Subsidiary to declare, order, pay or make any Restricted Payment orto set apart any sum or property for any 101such purpose (except for Restricted Payments made solely to the Borrower or anyWholly Owned Restricted Subsidiary). (b) The Borrower may make, pay or set apart once within 45 days fromthe last day of each calendar quarter a Restricted Payment in an amount equal tothe Petro Holdings Dividends, if any, provided that the following conditions aremet: (i) such Restricted Payment is in an amount not exceeding the PetroHoldings Dividends less any amounts used to pay principal or interest on theStar/Petro Intercompany Subordinated Debt in accordance with this Agreement,(ii) prior to and immediately after giving effect to such proposed RestrictedPayment no condition or event shall exist which constitutes an Event of Defaultor Default under Section 7.01(b), (iii) prior to and immediately after givingeffect to such proposed Restricted Payment the ratio of Consolidated Cash Flowplus the Petro Holdings Dividends to Consolidated Interest Expense (excludingthe interest payable on the Star/Petro Intercompany Subordinated Debt, if any)for the Reference Period with respect to the date of such payment is greaterthan 1.75 to 1.00, and (iv) the Borrower shall have given to the Lenders writtennotice thereof on the date such Restricted Payment is declared, which date shallbe at least ten days prior to the date such Restricted Payment is made. (c) Notwithstanding any other provision of the Star/Petro IntercompanySubordinated Note, until all amounts due under the Notes, this Agreement andeach of the other Loan Documents have been paid in full, no principal orinterest payment on the Star/Petro Intercompany Subordinated Note may be made,except (A) if the proceeds used for such repayment have been received from theproceeds of capital contributions or equity investments indirectly made by thePublic Partnership in Star/Petro on or after March 25, 1999 or from the proceedsof dividends received from Petro Holdings, (B) with respect to a payment ofinterest on the Star/Petro Intercompany Subordinated Note, the ratio ofConsolidated Cash Flow to Consolidated Interest Expense is greater than 2.0 to1.0 for the four quarters ending on the calendar quarter immediately precedingsuch payment and (C) prior to and immediately after giving effect to any suchinterest or principal payment, no condition or event shall exist whichconstitutes an Event of Default or Default. Section 6.05. Transactions with Affiliates. Except for the transactions or conduct effected pursuant to the Operative Agreements as ineffect on the Closing Date, the Borrower will not, and will not permit anyRestricted Subsidiary to, directly or indirectly, engage in any transaction withany Affiliate of the Borrower, including the purchase, sale or exchange ofassets or the rendering of any service, except pursuant to the reasonablerequirements of the Borrower's or such Restricted Subsidiary's business and uponterms that are no less favorable to the Borrower or such Restricted Subsidiary,as the case may be, than those which might be obtained in an arm's-lengthtransaction at the time such transaction is agreed upon from Persons which arenot such an Affiliate; provided that the foregoing limitations and restrictionsshall not apply to any transaction between the Borrower and any RestrictedSubsidiary or between Restricted Subsidiaries. Section 6.06. Prohibited Stock and Indebtedness. The Borrower willnot: (a) directly or indirectly sell, assign, pledge or otherwise disposeof any Indebtedness or Capital Stock of (or warrants, rights or options toacquire Capital Stock of) any 102Subsidiary, except (i) to a Restricted Subsidiary, (ii) in the case of the saleof all the Capital Stock of a Restricted Subsidiary as an entirety, as permittedunder Section 6.07 or (iii) pursuant to the Collateral Documents; (b) permit any Restricted Subsidiary directly or indirectly to sell,assign, pledge or otherwise dispose of any Indebtedness of (i) the Borrower or(ii) any other Restricted Subsidiary, or any Capital Stock of (or warrants,rights or options to acquire Capital Stock of) any other Subsidiary, except (A)to, in the case of clause (i), the Borrower or, in all other cases, a RestrictedSubsidiary, (B) in the case of the sale of all the Capital Stock of a RestrictedSubsidiary as an entirety, as permitted under Section 6.07 and (C) pursuant tothe Collateral Documents; (c) permit any Restricted Subsidiary to have outstanding any PreferredStock (other than Preferred Stock owned by the Borrower); or (d) permit any Subsidiary directly or indirectly to issue or sell(including in connection with a merger or consolidation of a RestrictedSubsidiary otherwise permitted by Section 6.07(a)) any of its Capital Stock (orwarrants, rights or options to acquire its Capital Stock) except to the Borroweror a Restricted Subsidiary;provided that, any Restricted Subsidiary may sell, assign or otherwise disposeof Indebtedness of the Borrower if, assuming such Indebtedness were incurredimmediately after such sale, assignment or disposition, such Indebtedness wouldbe permitted under Section 6.01 (and, if such Indebtedness is secured, such Lienwould be permitted pursuant to Section 6.02). Section 6.07. Consolidation, Merger, Sale of Assets, etc. The Borrowerwill not, and will not permit any Restricted Subsidiary to, directly orindirectly: (a) consolidate with or merge into any other Person or permit anyother Person to consolidate with or merge into it; provided that any RestrictedSubsidiary may consolidate with or merge into the Borrower or a RestrictedSubsidiary if, in the case of a consolidation with or merger into the Borrower,the Borrower shall be the surviving Person and if, immediately after givingeffect to such transaction, no condition or event shall exist which constitutesan Event of Default or Default; (b) sell, lease, abandon or otherwise dispose of (i) all orsubstantially all its assets or (ii) all Capital Stock of any RestrictedSubsidiary as an entirety; provided that any Restricted Subsidiary may sell,lease or otherwise dispose of all or substantially all its assets to theBorrower or to a Restricted Subsidiary; or (c) sell, lease, abandon or otherwise dispose of any property to anyPerson other than the Borrower or any Restricted Subsidiary (except fordispositions of Inventory in the ordinary course of business); provided that theBorrower or any Restricted Subsidiary may engage in any such transactionreferred to in this paragraph (c), excluding any such transaction referred to in paragraph (a) or (b) above, if all of the following conditions are satisfied: (i) at least 80% of the consideration therefor shall be in the form of cash consideration; 103 (ii) immediately after giving effect to such proposed disposition no condition or event shall exist which constitutes an Event of Default or Default; (iii) either (A) the aggregate net proceeds of all property so disposed of (whether or not leased back) by the Borrower and all Restricted Subsidiaries during the current fiscal year (including property disposed of through dispositions of Capital Stock permitted under Section 6.06 or sales of assets permitted under Section 6.07(b) and including all proceeds under title insurance policies with respect to real property and all Net Insurance Proceeds, self-insurance amount and Net Awards (as defined in the Mortgage) with respect to property lost as a result of damage, destruction or a taking which have not been applied to the cost of Restoration (as defined in the Mortgage)), less the sum of (x) the amount of all such net proceeds previously applied in accordance with paragraph (iii)(B) of this Section 6.07(c) and (y) an amount equal to the purchase price of any assets acquired (so long as (1) such assets were acquired within 180 days prior to the date of such disposal of property, (2) the purchase price of such assets was not previously applied to reduce the amount of net proceeds of property disposed of under this Section 6.07(c), (3) such assets were acquired for subsequent replacement of the property so disposed of or may be productively used in the United States in the conduct of the Business, (4) such assets are subject to the Lien of the Collateral Documents, (5) if and to the extent that there were unused Tranche B Revolving Credit Commitments, the acquisition of such assets was not financed in whole or in part with the proceeds of Indebtedness (other than Tranche B Revolving Loans) and (6) to the extent such assets were acquired (in whole or in part) with the proceeds of Indebtedness, such Indebtedness has been repaid in full), when aggregated with such net proceeds of all prior transactions under this Section 6.07(c), shall not exceed $5,000,000; (B) in the event that such net proceeds less the sum of (x) the amount thereof previously applied in accordance with this paragraph (iii)(B) and (y) an amount equal to the purchase price of any assets acquired (so long as (1) such assets were acquired within 180 days prior to the date of such disposal of property, (2) the purchase price of such assets was not previously applied to reduce the amount of net proceeds of property disposed of under this Section 6.07(c), (3) such assets were acquired for subsequent replacement of the property so disposed of or may be productively used in the United States in the conduct of the Business, (4) such assets are subject to the Lien of the Collateral Documents, (5) if and to the extent that there were unused Tranche B Revolving Credit Commitments, the acquisition of such assets was not financed in whole or in part with the proceeds of Indebtedness (other than Tranche B Revolving Loans) and (6) to the extent such assets were acquired (in whole or in part) with the proceeds of Indebtedness, such Indebtedness has been repaid in full)), when aggregated with such net proceeds of all prior transactions under this Section 6.07(c), exceed $5,000,000 (the amount of such excess net proceeds actually realized being herein called "Excess Proceeds"), the Borrower shall 104 promptly pay over to the Trustee such Excess Proceeds not at the time held by the Trustee for application by the Trustee (I) within 180 days of the date of the disposal or loss of property, to the acquisition of assets in replacement of the property so disposed of or lost or of assets which may be productively used in the United States in the conduct of the Business (and such newly acquired assets shall be subjected to the Lien of the Collateral Documents) or to the cost of Restoration (as defined in the Mortgage), or (II) to the extent of Excess Proceeds not applied pursuant to the immediately preceding clause (I), to the payment and/or prepayment of the Facilities Obligations and Parity Debt, if any, pursuant to Section 2.11, all as provided in Section 4(d) of the Intercreditor Agreement and Section 2.11, and the Trustee shall have received an Officers' Certificate from the General Partner certifying that the consideration received for such property is at least equal to its fair value (as determined in good faith by the Board of Directors) and that such consideration has been applied in accordance with the terms of this Agreement; (iv) in the case of any sale, lease or other disposition of Collateral which includes real property (or any interest therein), or any sale, lease or other disposition of Collateral resulting in the aggregate net proceeds of all such sales, leases or other dispositions exceeding $10,000,000, the Trustee shall have received an Officers' Certificate from the General Partner certifying that such sale, lease or other disposition is in the best interest of the Borrower and will not have a Material Adverse Effect; and (v) in the case of any sale, lease or other disposition (or series of related sales, leases or dispositions) of Collateral involving aggregate net proceeds of $5,000,000 or more, the Borrower shall have prepared and furnished to the Agents prior to the consummation of such transaction pro forma financial statements demonstrating to the satisfaction of the Agents that, after giving effect to such transaction (on a pro forma basis as if such transaction had occurred on the first day of the applicable Reference Period), the Leverage Ratio as of the last day of such Reference Period equals no greater than 4.50 to 1.00.Notwithstanding the foregoing, the Borrower and any Restricted Subsidiary maysell or dispose of (x) real property assets sold or disposed of within 12 monthsof the acquisition of such assets and (y) all other assets sold or disposed ofwithin six months of the acquisition of such assets, in each case referred to inclause (x) or (y) constituting a portion of an acquired business; provided that(1) such assets are specifically designated to the Administrative Agent inwriting prior to such acquisition as assets to be disposed of, (2) theAdministrative Agent shall have received an Officers' Certificate from theGeneral Partner certifying that the consideration received for such property isat least equal to its fair market value (as determined in good faith by theGeneral Partner), (3) such acquisition was not financed in whole or in part withthe proceeds of Indebtedness (other than Tranche B Revolving Loans), (4) if suchacquisition was financed in whole or in part with Tranche B Revolving Loans, theproceeds of such disposition shall be applied to repay such Tranche B RevolvingLoans and (5) no Event of Default or Default shall have occurred and becontinuing. Such dispositions under this paragraph will not be applied towardsthe cumulative limitations in paragraph (c)(iii)(A) of this Section 6.07. TheLenders agree to take, at the expense of the Borrower, all actions necessary tocause dispositions of 105Collateral made in compliance with this Section 6.07 to be made free and clearof the liens created by the Collateral Documents. Section 6.08. Partnership or Corporate Existence etc.; Business. (a)(i) The Borrower will at all times preserve and keep in full force and effectits partnership existence and its status as a partnership not taxable as acorporation for Federal income tax purposes; (ii) the Borrower will cause eachRestricted Subsidiary to keep in full force and effect its partnership orcorporate existence; and (iii) the Borrower will, and will cause each RestrictedSubsidiary to, at all times preserve and keep in full force and effect all ofits material rights and franchises (in each case except as otherwisespecifically permitted in Section 6.06 and Section 6.07 and except that thepartnership or corporate existence of any Restricted Subsidiary, and any rightor franchise of the Borrower or any Restricted Subsidiary, may be terminated if,in the good faith judgment of the General Partner, such termination is in thebest interest of the Borrower, is not disadvantageous to the Lenders in anymaterial respect and would not have a Material Adverse Effect). (b) The Borrower will not, and will not permit any RestrictedSubsidiary to, engage in any material line of business substantially different than the wholesale and retail sale, distribution, and storage of propane gas andrelated petroleum derivative products (other than heating oil, diesel fuel andgasoline) and the provision of services to customers, and the related retailsale of supplies and equipment, including home appliances, in each case, asconducted on the Closing Date. (c) The Borrower will not, and will not permit any of its Affiliatesto, take any action or refuse to take any reasonable action the effect of which,if taken or not taken, as the case may be, would be to cause the PublicPartnership or the Borrower to be treated as an association taxable as acorporation or otherwise to be taxed as an entity other than a partnership forFederal income tax purposes. Section 6.09. Payment of Taxes and Claims. The Borrower will, and willcause each Subsidiary to, pay all taxes, assessments and other governmentalcharges or levies imposed upon it or any of its properties or assets or inrespect of any of its franchises, business, income or profits when the samebecome due and payable, but in any event before any penalty or interest accruesthereon, and all claims (including claims for labor, services, materials andsupplies) for sums which have become due and payable and which by law have ormight become a Lien upon any of its properties or assets, and promptly reimbursethe Agents, the Issuing Bank and the Lenders for any such taxes, assessments,charges or claims paid by them; provided that no such tax, assessment, charge orclaim need be paid or reimbursed if being contested in good faith by appropriateproceedings promptly initiated and diligently conducted and if such reserves orother appropriate provision, if any, as shall be required by GAAP shall havebeen made therefor and be adequate in the good faith judgment of the GeneralPartner. Section 6.10. Compliance with ERISA. The Borrower will not, and willnot permit any Subsidiary or Related Person of the Borrower to: (a) (i) engage in any transaction in connection with which theBorrower or any Related Person or Subsidiary could be subject to either a civilpenalty assessed pursuant to 106Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, (ii)terminate (within the meaning of Title IV of ERISA) or withdraw from any Plan inany manner, or take, or fail to take, any other action with respect to any Plan(including a substantial cessation of operations within the meaning of Section4062(e) of ERISA), (iii) establish, maintain, contribute to or become obligatedto contribute to any welfare benefit plan (as defined in Section 3(1) of ERISA)or other welfare benefit arrangement which provides post-employment benefits,which cannot be unilaterally terminated by the Borrower, (iv) fail to make fullpayment when due of all amounts which, under the provisions of any Plan orapplicable law, the Borrower or any Subsidiary or Related Person of the Borroweris required to pay as contributions thereto, result in the imposition of a Lienor permit to exist any material accumulated funding deficiency, whether or notwaived, with respect to any Plan or (v) engage in any transaction in connectionwith which the Borrower, any Subsidiary or any Related Person of the Borrowercould be subject to liability pursuant to Section 4069(a) or 4212(c) of ERISA,if, as a result of any such event, condition or transaction described in clauses(i) through (v) above, either individually or together with any other such eventor condition, could result in (x) the imposition of a Lien on any assets orproperty of the Borrower or any Related Person or (y) any liability to theBorrower, any Subsidiary or any Related Person of the Borrower, which liabilitycould have a Material Adverse Effect; or (b) as of any date of determination (i) permit the amount of unfundedbenefit liabilities under any Plan to exceed the current value of the assets ofany such Plan by more than $250,000 or (ii) permit the aggregate liabilityincurred by the Borrower and any Subsidiary and Related Persons of the Borrowerpursuant to Title IV of ERISA with respect to one or more terminations of, orone or more complete or partial withdrawals from, any Plan to exceed $250,000.As used in this Section 6.10, the term "accumulated funding deficiency" has themeaning specified in Section 302 of ERISA and Section 412 of the Code, the term"current value" has the meaning specified in Section 3 of ERISA and the terms"benefit liabilities" and "amount of unfunded benefit liabilities" have themeanings specified in Section 4001 of ERISA. Section 6.11. Maintenance of Properties; Insurance. (a) The Borrowerwill maintain or cause to be maintained in working order and condition, inaccordance with normal industry standards, all material properties used oruseful in the business of the Borrower and the Restricted Subsidiaries and fromtime to time will make or cause to be made all appropriate repairs, renewals andreplacements thereof. (b) The Borrower will, and will cause each of the RestrictedSubsidiaries to, keep its insurable properties adequately insured at all timesby Permitted Insurers; maintain such other insurance, to such extent and againstsuch risks, including fire and other risks insured against by extended coverage,as is customary with companies in the same or similar businesses, includingpublic liability insurance against claims for personal injury or death orproperty damage occurring upon, in, about or in connection with the use of anyproperties owned, occupied or controlled by it; maintain such other insurance asmay be required by law or any Collateral Document; and cause each such insurancepolicy to name the Trustee, on behalf of the Secured Parties, as an additionalinsured or loss payee thereunder. The Borrower will permit the Agents and aninsurance consultant retained by the Agents, at the expense of the Borrower, to 107review the insurance policies maintained by the Borrower on an annual basis andwill implement any changes to such policies reasonably recommended by suchconsultant. Section 6.12. Operative Agreements; Collateral Documents. The Borrowerwill, and will cause each Restricted Subsidiary to, perform and comply with allof its obligations under each of the Operative Agreements to which it is aparty, will enforce each such Operative Agreement against each other partythereto and will not accept the termination of any such Operative Agreement,unless the taking of or omitting to take any such action would not have aMaterial Adverse Effect and would not be disadvantageous in any material respectto the Lenders. The Borrower will not, and will not permit any other Loan Partyto, amend, modify or supplement any Operative Agreement or its partnershipagreement, certificate of incorporation or by-laws without the prior writtenconsent of the Required Lenders; provided that (i) the MLP Agreement and thePartnership Agreement may be amended, modified or supplemented without the priorwritten consent of the Required Lenders if such amendment, modification orsupplement would not have a Material Adverse Effect and the Borrower shall havedelivered to each Lender a copy of such proposed amendment, modification orsupplement together with an Officer's Certificate describing such proposedamendment, modification or supplement and confirming that such proposedamendment, modification or supplement would not have a Material Adverse Effectand (ii) the Note Agreements may be amended, modified or supplemented withoutthe prior written consent of the Required Lenders if such amendment,modification or supplement may be made without the written consent of anyLenders under the Intercreditor Agreement. The Borrower will not, and will notcause or permit any of the Restricted Subsidiaries to, enter into any MaterialContract, or any amendment, modification or waiver in respect of any term orcondition of any Material Contract, other than any such contract or any suchamendments, modifications and waivers in respect thereof which could notreasonably be expected to have a Material Adverse Effect. Section 6.13. Chief Executive Office. The Borrower will not move itschief executive office and the office at which it maintains its records relatingto the transactions contemplated by this Agreement and the Collateral Documentsor change its state of incorporation unless (a) not less than 45 days' priorwritten notice of its intention to do so, clearly describing the new location orstate, shall have been given to the Trustee and each Lender and (b) such action,reasonably satisfactory to the Trustee and each Lender, to maintain any securityinterest in the property subject to the Collateral Documents at all times fullyperfected and in full force and effect shall have been taken. Section 6.14. Covenant to Secure Notes Equally. The Borrower covenantsthat, if it or any Restricted Subsidiary shall create or assume any Lien uponany of its property or assets, whether now owned or hereafter acquired, otherthan Liens permitted by the provisions of Section 6.02 (unless prior writtenconsent to the creation or assumption thereof shall have been obtained from theRequired Lenders), it will make or cause to be made effective provision wherebythe Facilities Obligations will be secured by such Lien equally and ratably withany and all other Indebtedness thereby secured so long as any such otherIndebtedness shall be so secured; provided, however, that the provision of such equal and ratable security shall not constitute a cure or waiver of any relatedEvent of Default. 108 Section 6.15. Compliance with Laws. (a) The Borrower will, and willcause each Subsidiary to, comply with all applicable statutes, rules,regulations, and orders of, and all applicable restrictions imposed by, theUnited States of America, foreign countries, states, provinces andmunicipalities, and of or by any Governmental Authority, including any court,arbitrator or grand jury, in respect of the conduct of their respectivebusinesses and the ownership of their respective properties or business, exceptsuch as are being contested in good faith by appropriate proceedings promptlyinitiated and diligently conducted and if such reserve or other appropriateprovision, if any, as shall be required by GAAP shall have been made therefor orthe failure to so comply could not reasonably be expected to have a MaterialAdverse Effect. (b) The Borrower will, and will cause each Restricted Subsidiary to,comply with all Environmental Laws, other than noncompliance which could notreasonably be expected to result in a Material Adverse Effect, individually orin the aggregate with any other liability under any Environmental Laws. (c) The Borrower will, and will cause each Restricted Subsidiary to,promptly give notice to the Administrative Agent upon becoming aware of (i) anyviolation of or notice of potential liability under any Environmental Law or(ii) any release or threatened release of any Hazardous Material at, on, into,under or from any real property of any facility or equipment thereat in excessof reportable or allowable standards or levels under any Environmental Law, orin a manner and/or amount which could reasonably be expected to result inliability under any Environmental Law, which liability would result in aMaterial Adverse Effect. (d) The Borrower will, and will cause each Restricted Subsidiary to,promptly provide the Administrative Agent with copies of any notice, submissionor documentation provided by the Borrower or any Restricted Subsidiary to theGovernmental Authority or third party under any Environmental Law if the matterwhich is the subject of the notice, submission or other documentation couldreasonably be expected to have a Material Adverse Effect. Such notice,submission or documentation shall be provided to the Administrative Agentpromptly and, in any event, within 30 days after such material is provided tothe Governmental Authority or third party. Section 6.16. Further Assurances. (a) At any time and from time totime promptly, the Borrower shall, at its expense, execute and deliver to eachLender and to the Trustee such further instruments and documents, and take suchfurther action, as may be required under applicable law or as the Lenders mayfrom time to time reasonably request, in order to further carry out the intentand purpose of this Agreement and to establish and protect the rights, interestsand remedies created, or intended to be created, in favor of the Lenders. (b) Without limitation of Section 6.16(a), the Borrower will, and willcause the Subsidiaries to, perform any and all acts and execute any and alldocuments (including the execution, amendment, supplementation, delivery andrecordation and filing of security agreements and financing statements andcontinuation statements under the Uniform Commercial Code of any applicablejurisdiction) for filing under the provisions of the Uniform Commercial Code andthe rules and regulations thereunder, or any other statute, rule or regulationof any applicable foreign, Federal, state or local jurisdictions, including anyfilings in 109the United States Patent and Trademark Office or similar foreign office, whichare necessary (or reasonably requested by the Agents), from time to time, inorder to grant and maintain in favor of the Trustee for the ratable benefit ofthe Secured Parties a security interest in each item of the Collateral of thetype and priority described in the relevant Collateral Document, perfected tothe extent contemplated hereby and thereby. (c) Without limitation of Section 6.16(a), the Borrower will, and will cause the Subsidiaries to, deliver or cause to be delivered to the Lenders fromtime to time such other documentation, consents, authorizations, approvals andorders in form and substance satisfactory to the Agents, as the Agents shalldeem reasonably necessary or advisable to perfect or maintain the Liens for thebenefit of the Secured Parties, including assets which are required to becomeCollateral after the Closing Date. Section 6.17. Subsidiaries. (a) The Borrower may designate anyRestricted Subsidiary or newly acquired or formed Wholly Owned Subsidiarysatisfying the requirements in clauses (a), (b) and (c) of the definition ofRestricted Subsidiary as an Unrestricted Subsidiary or any UnrestrictedSubsidiary or newly acquired or formed Subsidiary as a Restricted Subsidiary, ineach case subject to satisfaction of the following conditions: (i) immediately before and after giving effect to such designation no condition or event shall exist which constitutes an Event of Default or Default; (ii) immediately after giving effect to such designation, (A) except in the case of a designation as a Restricted Subsidiary of an Unrestricted Subsidiary that does not have any Indebtedness and that has positive Consolidated Cash Flow for the most recent Reference Period, the Borrower would be permitted to incur at least $l.00 of additional Indebtedness in compliance with paragraphs (i) and (ii) of Section 6.01(f), (B) the Borrower and the Restricted Subsidiary would not be liable with respect to Indebtedness or any Guarantee, would not own any Investment and their property would not be subject to any Lien which is not permitted by this Agreement and (C) substantially all of the Borrower's assets will be located, and substantially all of the Borrower's business will be conducted, in the United States; (iii) in the case of a designation as an Unrestricted Subsidiary, (A) if such designation (and all other prior designations of Restricted Subsidiaries or newly acquired or formed Subsidiaries as Unrestricted Subsidiaries during the current fiscal year) were deemed to constitute a sale by the Borrower of all the assets of the Subsidiary so designated, such sale would be in compliance with paragraph (iii)(A) of Section 6.07(c) and (B) if such designation (and all other prior designations of Restricted Subsidiaries or newly acquired or formed Subsidiaries as Unrestricted Subsidiaries during the current fiscal year) were deemed to constitute an Investment by the Borrower in respect of all the assets of the Subsidiary so designated, such Investment would be in compliance with clause (iv) of Section 6.03, in each case with the net proceeds of such sale or the amount of such Investment being deemed to equal the net book value of such assets in the case of a Restricted Subsidiary or the cost of acquisition or formation in the case of a newly acquired or formed Subsidiary; provided that this subdivision (iii) of this Section 6.17(a) shall not apply to an acquisition or formation by the Borrower or a Restricted Subsidiary 110 of a newly acquired or formed Unrestricted Subsidiary to the extent such acquisition or formation is funded solely by the net cash proceeds received by the Borrower from the General Partner or from the Public Partnership as a capital contribution or as consideration for the issuance by the Public Partnership of additional limited partnership interests; (iv) in the case of a designation of a Restricted Subsidiary as an Unrestricted Subsidiary, such Restricted Subsidiary shall not have been an Unrestricted Subsidiary prior to being designated a Restricted Subsidiary; (v) in the case of a designation of an Unrestricted Subsidiary as a Restricted Subsidiary, such Unrestricted Subsidiary at the time of such designation has a positive consolidated net worth; (vi) the Borrower shall deliver to each Lender, within five Business Days after any such designation, an Officers' Certificate stating the effective date of such designation and confirming compliance with the provisions of this Section 6.17; (vii) in the case of the designation of any Unrestricted Subsidiary as a Restricted Subsidiary, such new Restricted Subsidiary shall be deemed to have (A) made or acquired all Investments owned by it and (B) incurred all Indebtedness owing by it and all Liens to which it or any of its properties are subject, on the date of such designation; (viii) the Borrower shall designate Star/Petro as a Restricted Subsidiary and, notwithstanding any other provision of this Section 6.17(a), shall not change such designation without the consent of the Required Lenders; and (ix) the Borrower shall designate Petro Holdings as an Unrestricted Subsidiary and, notwithstanding any other provision of this Section 6.17(a), shall not change such designation without the consent of the Required Lenders. (b) The Borrower will cause each Restricted Subsidiary, at the time itis or is deemed to be designated as a Restricted Subsidiary, to execute anddeliver a Supplemental Agreement and satisfy all terms therein. (c) The Borrower will not own any Subsidiaries other than Wholly OwnedSubsidiaries satisfying the requirements in clauses (a), (b) and (c) of thedefinition of Restricted Subsidiary. Section 6.18. Use of Proceeds. The Borrower will use the proceeds ofthe Loans and will use the Letters of Credit only for the purposes set forth inSection 3.13. Section 6.19. Accounting Changes. The Borrower will not, and will notsuffer or permit any Restricted Subsidiary to, make any significant change inaccounting treatment or reporting practices, except as required by GAAP. TheBorrower will, and will cause each Restricted Subsidiary to, cause its fiscalyear to end on September 30 in each year. 111 Section 6.20. Certain Real Property. Without affecting the obligationsof the Borrower or any of the Restricted Subsidiaries under any of theCollateral Documents, in the event that the Borrower or any RestrictedSubsidiary, at any time after the date hereof, whether directly or indirectly,acquires any interest in any real property, including any fee or other ownershipinterest in one or more properties with an aggregate cost in excess of $50,000,or any interest under one or more leases of real property for a term in excessof three years and involving aggregate average payments in excess of $100,000per annum (each such interest, an "After Acquired Property"), the Borrower will,or will cause such Restricted Subsidiary to, as soon as practical providewritten notice thereof to the Administrative Agent, setting forth withspecificity a description of such After Acquired Property, the location of suchAfter Acquired Property, any structures or improvements thereon and an appraisalor its good-faith estimate of the current value of such real property ("CurrentValue"). The Administrative Agent shall provide notice to the Borrower ofwhether the Required Lenders intend to cause the Borrower to grant and record aMortgage on such After Acquired Property; provided that no new mortgage on suchAfter Acquired Property shall be required if the costs that would be incurred asa result thereof are excessive in relation to the benefits conferred thereby inthe reasonable judgment of the Administrative Agent and the Required Lenders;provided, further, that the amount secured by a new mortgage on After AcquiredProperty located in the State of New York or the State of Florida shall notexceed 125% of the purchase price of such After Acquired Property. In suchevent, the Borrower or such Restricted Subsidiary shall execute and deliver tothe Administrative Agent a Mortgage, together with such of the documents orinstruments referred to in Section 4.01(g) and Section 4.01(h) as the Agentsshall require. If, at any time, the aggregate cost to the Borrower and itsRestricted Subsidiaries of each interest in real property (x) acquired by theBorrower or any Restricted Subsidiary, whether directly or indirectly, at anytime after the Closing Date, at a cost equal to or less than $50,000, (y) atsuch time, owned directly or indirectly by the Borrower or any RestrictedSubsidiary and (z) for which a mortgage in favor of the Trustee is not in effect(the "Aggregate Cost of Unmortgaged Property"), exceeds $500,000, the Borrowerwill as soon as practical, and in any event within ten Business Days, providewritten notice thereof to the Administrative Agent, setting forth withspecificity a description of each such interest in real property, the locationof such real property and an appraisal or its good-faith estimate of the currentvalue of each such real property. The Administrative Agent may require theBorrower or the applicable Restricted Subsidiary to grant and record a mortgagein favor of the Trustee on one or more of such real properties so that the Aggregate Cost of Unmortgaged Property does not exceed $500,000, provided thatno new mortgage on any such real property shall be required if the costs thatwould be incurred as a result thereof are excessive in relation to the benefitthat would be conferred thereby. In the event a mortgage is required, theBorrower or such Restricted Subsidiary shall execute and deliver to the Trusteea mortgage, together with such documents or instruments as the AdministrativeAgent shall require. In no event shall the title insurance policy for any suchAfter Acquired Property be in an amount which is less than the Current Value ofsuch After Acquired Property. Further, with regard to any interest in realproperty, including any fee or other ownership interest in real property or anymaterial lease of real property, currently owned or held by the Borrower or anyRestricted Subsidiary and which is not being encumbered by a Mortgage of evendate herewith (each such interest, an "Existing Unmortgaged Property"), upon thewritten request of the Required Lenders, the Borrower will, or will cause anyapplicable Restricted Subsidiary to, execute and deliver to the AdministrativeAgent a Mortgage, together with such of the documents or 112instruments referred to in Section 4.01(g) and Section 4.01(h) as the Agentsshall require. In no event shall the title insurance policy for any suchExisting Unmortgaged Property be in an amount which is less than the CurrentValue of such Existing Unmortgaged Property. The Borrower shall pay all fees andexpenses, including reasonable attorneys' fees and expenses and expenses of anycustomary environmental due diligence, and all title insurance charges andpremiums, in connection with the obligations of the Borrower and the RestrictedSubsidiaries under this Section 6.20. Section 6.21. Sale and Lease-Back Transactions. The Borrower will not,and will not cause or permit any of the Restricted Subsidiaries to, enter intoany arrangement, directly or indirectly, with any Person whereby it shall sellor transfer any property, real or personal, used or useful in its business,whether now owned or hereafter acquired, with an intent to rent or lease suchproperty or other property which it intends to use for substantially the samepurpose or purposes as the property being sold or transferred. Section 6.22. Acquisitions. The Borrower will not, and will not causeor permit any of the Restricted Subsidiaries to, purchase, lease or otherwiseacquire (in one transaction or a series of transactions) all or any substantialpart of the assets of any other Person, except that (a) the Borrower and any ofthe Restricted Subsidiaries may purchase inventory in the ordinary course ofbusiness and (b) the Borrower or any Restricted Subsidiary may engage in anysuch acquisition if no Event of Default or Default has occurred and iscontinuing at the time of any such acquisition or would occur immediately aftergiving effect thereto (on a pro forma basis as if such acquisition had occurredon the first day of the applicable Reference Period for purposes of Section6.29). Section 6.23. Impairment of Security Interests. The Borrower will not,and will not permit any of the Subsidiaries to, take or omit to take any action,which action or omission might or would have the result of materially impairingthe security interests in favor of the Trustee on behalf of the Secured Partieswith respect to the Collateral, and the Borrower will not, and will not permitany of the Subsidiaries to, grant to any Person (other than the Trustee onbehalf of the Secured Parties) any interest whatsoever in the Collateral. Section 6.24. Limitation on Restrictions on Subsidiary Dividends, etc.The Borrower will not, and will not cause or permit any of the RestrictedSubsidiaries to, directly or indirectly, create or otherwise cause or suffer toexist or become effective any consensual encumbrance or restriction on theability of any Restricted Subsidiary to (a) pay dividends or make any otherdistributions on or in respect of its Capital Stock, or pay any indebtednessowed to the Borrower or any Restricted Subsidiary, (b) make loans or advances tothe Borrower or any Restricted Subsidiary or (c) transfer any of its propertiesor assets to the Borrower or any Restricted Subsidiary, except for suchencumbrances or restrictions existing under or by reason of (i) customarynon-assignment provisions in any lease governing a leasehold interest or othercontract entered into in the ordinary course of business consistent with pastpractices or (ii) this Agreement, the other Loan Documents and the NoteAgreements. Section 6.25. No Other Negative Pledges. The Borrower will not, andwill not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, enter into any agreement prohibiting the creation or assumption ofany Lien upon the properties or assets of the 113Borrower or any Restricted Subsidiary, whether now owned or hereafter acquired,or requiring an obligation to be secured if some other obligation is secured,except for this Agreement and the Parity Debt Credit Agreement and the NoteAgreements. Section 6.26. Sales of Receivables. The Borrower will not, and willnot cause or permit any of the Restricted Subsidiaries to, sell with recourse,discount or otherwise sell or dispose of its notes or accounts receivable,except for accounts receivable consisting of assets of an operating unit sold asa going concern in accordance with all other provisions of this Agreement. Section 6.27. Fixed Price Supply Contracts; Certain Policies. (a) TheBorrower will not, and will not permit any of the Restricted Subsidiaries to, atany time be a party or subject to any contract for the purchase or supply bysuch parties of propane or other product except where (i) the purchase price isset with reference to a spot index or indices substantially contemporaneouslywith the delivery of such product or (ii) delivery of such propane or otherproduct is to be made no more than one year after the purchase price is agreedto. (b) The Borrower will not amend, modify or waive the trading policy orsupply inventory position policy referred to in Section 3.29, except that theBorrower may enter into Commodity Hedging Agreements as permitted under theother provisions hereof. The Borrower will provide the Agents and the Lenderswith prompt written notice of any such new Commodity Hedging Agreement. Subjectto the foregoing exception, the Borrower and the Restricted Subsidiaries willcomply in all material respects with such policies at all times. Section 6.28. Certain Operations. The Borrower shall not permit Petroor any of its Affiliates (other than the Borrower and the RestrictedSubsidiaries) to acquire a business which derives any revenues from the sale ofpropane if, after giving effect to such acquisition, Petro's Pro Forma PropaneVolumes would equal or exceed the lesser of (a) 15% of the Borrower's reportedpropane volumes sold for the most recently completed four fiscal quarters whichended at least 90 days prior to the date of such acquisition and (b) 15 milliongallons of propane (such lesser amount, the "maximum permitted amount"). If as aresult of an acquisition, Petro's Pro Forma Propane Volumes exceeds the maximumpermitted amount, the Borrower shall not be in violation of this Section 6.28 ifwithin the period of 90 days following such acquisition the Borrower causesPetro to complete the disposition of sufficient propane volume to reduce Petro'sPro Forma Propane Volumes below the maximum permitted amount. For purposes ofthis Section 6.28, "Petro's Pro Forma Propane Volumes" shall mean the actualpropane volumes sold by Petro and any of its Affiliates (other than the Borrowerand the Restricted Subsidiaries) for the most recently completed four fiscalquarters which ended at least 90 days prior to the date of determination plusthe propane volumes sold of the propane business to be acquired for the mostrecently completed four fiscal quarters which ended at least 90 days prior tothe date of determination. In addition, in the event Petro or any of itsAffiliates (other than the Borrower and the Restricted Subsidiaries) owns apropane business, the Borrower shall not permit Petro or any such Affiliate toaccept as a customer (except for de minimis, unintentional and isolatedacceptances) any Person who is (or was during the last billing cycle of theBorrower and the Restricted Subsidiaries) a customer of the Borrower and theRestricted Subsidiaries. 114 Section 6.29. Funded Debt to Cash Flow. (a) The Borrower will notpermit the ratio on the last day of the Reference Period (the "date ofdetermination") of (i) Total Funded Debt as of such date of determination to(ii) Consolidated Cash Flow for such Reference Period to be greater than 4.50 to1.00. (b) Notwithstanding the foregoing, the Borrower shall not be requiredto comply with the foregoing covenant on any date of determination when (aftergiving effect to any borrowings, repayments or other credit events on such day) there are no outstanding Tranche B Revolving Loans or Tranche B Term Loans andthere is no outstanding Tranche B Letter of Credit Exposure. Furthermore, forpurposes of (i) this Section 6.29 only, but not (except as otherwise expresslyprovided in clause (ii) below) for purposes of determining the Applicable Marginor any other purpose and (ii) calculating the Leverage Ratio as required bySection 4.03(a), Consolidated Cash Flow for the Reference Period shall mean thegreater of (A) Consolidated Cash Flow for the most recent period of fourconsecutive fiscal quarters prior to the date of determination and (B) 50% ofConsolidated Cash Flow for the most recent period of eight consecutive fiscalquarters prior to the date of determination. In addition, it is understood andagreed that, when and to the extent that another provision of this Agreementexpressly provides otherwise, the Borrower shall not be required to calculateConsolidated Cash Flow on a pro forma basis as of any date of determinationother than the last day of each fiscal quarter of the Borrower. Section 6.30. Independent Corporate Existence. (a) Except as set forthon Schedule 6.30, (a) the Borrower shall maintain, and shall cause each of itsSubsidiaries (other than Petro Holdings or its Subsidiaries) to maintain, books,records and accounts that are separate from the books, records and accounts ofPetro or any of its Subsidiaries such that: (i) the revenues of the Borrower andits Subsidiaries will be credited to the accounts of the Borrower and itsSubsidiaries only; (ii) all expenses incurred by the Borrower and itsSubsidiaries shall be paid only from the accounts of the Borrower and itsSubsidiaries (other than those paid by Petro and allocated to the Borrower inthe manner set forth in clause (c) of this Section); (iii) only officers andemployees of the General Partner, the Borrower and its Subsidiaries in theircapacity as such shall have the authority to make disbursements with respect tothe accounts of the Borrower and its Subsidiaries; (iv) there shall occur nosharing of accounts or funds between the Borrower and its Subsidiaries, on theone hand, and Petro or any of its Subsidiaries (other than the Borrower and itsSubsidiaries), on the other hand; and (v) all cash and funds of the Borrower andits Subsidiaries shall be managed separately from the cash and funds of Petro orany of its Subsidiaries (other than the Borrower and its Subsidiaries), andthere shall not occur any commingling, including for investment purposes, offunds or assets of the Borrower and its Subsidiaries with the funds or assets ofPetro or any of its Subsidiaries. (b) All full-time employees, consultants and agents of the Borrowerand its Subsidiaries (other than Petro Holdings or its Subsidiaries) shall becompensated directly from the bank accounts of the General Partner, the Borrowerand such Subsidiaries (other than Petro Holdings or its Subsidiaries) forservices provided by such employees, consultants and agents and, to the extentany employee, consultant or agent is also an employee, consultant or agent ofPetro or any of its Subsidiaries, the compensation of such employee, consultantor agent shall be allocated in accordance with clause (c) of this Section amongthe Borrower and its Subsidiaries, on the one hand, and Petro and any of itsSubsidiaries, on the other hand, on a basis which 115reasonably reflects the services rendered to the Borrower and its Subsidiaries(other than Petro Holdings or its Subsidiaries). (c) All overhead expenses (including telephone and other utilitycharges) for items shared by the Borrower and its Subsidiaries, on the one hand,and Petro or any of its Subsidiaries (other than Petro Holdings or itsSubsidiaries), on the other hand, shall be allocated on the basis of actual useto the extent practicable and, to the extent such allocation is not practicable,on a basis reasonably related to actual use. (d) The Borrower shall not permit Petro or any of its Subsidiaries tobe named as a loss payee or additional insured on the insurance policy coveringthe property of the Borrower or any of its Subsidiaries (other than PetroHoldings or its Subsidiaries), or enter into an agreement with the holder ofsuch policy whereby in the event of a loss in connection with such property,proceeds are paid to Petro and its Subsidiaries. ARTICLE VII EVENTS OF DEFAULT Section 7.01. Events of Default. In case of the happening of any ofthe following events ("Events of Default"): (a) default shall be made in the payment of any principal of any Loanor any reimbursement obligation in respect of a Letter of Credit when and as thesame shall become due and payable, whether at the due date thereof or at a datefixed for prepayment thereof or by acceleration thereof or otherwise; (b) default shall be made in the payment of any interest on any Loanor any Fee or any other amount (other than an amount referred to in paragraph(a) above) due under any Loan Document, when and as the same shall become dueand payable, and such default shall continue unremedied for a period of fiveBusiness Days; (c) default shall be made in the due observance or performance by theBorrower or any Subsidiary of any covenant, condition or agreement contained inSection 5.02(h) or any of Section 6.01 through Section 6.08, inclusive, Section6.10, Section 6.11 (other than the failure to deliver any broker report on atimely basis as required by Section 15.3 of the Mortgage) and Section 6.17through Section 6.29, inclusive, of this Agreement or in Section 4.21 or 4.23 ofthe Borrower Security Agreement; (d) default shall be made in the due observance or performance by theBorrower or any other Loan Party of any covenant, condition or agreementcontained in any Loan Document (other than those specified in paragraph (a), (b)or (c) above) and such default shall continue unremedied for a period of 30 daysafter such default shall first have become known to any officer of any LoanParty or written notice thereof shall have been received by the Borrower fromthe Administrative Agent or any Lender; (e) any representation or warranty made in writing or deemed made byor on behalf of the Borrower or any of its Affiliates in this Agreement or anyother Operative 116Agreement shall prove to have been false or incorrect in any material respect onthe date as of which made or deemed made; (f) the Borrower or any Restricted Subsidiary (as principal orguarantor or other surety) shall default in the payment of any amount ofprincipal of or premium or interest on Indebtedness which is outstanding in aprincipal amount of at least $2,000,000 in the aggregate (other than theFacilities Obligations) or on the Mortgage Notes; or any event shall occur orcondition shall exist in respect of any Indebtedness which is outstanding in aprincipal amount of at least $2,000,000 or the Mortgage Notes under any evidenceof any such Indebtedness or the Mortgage Notes or of any mortgage, indenture orother agreement relating to such Indebtedness or the Mortgage Notes, the effectof which is to cause (or to permit one or more Persons to cause) suchIndebtedness or the Mortgage Notes to become due before its stated maturity orbefore its regularly scheduled dates of payment or to permit the holders of suchIndebtedness or the Mortgage Notes to cause the Borrower or any RestrictedSubsidiary to repurchase or repay such Indebtedness or the Mortgage Notes, andsuch default, event or condition shall continue for more than the period ofgrace, if any, specified therein and shall not have been waived pursuantthereto; (g) filing by or on the behalf of the Borrower or the General Partnerof a voluntary petition or an answer seeking reorganization, arrangement,readjustment of its debts or for any other relief under any bankruptcy,reorganization, compromise, arrangement, insolvency, readjustment of debt,dissolution or liquidation or similar act or law, state or Federal, now orhereafter existing ("Bankruptcy Law"), or any action by the Borrower or theGeneral Partner for, or consent or acquiescence to, the appointment of areceiver, trustee or other custodian of the Borrower, or the General Partner, orof all or a substantial part of its property; or the making by the Borrower orthe General Partner of any assignment for the benefit of creditors; or theadmission by the Borrower or the General Partner in writing of its inability topay its debts as they become due; (h) filing of any involuntary petition against the Borrower or theGeneral Partner in bankruptcy or seeking reorganization, arrangement,readjustment of its debts or for any other relief under any Bankruptcy Law andan order for relief by a court having jurisdiction in the premises shall havebeen issued or entered therein; or any other similar relief shall be granted under any applicable Federal or state law; or a decree or order of a court ofcompetent jurisdiction for the appointment of a receiver, liquidator,sequestrator, trustee or other officer having similar powers over the Borroweror the General Partner or over all or a part of its property shall have beenentered; or the involuntary appointment of an interim receiver, trustee or othercustodian of the Borrower or the General Partner or of all or a substantial partof its property; or the issuance of a warrant of attachment, execution orsimilar process against any substantial part of the property of the Borrower orthe General Partner; and continuance of any such event for 60 consecutive daysunless dismissed, bonded to the satisfaction of the court of competentjurisdiction or discharged; (i) filing by or on the behalf of any Restricted Subsidiary of avoluntary petition or an answer seeking reorganization, arrangement,readjustment of its debts or for any other relief under any Bankruptcy Law, orany action by any Restricted Subsidiary for, or consent or acquiescence to, theappointment of a receiver, trustee or other custodian of such 117Restricted Subsidiary or of all or a substantial part of its property; or themaking by any Restricted Subsidiary of any assignment for the benefit ofcreditors; or the admission by any Restricted Subsidiary in writing of itsinability to pay its debts as they become due; (j) filing of any involuntary petition against any RestrictedSubsidiary in bankruptcy or seeking reorganization, arrangement, readjustment ofits debts or for any other relief under any Bankruptcy Law and an order forrelief by a court of competent jurisdiction shall have been issued or enteredtherein; or any other similar relief shall be granted under any applicableFederal or state law; or a decree or order of a court having jurisdiction in thepremises for the appointment of a receiver, liquidator, sequestrator, trustee orother officer having similar powers over any Restricted Subsidiary or over allor a part of its property shall have been entered; or the involuntaryappointment of an interim receiver, trustee or other custodian of any RestrictedSubsidiary or of all or a substantial part of its property; or the issuance of awarrant of attachment, execution or similar process against any substantial partof the property of any Restricted Subsidiary; and continuance of any such eventfor 60 consecutive days unless dismissed, bonded to the satisfaction of thecourt of competent jurisdiction or discharged; (k) a final judgment or judgments (which is or are non-appealable orwhich has or have not been stayed pending appeal or as to which all rights toappeal have expired or been exhausted) shall be rendered against the Borrower orany Restricted Subsidiary for the payment of money in excess of $500,000 in theaggregate and any one of such judgments shall not be discharged or executionthereon stayed pending appeal within 45 days after the date due, or, in theevent of such a stay, such judgment shall not be discharged within 30 days aftersuch stay expires, or any action shall be legally taken by a judgment creditorto levy upon assets or properties of the Borrower or any Restricted Subsidiaryto enforce any such judgment; (l) any of the Loan Documents or other Operative Agreements shall atany time, for any reason, cease to be in full force and effect or shall bedeclared to be null and void in whole or in any material part by the finaljudgment (which is non-appealable or has not been stayed pending appeal or as towhich all rights to appeal have expired or been exhausted) of any court or othergovernmental or regulatory authority having jurisdiction in respect thereof, orthe validity or the enforceability of any of the Loan Documents or otherOperative Agreements shall be contested by or on behalf of the Borrower or anyother Loan Party, or the Borrower or any other Loan Party shall renounce any ofthe Loan Documents or other Operative Agreements, or deny that it is bound bythe terms of any of the Loan Documents or other Operative Agreements; (m) any Lien purported to be created by any Collateral Document shallcease to be, or shall for any reason be asserted by the Borrower or any otherLoan Party not to be, a valid, perfected, first priority Lien on the securities,properties or assets covered thereby, other than as a result of an act oromission of any Agent or Lender; (n) any order, judgment or decree is entered in any proceedingsagainst the Borrower decreeing a split-up of the Borrower which requires thedivestiture of assets of the Borrower or the divestiture of the stock of a Restricted Subsidiary which would not be permitted if such divestiture wereconsidered a partial disposition of assets pursuant to Section 6.07(c) and suchorder, judgment or decree shall not be dismissed or execution thereon stayedpending appeal; 118 (o) there shall occur at any time a change in Legal Requirementsspecifically applicable to the Borrower or to the Business or to the business ofthe wholesale and retail sale, distribution and storage of propane gas andrelated petroleum derivative products and the related retail sale of suppliesand equipment, including home appliances which would have a Material AdverseEffect and 60 days after the earlier of (i) such occurrence shall first havebecome known to any officer of the Borrower or the General Partner or (ii)written notice thereof shall have been received by the Borrower from theAdministrative Agent or any Lender, such Material Adverse Effect shall becontinuing; (p) (i) any Person shall engage in any "prohibited transaction" (asdefined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),whether or not waived, shall exist with respect to any Plan, or any Lien shallarise on the assets of the Borrower or any Related Person in favor of the PBGCor a Plan, (iii) a Reportable Event shall occur with respect to, or proceedingsshall commence to have a trustee appointed (or a trustee shall be appointed) toadminister, or to terminate, any Single Employer Plan, which Reportable Event orcommencement of proceedings or appointment of a trustee is, in the reasonableopinion of the Required Lenders, likely to result in the termination of suchPlan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shallterminate for purposes of Title IV of ERISA, (v) the Borrower or any RelatedPerson shall, or in the reasonable opinion of the Required Lenders is likely to,incur any liability in connection with a withdrawal from, or the termination,reorganization or insolvency of (within the meaning of such terms as used inERISA), a Multiemployer Plan or (vi) any other events or condition shall occuror exist with respect to a Plan; and, in each case in clauses (i) through (vi)above, such event or condition, together with all other such event orconditions, if any, could reasonably be expected to result in liabilities of theBorrower and the Restricted Subsidiaries in an aggregate amount in excess of$1,000,000; (q) either (i) the Borrower or any Restricted Subsidiary shall beliable, whether directly, indirectly through required indemnification of anyPerson or otherwise, for the costs of investigation and/or remediation of anyHazardous Material originating from or affecting property or properties, whetheror not owned, leased or operated by the Borrower or any Restricted Subsidiary,which liability, together with all other such liabilities, could reasonably beexpected to result in liabilities of the Borrower and the RestrictedSubsidiaries in excess of $1,000,000 or (ii) any Federal, state, regional, localor other environmental regulatory agency or authority shall commence aninvestigation or take any other action that could reasonably be expected to bedetermined adversely to the Borrower or any Restricted Subsidiary and, on thebasis of such a determination, to result in liabilities of the Borrower and theRestricted Subsidiaries in excess of $1,000,000; (r) any Governmental Authority revokes or fails to renew any materiallicense, permit or franchise of the Borrower or any Restricted Subsidiary, orthe Borrower or any Restricted Subsidiary for any reason loses any materiallicense, permit or franchise, or the Borrower or any Restricted Subsidiarysuffers the imposition of any restraining order, escrow, suspension or impoundof funds in connection with any proceeding (judicial or administrative) withrespect to any material license, permit or franchise; (s) the occurrence of a Material Adverse Effect; 119 (t) the occurrence of any Change in Control; or (u) Petro Holdings or any other Unrestricted Subsidiary shall make anyRestricted Payment, loans or other extensions of credit directly to the PublicPartnership; then, and in every such event, and at any time thereafter during the continuanceof such event, the Administrative Agent may, and at the request of the RequiredLenders, shall take one or more of the following actions, at the same ordifferent times: (i) by notice to the Borrower terminate the Commitments andthey shall immediately terminate; (ii) by notice to the Borrower declare theLoans then outstanding to be forthwith due and payable (in whole or, in the solediscretion of the Required Lenders, from time to time in part), whereupon theprincipal of the Loans so declared to be due and payable, together with accruedinterest thereon and any unpaid accrued Fees and all other liabilities of theBorrower accrued hereunder or under any other Loan Document, shall thereuponbecome immediately due and payable, without presentment, demand, protest or anyother notice of any kind, all of which are hereby expressly waived by theBorrower, anything contained herein or in any other Loan Document to thecontrary notwithstanding; (iii) require the Borrower to deposit cash collateralwith the Trustee pursuant to the Intercreditor Agreement in an amount notexceeding the Letter of Credit Exposure; (iv) exercise any remedies availableunder the Guarantee Agreements, the Collateral Documents or otherwise; or (v)any combination of the foregoing; provided that in the case of any of the Eventsof Default with respect to the Borrower described in paragraph (g) or (h) above,the Commitments shall automatically terminate and the principal of the Loansthen outstanding, together with accrued interest thereon and any unpaid accruedFees and all other liabilities of the Borrower accrued hereunder or under anyother Loan Document, shall automatically become due and payable, withoutpresentment, demand, protest or any other notice of any kind, all of which arehereby expressly waived by the Borrower, anything contained herein or in anyother Loan Document to the contrary notwithstanding. Section 7.02. Remedies. In case any one or more Events of Default orDefaults shall occur and be continuing, (i) any Lender may proceed to protectand enforce the rights of such Lender by an action at law, suit in equity orother appropriate proceeding, whether for the specific performance of anyagreement contained herein or in any other Loan Document, or for an injunctionagainst a violation of any of the terms hereof or thereof, or in aid of theexercise of any power granted hereby or thereby or by law or otherwise, and (ii)the Trustee and the Lenders may exercise any rights or remedies in theirrespective capacities under the Collateral Documents in accordance with theprovisions thereof. In case of a default in the payment or performance of anyprovision hereof or of the Loan Documents, the Borrower will pay to each Lendersuch further amount as shall be sufficient to cover the cost and expenses ofcollection, including reasonable attorneys' fees, expenses and disbursements,and any out-of-pocket costs and expenses of any such holder incurred inconnection with analyzing, evaluating, protecting, ascertaining, defending orenforcing any of its rights as set forth herein or in any of the Loan Documents.No course of dealing and no delay on the part of any Lender in exercising anyright, power or remedy shall operate as a waiver thereof or otherwise prejudicesuch Lender's rights, powers or remedies. No right, power or remedy conferred bythis Agreement or by any other Loan Document upon any Lender shall be exclusiveof any other right, power or remedy referred to herein or therein or now orhereafter available at law, in equity, by statute or otherwise. 120 ARTICLE VIII THE AGENTS AND ISSUING BANK Section 8.01. Appointment and Authorization. (a) Each of the Lenders,and each subsequent holder of any Note by its acceptance thereof, herebyirrevocably appoints and authorizes each of the Agents and the Issuing Bank totake such actions as agent on behalf of such Lender or holder and to exercisesuch powers as are specifically delegated to such Agent or the Issuing Bank, asthe case may be, by the terms and provisions hereof and of the other LoanDocuments, together with such actions and powers as are reasonably incidentalthereto. Notwithstanding any provision to the contrary elsewhere in thisAgreement, neither the Agents nor the Issuing Bank shall have any duties orresponsibilities, except those expressly set forth herein, or any fiduciaryrelationship with any Lender, and no implied covenants, functions,responsibilities, duties, obligations or liabilities shall be read into thisAgreement or any other Loan Document or otherwise exist against the Agents orthe Issuing Bank. (b) The Administrative Agent is hereby expressly authorized by the Lenders to, without hereby limiting any implied authority, and hereby agrees (inthe case of clause (ii) below, at the direction of the Required Lenders) to, (i)receive on behalf of the Lenders all payments of principal of and interest onthe Loans and all other amounts due to the Lenders hereunder, and promptly todistribute to each Lender its proper share of each payment so received; (ii)give notice on behalf of each of the Lenders to the Borrower of any Event ofDefault specified in this Agreement of which the Administrative Agent has actualknowledge acquired in connection with its agency hereunder; and (iii) distributeto each Lender copies of all notices, financial statements and other materialsdelivered by the Borrower or any Subsidiary pursuant to this Agreement or anyother Loan Document as received by the Administrative Agent (other thanmaterials required hereunder to be delivered by the Borrower directly to theLenders). Section 8.02. Liability of Agents. Neither the Agents, the IssuingBank, nor any of their respective directors, officers, employees,attorneys-in-fact, affiliates or agents, shall be liable as such for any actiontaken or omitted to be taken by any of them in connection with this Agreement orany other Loan Document, except for such party's own gross negligence or willfulmisconduct (as found by a final and nonappealable decision of a court ofcompetent jurisdiction), or be responsible for any statement, warranty, recitalor representation herein or the contents of any document delivered in connectionherewith, or be required to ascertain or to make any inquiry concerning theperformance or observance by the Borrower or any Subsidiary of any of the terms,conditions, covenants or agreements contained in any Loan Document. Neither theAgents nor the Issuing Bank shall be responsible to the Lenders or the holdersof the Notes for the due execution, genuineness, validity, enforceability oreffectiveness of this Agreement, the Notes or any other Loan Documents or otherinstruments or agreements. The Administrative Agent may deem and treat the payeeof any Note as the owner thereof for all purposes hereof until it shall havereceived from the payee of such Note notice, given as provided herein, of thetransfer thereof in compliance with Section 9.04. Each of the AdministrativeAgent, the Issuing Bank and the Lenders shall be entitled to rely, and shall befully protected in relying, upon any instrument, writing, resolution, notice,consent, certificate, affidavit, letter, telecopy, telex or teletype message,statement, order or other document or conversation believed by it to be 121genuine and correct and to have been signed, sent or made by the proper Personor Persons and upon advice and statements of legal counsel (including counsel tothe Borrower), independent accountants and other experts selected by theAdministrative Agent. Each of the Administrative Agent, the Issuing Bank and theLenders shall be fully justified in failing or refusing to take any action underthis Agreement or any other Loan Document unless it shall first receive suchadvice or concurrence of the Required Lenders (or, if so specified by thisAgreement, all Lenders) as it deems appropriate or it shall first be indemnifiedto its satisfaction by the Lenders against any and all liability and expensethat may be incurred by it by reason of taking or continuing to take any suchaction. Neither the Agents, the Issuing Bank nor any of their respectivedirectors, officers, employees or agents, shall have any responsibility to theBorrower on account of the failure of or delay in performance or breach by anyLender of any of its obligations hereunder or to any Lender on account of thefailure of or delay in performance or breach by any other Lender or the Borroweror any Subsidiary of any of their respective obligations hereunder or under anyother Loan Document or in connection herewith or therewith. Each of the Agentsand the Issuing Bank may execute any and all duties hereunder by or throughagents or employees, shall be entitled to consult with legal counsel,independent public accountants and other experts selected by it with respect toall matters arising hereunder and shall not be liable for any action taken oromitted to be taken in good faith by it in accordance with the advice of suchcounsel, accountants or experts. None of Lenders identified in this Agreement asa "Documentation Agent" or "Syndication Agent" shall have any obligation,liability, responsibility or duty under this Agreement in such capacity otherthan those applicable to all Lenders as such. Without limiting the foregoing,none of Lenders so identified as "Documentation Agent" or "Syndication Agent"shall have or be deemed to have any fiduciary relationship with any Lender. EachLender acknowledges that is has not relied, and will not rely, on any of Lendersso identified in deciding to enter into this Agreement or in taking or nottaking action hereunder. Section 8.03. Action by Agents. The Lenders hereby acknowledge thatnone of the Agents and the Issuing Bank shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions ofthis Agreement unless it shall be requested in writing to do so by the RequiredLenders. The obligations of the Agents and the Issuing Bank under the LoanDocuments are only those expressly set forth herein and therein. Section 8.04. Notice of Default. Except for actual knowledge ofnon-payment, the Administrative Agent shall not be deemed to have knowledge ornotice of the occurrence of any Default or Event of Default unless theAdministrative Agent has received notice from a Lender or the Borrower referringto this Agreement, describing such Default or Event of Default and stating thatsuch notice is a "notice of default". In the event that the Administrative Agentreceives such a notice, the Administrative Agent shall give notice thereof tothe Lenders. The Administrative Agent shall take such action with respect tosuch Default or Event of Default as shall be reasonably directed by the RequiredLenders (or, if so specified by this Agreement, all Lenders); provided thatunless and until the Administrative Agent shall have received such directions,the Administrative Agent may (but shall not be obligated to) take such action,or refrain from taking such action, with respect to such Default or Event ofDefault as it shall deem advisable in the best interests of the Lenders. Section 8.05. Successor Agents. Each Administrative Agent and theIssuing Bank (except, in the case of the Issuing Bank, in respect of Letters ofCredit issued by it) may 122resign at any time by notifying the Lenders and the Borrower. Upon any suchresignation, the Required Lenders shall have the right to appoint from among theLenders a successor, whereupon such successor shall succeed to the rights,powers and duties of either the Administrative Agent or Issuing Bank, and theterm "Administrative Agent" or "Issuing Bank" shall mean such successor agenteffective upon such appointment and approval, and the former AdministrativeAgent or Issuing Bank's rights, powers and duties as Administrative Agent orIssuing Bank shall be terminated, without any other or further act or deed onthe part of such former Administrative Agent, Issuing Bank or any of the partiesto this Agreement or any holders of the Loans. If no successor shall have beenso appointed by the Required Lenders, and shall have accepted such appointment,within 10 days after the retiring Agent or Issuing Bank, as the case may be,gives notice of its resignation, then the retiring Administrative Agent's orIssuing Bank's resignation shall nevertheless thereupon become effective, andthe retiring Administrative Agent or Issuing Bank, as the case may be, may, onbehalf of the Lenders, appoint a successor, which shall be a commercial bankorganized or licensed under the laws of the United States of America or of anyState thereof and having a combined capital and surplus of at least $500,000,000or an Affiliate of any such bank. Upon the acceptance of any appointment as theAdministrative Agent or Issuing Bank, as the case may be, hereunder by asuccessor bank, such successor shall succeed to and become vested with all therights, powers, privileges and duties of the retiring Administrative Agent orIssuing Bank and the retiring Administrative Agent or Issuing Bank shall bedischarged from its duties and obligations hereunder. After the resignation ofthe Administrative Agent or the Issuing Bank, as the case may be, hereunder, theprovisions of this Article and Section 9.05 shall continue in effect for itsbenefit in respect of any actions taken or omitted to be taken by it while itwas acting as the Administrative Agent or Issuing Bank. Section 8.06. Agent and Affiliate. With respect to the Loans made byit hereunder, the Letters of Credit issued by it hereunder and the Notes issuedto it, each of the Agents and the Issuing Bank in its individual capacity andnot as an Agent or the Issuing Bank shall have the same rights and powers as anyother Lender and may exercise the same as though it were not an Agent or theIssuing Bank. The term "Lender" or "Lenders" shall include each Agent in itsindividual capacity. Each of the Agents and the Issuing Bank (and itsAffiliates) may accept deposits from, lend money to and generally engage in anykind of business and transactions with the Borrower or any Subsidiary or otherAffiliate thereof as if it were not an Agent or the Issuing Bank (or suchAffiliate thereof). Section 8.07. Indemnification. Each Lender agrees (a) to reimburseeach of the Agents and the Issuing Bank, on demand, in the amount of its prorata share (based on its Commitment hereunder) of any expenses incurred for thebenefit of the Lenders by such Agent or the Issuing Bank, as the case may be,including counsel fees and compensation of agents and employees paid forservices rendered on behalf of the Lenders, which shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each of the Agents, theIssuing Bank and any of their respective directors, officers, employees,attorneys-in-fact, affiliates or agents, promptly after demand, in the amount ofsuch pro rata share, from and against any and all liabilities, taxes,obligations, losses, damages, penalties, actions, judgments, suits, costs,expenses or disbursements of any kind or nature whatsoever which may at any timebe imposed on, incurred by or asserted against it in its capacity as an Agent orthe Issuing Bank or any of them in any way relating to or arising out of thisAgreement, any other Loan 123Document, any documents contemplated by or referred herein or therein, thetransactions contemplated hereby or thereby or any action taken or omitted by itor any of them under this Agreement or any other Loan Document, to the extentthe same shall not have been reimbursed by the Borrower; provided that no Lendershall be liable to any Agent or the Issuing Bank for any portion of suchliabilities, obligations, losses, damages, penalties, actions, judgments, suits,costs, expenses or disbursements resulting from the gross negligence or willfulmisconduct of such Agent or the Issuing Bank (as found by a final andnonappealable decision of a court of competent jurisdiction). Section 8.08. Credit Decision. Each Lender expressly acknowledges thatneither the Agents nor any of their respective officers, directors, employees,agents, attorneys-in-fact or affiliates have made any representations orwarranties to it and that no act by any Agent hereafter taken, including anyreview of the affairs of a Loan Party or any affiliate of a Loan Party, shall bedeemed to constitute any representation or warranty by any Agent to any Lender.Each Lender acknowledges that it has, independently and without reliance uponthe Agents, the Issuing Bank or any other Lender and based on such documents andinformation as it has deemed appropriate, made its own credit analysis anddecision to enter into this Agreement. Each Lender also acknowledges that itwill independently and without reliance upon the Agents, the Issuing Bank or anyother Lender and based on such documents and information as it shall from timeto time deem appropriate, continue to make its own decisions in taking or nottaking action under or based upon this Agreement or any other Loan Document, anyrelated agreement or any document furnished hereunder or thereunder. Except fornotices, reports and other documents expressly required to be furnished to theLenders by the Agents hereunder, the Agents shall not have any duty orresponsibility to provide any Lender with any credit or other informationconcerning the business, operations, property, condition (financial orotherwise), prospects or creditworthiness of any Loan Party or any affiliate ofa Loan Party that may come into the possession of the Agents or any of itsofficers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.09. Intercreditor Agreement. The Lenders hereby authorizeand agree to be bound by the terms of the Intercreditor Agreement and authorizethe Administrative Agent, on behalf of the Lenders, to execute the Agreement ofLenders and Supplement to Intercreditor Agreement. ARTICLE IX MISCELLANEOUS Section 9.01. Notices. Notices and other communications provided forherein shall be in writing and shall be delivered by hand or overnight courierservice, mailed by certified or registered mail or sent by telecopy as follows: (a) if to the Borrower, to it at: 2187 Atlantic Street, Stamford, CT 06902 Attention of Richard Ambury 124 Telecopy no.: (203) 328-7393 Telephone: (203) 328-7300 E-Mail Address: rambury@star-gas.com; (b) if to the Administrative Agent, to it at: JPMorgan Chase Bank Loan and Agency Services Group 1111 Fannin, Street Houston, TX 77002 Attention: Debbie Meche/Melissa Paiva Telecopy no.: (713) 750-2938 with a copy to: JPMorgan Chase Bank 395 North Service Road Melville, NY 11747 Attention: William DeMilt, Jr. Telecopy: (631) 755-5184 (c) if to the Documentation Agent, to it at: Wachovia Bank, N.A. 301 South College Street Charlotte, NC 28288 Attention: Mark Weir Telecopy no.: (704) 383-0550 with a copy to Wachovia Bank, N.A. 201 South College Street Charlotte, NC 28288 Attention: Cynthia Rawson Telecopy no.: (704) 715-0097 (d) if to the Syndication Agent, to it at: Fleet National Bank 100 Federal Street Boston, MA 02110 Attention: Bert Valbona Telecopy no.: (617) 434-3652 125 with a copy to: Fleet National Bank 100 Federal Street Boston, MA 02110 Attention: Francia Castille Telecopy no.: (617) 434-9820 (e) if to a Lender, to it at its address on Schedule 1.01A hereto orin the Assignment and Acceptance pursuant to which such Lender shall have becomea party hereto. All notices and other communications given to any party hereto inaccordance with the provisions of this Agreement shall be deemed to have beengiven on the date of receipt if delivered by hand or overnight courier serviceor sent by telecopy or on the date five Business Days after dispatch bycertified or registered mail if mailed, in each case delivered, sent or mailedproperly addressed) to such party as provided in this Section 9.01 or inaccordance with the latest unrevoked direction from such party given inaccordance with this Section 9.01; provided, that any notice, request or demandto or upon the Administrative Agent or the Lenders shall not be effective untilreceived. Notices and other communications to the Lenders hereunder may bedelivered or furnished by electronic communications pursuant to proceduresapproved by the Administrative Agent; provided, that the foregoing shall notapply to notices pursuant to Article II unless otherwise agreed by theAdministrative Agent and the applicable Lender. The Administrative Agent or theBorrower may, in its discretion, agree to accept notices and othercommunications to it hereunder by electronic communications pursuant toprocedures approved by it; provided, that approval of such procedures may be limited to particular notices or communications. Section 9.02. Survival of Agreement. All covenants, agreements,representations and warranties made by the Borrower herein and in thecertificates or other instruments prepared or delivered in connection with orpursuant to this Agreement or any other Loan Document shall be considered tohave been relied upon by the Lenders, the Agents and the Issuing Bank and shallsurvive the making by the Lenders of the Loans, the execution and delivery tothe Lenders of the Notes evidencing such Loans, and the issuance of the Lettersof Credit, regardless of any investigation made by the Lenders, the Agents orthe Issuing Bank or on their behalf, and shall continue in full force and effectas long as (a) the principal of or any accrued interest on any Loan, any Fee,any Letter of Credit Disbursement or any other amount payable under thisAgreement or any other Loan Document is outstanding and unpaid, (b) theCommitments have not been terminated or (c) any Letter of Credit has not expiredor been terminated. Section 9.03. Binding Effect. This Agreement shall becomeeffective when the conditions precedent set forth in Section 4.01 are satisfied(except that, solely for the purpose of calculating any fees stated herein tocommence to accrue on the date of this Agreement, this Agreement shall becomeeffective when the conditions precedent set forth in Section 4.01(a) aresatisfied). 126 Section 9.04. Successors and Assigns; Participations and Assignments.(a) The provisions of this Agreement shall be binding upon and inure to thebenefit of the parties hereto and their respective successors and assignspermitted hereby (including any affiliate of the Issuing Lender that issues anyLetter of Credit), except that (i) the Borrower may not assign or otherwisetransfer any of its rights or obligations hereunder without the prior writtenconsent of each Lender (and any attempted assignment or transfer by the Borrowerwithout such consent shall be null and void) and (ii) no Lender may assign orotherwise transfer its rights or obligations hereunder except in accordance withthis Section. (b) (i) Subject to the conditions set forth in paragraph (b)(ii)below, any Lender may assign to one or more assignees (each, an "Assignee") allor a portion of its rights and obligations under this Agreement (including allor a portion of its Commitments and the Loans at the time owing to it) with theprior written consent (such consent not to be unreasonably withheld) of: (A) the Borrower, provided that, no consent of the Borrower shall be required for an assignment to a Lender, an affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default under Section 7.01(a), (b), (g), (h), (i) or (j) has occurred and is continuing, any other Person; (B) the Administrative Agent, provided that, no consent of the Administrative Agent shall be required for an assignment of (x) any Revolving Credit Commitment to an assignee that is a Lender with a Revolving Credit Commitment immediately prior to giving effect to such assignment or (y) all or any portion of a Tranche B Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund; and (C) in the case of an assignment of any Revolving Credit Commitment, the Issuing Bank, provided that, no consent of the Issuing Bank shall be required for an assignment of any Revolving Credit Commitment to an assignee that is a Lender with a Revolving Credit Commitment immediately prior to giving effect to such assignment. (ii) Assignments shall be subject to the following additionalconditions: (A) except in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender's Commitments or Loans under any Facility, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent (and, if applicable, the Issuing Lender) otherwise consent, provided that (1) no such consent of the Borrower shall be required if an Event of Default under Section 7.01(a), (b), (g), (h), (i) or (j) has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any; 127 (B) each Lender shall simultaneously assign, and the Assignee shall simultaneously take an assignment of, a pro rata portion of the sum of the principal amount of the outstanding loans under the Parity Debt Credit Agreement and the unused amount of the commitment of the assigning lender under the Parity Debt Credit Agreement and all other interests, rights and obligations under the Parity Debt Credit Agreement in accordance with the provisions thereof, such that at all times (I) the Tranche B Revolving Credit Commitment Percentage of such Lender under Facility B and the Revolving Credit Commitment Percentage (as defined in the Parity Debt Credit Agreement) of such lender under the Parity Debt Credit Agreement shall be the same and (II) the Tranche A Revolving Credit Commitment Percentage of such Lender under Facility A and the Revolving Credit Commitment Percentage (as defined in the Parity Debt Credit Agreement) of such lender under the Parity Debt Credit Agreement shall be the same; (C) assignments and participations pursuant to this Section 9.04 need to be pro rata among the Facilities; (D) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and (E) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire. For the purposes of this Section 9.04, the terms "Approved Fund" hasthe following meaning: "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Acceptance the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 2.13, Section 2.15, Section 2.19 and Section 9.05). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. 128 (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Letter of Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Lender and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an Assignee, the Assignee's completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) (i) Any Lender may, without the consent of the Borrower or theAdministrative Agent, sell participations to one or more banks or other entities(a "Participant") in all or a portion of such Lender's rights and obligationsunder this Agreement (including all or a portion of its Commitments and theLoans owing to it); provided that, (A) such Lender's obligations under thisAgreement shall remain unchanged, (B) such Lender shall remain solelyresponsible to the other parties hereto for the performance of such obligationsand (C) the Borrower, the Administrative Agent, the Issuing Lender and the otherLenders shall continue to deal solely and directly with such Lender inconnection with such Lender's rights and obligations under this Agreement. Anyagreement pursuant to which a Lender sells such a participation shall providethat such Lender shall retain the sole right to enforce this Agreement and toapprove any amendment, modification or waiver of any provision of thisAgreement; provided that such agreement may provide that such Lender will not,without the consent of the Participant, agree to any amendment, modification orwaiver that (1) requires the consent of each Lender directly affected therebypursuant to the proviso to Section 9.08(b) and (2) directly affects suchParticipant. Subject to paragraph (c)(ii) of this Section, the Borrower agreesthat each Participant shall be entitled to the benefits of Section 2.13, Section2.14, Section 2.15 and Section 2.19 to the same extent as if it were a Lenderand had acquired its interest by assignment pursuant to paragraph (b) of thisSection. To the extent permitted by law, each Participant also shall be entitledto the benefits of Section 9.06 as though it were a Lender, provided suchParticipant shall be subject to Section 2.17 as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 2.13, Section 2.14 or Section 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. 129 Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.19 unless such Participant complies with Section 2.19(d). (d) Any Lender may at any time pledge or assign a security interest inall or any portion of its rights under this Agreement to secure obligations ofsuch Lender, including any pledge or assignment to secure obligations to aFederal Reserve Bank, and this Section shall not apply to any such pledge orassignment of a security interest; provided that no such pledge or assignment ofa security interest shall release a Lender from any of its obligations hereunderor substitute any such pledgee or Assignee for such Lender as a party hereto. (e) The Borrower, upon receipt of written notice from the relevantLender, agrees to issue Notes to any Lender requiring Notes to facilitatetransactions of the type described in paragraph (d) above. (f) Notwithstanding the foregoing, any Conduit Lender may assign anyor all of the Loans it may have funded hereunder to its designating Lenderwithout the consent of the Borrower or the Administrative Agent and withoutregard to the limitations set forth in Section 9.04(b). Each of the Borrower,each Lender and the Administrative Agent hereby confirms that it will notinstitute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvencyor liquidation proceeding under any state bankruptcy or similar law, for oneyear and one day after the payment in full of the latest maturing commercialpaper note issued by such Conduit Lender; provided, however, that each Lenderdesignating any Conduit Lender hereby agrees to indemnify, save and holdharmless each other party hereto for any loss, cost, damage or expense arisingout of its inability to institute such a proceeding against such Conduit Lenderduring such period of forbearance. Section 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay(whether or not the transactions contemplated hereby shall be consummated) allreasonable out-of-pocket costs and expenses incurred by any Agent or the IssuingBank in connection with the preparation, execution and delivery of thisAgreement and the other Loan Documents, the closing of the Facilities, theadministration of the Facilities or any amendment, modification or waiver of theprovisions hereof or thereof or incurred by any Agent, the Issuing Bank or anyLender in connection with the enforcement or protection of the rights of theAgents, the Issuing Bank and the Lenders under this Agreement and the other LoanDocuments or in connection with the Loans made hereunder, the Notes issuedhereunder or the Letters of Credit issued hereunder, including the reasonablefees, charges and disbursements of (i) Simpson Thacher & Bartlett LLP, counselto the Administrative Agent, (ii) any search and filing fees of any companyacceptable to the Lenders, (iii) any third party consultants retained to assistthe Agents in analyzing any environmental, insurance and other due diligenceissues and (iv) in connection with any such enforcement or protection, any othercounsel for any Agent, the Issuing Bank or any Lender. (b) The Borrower agrees to indemnify each of the Agents, the IssuingBank, the affiliates of any Agent, the Issuing Bank, the Lenders, and theirrespective directors, officers, employees, agents and Controlling Persons (each,an "Indemnified Party") from and against any and all losses, claims (whethervalid or not), damages and liabilities, joint or several, to which 130such Indemnified Party may become subject, related to or arising out of (i) theFacilities and the transactions contemplated hereby and thereby, (ii) theexecution or delivery of this Agreement or any other Loan Document or anyagreement or instrument contemplated hereby or thereby, the performance by theparties hereto or thereto of their respective obligations hereunder orthereunder or the consummation of the other transactions contemplated hereby andthereby, (iii) the use of the Letters of Credit or the proceeds of the Loans or(iv) any claim, litigation, investigation or proceeding relating to any of theforegoing, whether or not any Indemnified Party is a party thereto. The Borrowerfurther agrees to reimburse each Indemnified Party for all expenses (includingreasonable attorneys' fees and expenses) as they are incurred in connection withthe investigation of, preparation for or defense of any pending or threatenedclaim or any action or proceeding arising therefrom. Notwithstanding theforegoing, the obligation to indemnify any Indemnified Party under this Section9.05(b) shall not apply in respect of any loss, claim, damage or liability tothe extent that a court of competent jurisdiction shall have determined by finaland nonappealable judgment that such loss, claim, damage or liability resultedfrom such Indemnified Party's gross negligence or willful misconduct. (c) The Borrower agrees to indemnify each of the Agents, the IssuingBank, the Lenders and the other Indemnified Parties from and against any and alllosses, claims (whether valid or not), damages and liabilities, joint orseveral, to which such Indemnified Party may become subject, related to orarising out of (i) any Environmental Laws affecting the Borrower or any otherLoan Party or its properties or assets, (ii) any Hazardous Materials managed bythe Borrower or any other Loan Party, (iii) any event, condition or circumstanceinvolving environmental pollution, regulation or control affecting the Borroweror any other Loan Party or its properties or assets or (iv) any claim,litigation, investigation or proceeding relating to any of the foregoing,whether or not any Indemnified Party is a party thereto. The Borrower furtheragrees to reimburse each Indemnified Party for all expenses (includingreasonable attorneys' fees and expenses) as they are incurred in connection withthe investigation of, preparation for or defense of any pending or threatenedclaim or any action or proceeding arising therefrom. Notwithstanding theforegoing, the obligation to indemnify any Indemnified Party under this Section9.05(c) shall not apply in respect of any loss, claim, damage or liability tothe extent that a court of competent jurisdiction shall have determined by finaland nonappealable judgment that such loss, claim, damage or liability resulted from such Indemnified Party's gross negligence or willful misconduct. (d) In the event that the foregoing indemnity is unavailable orinsufficient to hold an Indemnified Party harmless, then the Borrower willcontribute to amounts paid or payable by such Indemnified Party in respect ofsuch Indemnified Party's losses, claims, damages or liabilities in suchproportions as appropriately reflect the relative benefits received by and faultof the Borrower and such Indemnified Party in connection with the matters as towhich such losses, claims, damages or liabilities relate and other equitableconsiderations. (e) If any action, proceeding or investigation is commenced, as towhich any Indemnified Party proposes to demand such indemnification, it shallnotify the Borrower with reasonable promptness; provided, however, that anyfailure by such Indemnified Party to notify the Borrower shall not relieve theBorrower from its obligations hereunder except to the extent the Borrower isprejudiced thereby. The Borrower shall be entitled to assume the defense of anysuch action, proceeding or investigation, including the employment of counseland the payment 131of all fees and expenses. Each Indemnified Party shall have the right to employseparate counsel in connection with any such action, proceeding or investigationand to participate in the defense thereof, but the fees and expenses of suchcounsel shall be paid by such Indemnified Party, unless (i) the Borrower hasfailed to assume the defense and employ counsel as provided herein, (ii) theBorrower has agreed in writing to pay such fees and expenses of separate counselor (iii) an action, proceeding or investigation has been commenced against suchIndemnified Party and the Borrower and representation of both the Borrower andsuch Indemnified Party by the same counsel would be inappropriate because ofactual or potential conflicts of interest between the parties (in the case ofany Agent or Lender, the existence of any such actual or potential conflict ofinterest to be determined by such party, taking into account, among otherthings, any relevant regulatory concerns). In the case of any circumstancedescribed in clause (i), (ii), or (iii) of the immediately preceding sentence,the Borrower shall be responsible for the reasonable fees and expenses of suchseparate counsel; provided, however, that the Borrower shall not in any event berequired to pay the fees and expenses of more than one separate counsel (plusappropriate local counsel under the direction of such separate counsel) for allIndemnified Parties. The Borrower shall be liable only for settlement of anyclaim against an Indemnified Party made with the Borrower's written consent. (f) The provisions of this Section 9.05 shall remain operative and infull force and effect regardless of the expiration of the term of thisAgreement, the consummation of the transactions contemplated hereby, therepayment of any of the Loans, the invalidity or unenforceability of any term orprovision of this Agreement or any other Loan Document, or any investigationmade by or on behalf of any Agent or Lender. All amounts due under this Section9.05 shall be payable on written demand therefor. Section 9.06. Right of Setoff. If an Event of Default shall haveoccurred and be continuing, each Lender is hereby authorized at any time andfrom time to time, to the fullest extent permitted by law, to set off and applyany and all deposits (general or special, time or demand, provisional or final)at any time held and other indebtedness at any time owing by such Lender to orfor the credit or the account of the Borrower against any of and all theobligations of the Borrower now or hereafter existing under this Agreement andthe other Loan Documents held by such Lender, irrespective of whether or notsuch Lender shall have made any demand under this Agreement or such other LoanDocument and although such obligations may be unmatured. The rights of eachLender under this Section 9.06 are in addition to other rights and remedies(including other rights of setoff) which such Lender may have. Section 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOANDOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCEWITH, THE LAWS OF THE STATE OF NEW YORK. Section 9.08. Waivers; Amendment. (a) No failure or delay of anyAgent, the Issuing Bank or any Lender in exercising any power or right hereundershall operate as a waiver thereof, nor shall any single or partial exercise ofany such right or power, or any abandonment or discontinuance of steps toenforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents,the Issuing Bank and the Lenders hereunder and under the other Loan Documentsare cumulative and are not exclusive of any rights or remedies which they wouldotherwise have. No waiver of 132any provision of this Agreement or any other Loan Document or consent to anydeparture by the Borrower therefrom shall in any event be effective unless thesame shall be permitted by Section 9.08(b), and then such waiver or consentshall be effective only in the specific instance and for the purpose for whichgiven. No notice or demand on the Borrower in any case shall entitle theBorrower to any other or further notice or demand in similar or othercircumstances. (b) None of this Agreement, the other Loan Documents and any provisionhereof or thereof may be waived, amended or modified, except pursuant to anagreement or agreements in writing entered into by the Borrower and the RequiredLenders; provided, however, that no such waiver, amendment or modification shall(i) decrease the principal amount of any Loan, extend the Tranche A MaturityDate, the Tranche B Conversion Date or the Tranche B Maturity Date, extend anyTranche B Repayment Date or any date for the payment of any interest on anyLoan, or waive or excuse any such payment or any part thereof, or decrease therate of interest on any Loan, without the prior written consent of each holderof a Note affected thereby, (ii) increase or extend the Commitment or decreasethe Commitment Fees or Letter of Credit Fees of any Lender without the priorwritten consent of such Lender, (iii) postpone the date fixed for anyreimbursement of a Letter of Credit Disbursement without the prior writtenconsent of each Lender affected thereby, (iv) permit the release of any materialamount of Collateral under any Collateral Document or permit the release of anymaterial guarantor from the Guarantee Agreements without the prior writtenconsent of each Lender, (v) increase the aggregate Commitments of the Lenderswithout the prior written consent of each Lender, (vi) waive, amend or modifySection 6.01 so as to permit any renewal, refunding or refinancing of Facility Awithout the prior written consent of each Lender or (vii) amend or modify theprovisions of Section 2.01(c) or waive the conditions set forth therein, theprovisions of Section 2.11(h), the provisions of Section 2.16, the provisions ofSection 9.04(a)(i), Section 9.04(b)(ii)(B) and Section 9.04(b)(ii)(C) or any ofthe provisions of Article II relating to the pro rata treatment between thisAgreement and the Parity Debt Credit Agreement, the provisions of this Section9.08 or the definition of "Required Lenders" or otherwise change the percentageof the Commitments, the percentage of the aggregate unpaid principal amount ofthe Notes or the number of Lenders which shall be required for the Lenders orany of them to take any action under any provision of this Agreement or anyother Loan Document, without the prior written consent of each Lender; providedfurther that (A) if any amendment, modification or waiver of Section 2.11(e),(f), (g) or (h) would affect the holders of Tranche A Revolving Loans or TrancheB Loans, as applicable (an "Affected Class"), then such amendment, modificationor waiver shall require the prior written consent of Lenders holding Loans andparticipations in Letters of Credit, and having Commitments, representing amajority of the outstanding principal amount of all Loans of the Affected Class,the aggregate amount of the Letter of Credit Exposure of the Affected Class andthe aggregate amount of unused Commitments of the Affected Class and (B) no suchagreement shall amend, modify or otherwise affect the rights or duties of anyAgent or the Issuing Bank hereunder without the prior written consent of suchAgent or the Issuing Bank, as applicable. Each Lender and each holder of a Noteshall be bound by any waiver, amendment or modification authorized by thisSection 9.08 regardless of whether its Note shall have been marked to makereference thereto, and any consent by any Lender or holder of a Note pursuant tothis Section 9.08 shall bind any Person subsequently acquiring a Note from it,whether or not such Note shall have been so marked. 133 (c) In the event that any waiver, amendment or modification requiresthe prior written consent of each Lender pursuant to Section 9.08(b), and theBorrower has obtained the approval of all but one Lender, the Borrower shallhave the right to replace such non-consenting Lender; provided that, (i) suchreplacement does not conflict with any Requirement of Law, (ii) no Event ofDefault shall have occurred and be continuing at the time of such replacement,(iii) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date ofreplacement, (iv) the Borrower shall be liable to such replaced Lender underSection 2.15 if any Eurodollar Loan owing to such replaced Lender shall bepurchased other than on the last day of the Interest Period relating thereto,(v) the replacement financial institution, if not already a Lender, shall bereasonably satisfactory to the Administrative Agent, (vi) the replaced Lendershall be obligated to make such replacement in accordance with the provisions ofSection 9.04(b) (provided that the Borrower shall be obligated to pay theregistration and processing fee referred to therein) and (vii) any suchreplacement shall not be deemed to be a waiver of any rights that the Borrower,the Administrative Agent or any other Lender shall have against the replacedLender. Section 9.09. Interest Rate Limitation. Notwithstanding anythingherein or in the Notes to the contrary, if at any time the applicable interestrate, together with all fees and charges which are treated as interest underapplicable law (collectively the "Charges"), as provided for herein or in anyother document executed in connection herewith, or otherwise contracted for,charged, received, taken or reserved by any Lender, shall exceed the maximumlawful rate (the "Maximum Rate") which may be contracted for, charged, taken,received or reserved by such Lender in accordance with applicable law, the rateof interest payable under the affected Note held by such Lender, together withall Charges payable to such Lender, shall be limited to the Maximum Rate. Section 9.10. Entire Agreement. This Agreement, the other LoanDocuments, the other Operative Agreements and the Letter Agreement constitutethe entire contract among the parties relative to the subject matter hereof andthereof. Any agreement previously entered into among the parties with respect tothe subject matter hereof and thereof is superseded by this Agreement, the otherLoan Documents, the other Operative Agreements and the Letter Agreement. Nothingin this Agreement, the other Loan Documents, the other Operative Agreements orthe Letter Agreement, expressed or implied, is intended to confer upon anyparty, other than the parties hereto and the other Secured Parties, any rights,remedies, obligations or liabilities under or by reason of this Agreement, theother Loan Documents, the other Operative Agreements or the Letter Agreement. Section 9.11. Severability. In the event any one or more of theprovisions contained in this Agreement or in any other Loan Document should beheld invalid, illegal or unenforceable in any respect, the validity, legalityand enforceability of the remaining provisions contained herein and thereinshall not in any way be affected or impaired thereby. The parties shall endeavorin good-faith negotiations to replace the invalid, illegal or unenforceableprovisions with valid provisions the economic effect of which comes as close aspossible to that of the invalid, illegal or unenforceable provisions. 134 Section 9.12. Counterparts. This Agreement may be executed in two ormore counterparts, each of which shall constitute an original but all of whichwhen taken together shall constitute but one contract, and shall becomeeffective as provided in Section 9.03. Section 9.13. Headings. Article and Section headings and the Table ofContents used herein are for convenience of reference only, are not part of thisAgreement and are not to affect the construction of, or to be taken intoconsideration in interpreting, this Agreement. Section 9.14. Jurisdiction; Consent to Service of Process; Waiver ofJury Trial. (a) The Borrower hereby irrevocably and unconditionally submits, foritself and its property, to the nonexclusive jurisdiction of any New York Statecourt or Federal court of the United States of America sitting in New York, NewYork, and any appellate court from any thereof, in any action or proceedingarising out of or relating to this Agreement or the other Loan Documents, or forrecognition or enforcement of any judgment, and each of the parties heretohereby irrevocably and unconditionally agrees that all claims in respect of anysuch action or proceeding may be heard and determined in such New York State or,to the extent permitted by law, in such Federal court. Each of the partieshereto agrees that a final judgment in any such action or proceeding shall beconclusive and may be enforced in other jurisdictions by suit on the judgment orin any other manner provided by law. Nothing in this Agreement shall affect anyright that any Agent, the Issuing Bank or any Lender may otherwise have to bringany action or proceeding relating to this Agreement or the other Loan Documentsagainst the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to thefullest extent it may legally and effectively do so, any objection which it maynow or hereafter have to the laying of venue of any suit, action or proceedingarising out of or relating to this Agreement or the other Loan Documents in anyNew York State court or Federal court of the United States of America sitting inNew York, New York. Each of the parties hereto hereby irrevocably waives, to thefullest extent permitted by law, the defense of an inconvenient forum to themaintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service ofprocess in the manner provided for notices in Section 9.01. Nothing in thisAgreement will affect the right of any party to this Agreement to serve processin any other manner permitted by law. (d) To the fullest extent permitted under applicable law, each of theBorrower, the Lenders, the Agents and the Issuing Bank hereby irrevocably andunconditionally waives all right to trial by jury in any action, proceeding orcounterclaim arising out of or related to this Agreement and the other LoanDocuments or any of the transactions contemplated hereby or thereby. Section 9.15. LEGEND. THIS AGREEMENT AND THE NOTES ARE SUBJECT TO THETERMS AND CONDITIONS CONTAINED IN THE INTERCREDITOR AGREEMENT WHICH, AMONG OTHERTHINGS, ESTABLISHES CERTAIN RIGHTS WITH RESPECT TO THE SECURITY FOR THISAGREEMENT AND THE NOTES AND THE SHARING OF PROCEEDS THEREOF WITH CERTAIN OTHERSECURED 135CREDITORS. COPIES OF THE INTERCREDITOR AGREEMENT WILL BE FURNISHED TO ANY HOLDEROF THE NOTES UPON REQUEST TO THE BORROWER. Section 9.16. Effect of Amendment and Restatement of the ExistingCredit Agreement. On the Closing Date, the Existing Credit Agreement shall beamended, restated and superseded in its entirety. The parties hereto acknowledgeand agree that (a) this Agreement and the other Loan Documents, whether executedand delivered in connection herewith or otherwise, do not constitute a novationor termination of the "Facilities Obligations" (as defined in the ExistingCredit Agreement) under the Existing Credit Agreement as in effect prior to theClosing Date, (b) such "Facilities Obligations" are in all respects continuing(as amended and restated hereby) with only the terms thereof being modified asprovided in this Agreement and (c) upon the effectiveness of this Agreement allLoans of the Lenders outstanding under the Existing Credit Agreement immediatelybefore the effectiveness of this Agreement will be converted into Loanshereunder on the terms and conditions set forth in this Agreement. Section 9.17. Special Provisions. (a) From and after the Closing Date,(i) each Exiting Lender shall cease to be a party to this Agreement, (ii) noExiting Lender shall have any obligations or liabilities under this Agreement(including, without limitation, with respect to Bank of America, N.A., itsobligations or liabilities as documentation agent under the Existing CreditAgreement) with respect to the period from and after the Closing Date and,without limiting the foregoing, no Exiting Lender shall have any RevolvingCredit Commitment under this Agreement or any participation in any Letter ofCredit outstanding hereunder and (iii) no Exiting Lender shall have any rightsunder the Existing Credit Agreement, this Agreement or any other Loan Document(other than rights under the Existing Credit Agreement expressly stated tosurvive the termination of the Existing Credit Agreement and the repayment ofamounts outstanding thereunder). (b) The Lenders (which are Lenders under the Existing CreditAgreement) hereby waive any requirements for notice of prepayment, commitmentterminations, minimum amounts of prepayments of Revolving Loans (as defined inthe Existing Credit Agreement), ratable reductions of Tranche A RevolvingCommitment or Tranche B Revolving Commitment (as defined in the Existing CreditAgreement) and ratable payments on account of the principal or interest of anyRevolving Loan (as defined in the Existing Credit Agreement) under the ExistingCredit Agreement to the extent such prepayment, reductions or payments arerequired pursuant to Section 4.01(e). (c) The Lenders hereby confirm that, from and after the making of theinitial Loans, all participations of the Lenders in respect of (i) Tranche ALetters of Credit outstanding hereunder pursuant to Section 2.21(a) shall be based upon the Tranche A Revolving Credit Commitment Percentages of the Lenders(after giving effect to this Agreement) and (ii) Tranche B Letters of Creditoutstanding hereunder pursuant to Section 2.21(b) shall be based upon theTranche B Revolving Credit Commitment Percentages of the Lenders (after givingeffect to this Agreement). (d) The Borrower hereby releases, effective as of the making of theinitial Loans, in full the Exiting Lenders from their obligations in respect ofthe Revolving Credit Commitments (as defined in the Existing Credit Agreement)and, effective as of the Closing 136Date, the Lenders hereby assume such obligations, it being understood that suchassumption is reflected in the Revolving Credit Commitments of the Lendershereunder. IN WITNESS WHEREOF, the Borrower, the Agents, the Issuing Bank and theLenders have caused this Agreement to be duly executed by their respectiveauthorized officers as of the day and year first above written. STAR GAS PROPANE, L.P., as Borrower By: STAR GAS LLC, its general partner By: -------------------------------- Name: Title: Managing Member JPMORGAN CHASE BANK, as Administrative Agent and as a Lender By: ------------------------------------ Name: Title: FLEET NATIONAL BANK, as Syndication Agent and as a Lender By: ------------------------------------ Name: Title: WACHOVIA BANK, N.A., as Documentation Agent and as a Lender By: ------------------------------------ Name: Title: Exhibit 10.33 EXECUTION COPY================================================================================ $25,000,000 PARITY DEBT CREDIT AGREEMENT dated as of September 23, 2003 among STAR GAS PROPANE, L.P., THE LENDERS NAMED HEREIN, FLEET NATIONAL BANK, as Syndication Agent, WACHOVIA BANK, N.A., as Documentation Agent, and JPMORGAN CHASE BANK, as Administrative Agent================================================================================ J.P. MORGAN SECURITIES INC. and FLEET SECURITIES INC., as Co-Lead Arrangers and Joint Bookrunners TABLE OF CONTENTS Page ---- Article I DEFINITIONS .............................................................1 Section 1.01 Defined Terms ..................................................1 Section 1.02 Terms Generally ...............................................32 Section 1.03 Types of Borrowings ...........................................32Article II THE CREDITS ...........................................................33 Section 2.01 Commitment to Make Loans ......................................33 Section 2.02 Loans .........................................................34 Section 2.03 Notice of Borrowings ..........................................36 Section 2.04 Notes; Repayment of Loans .....................................36 Section 2.05 Fees ..........................................................37 Section 2.06 Interest on Loans .............................................37 Section 2.07 Default Interest ..............................................38 Section 2.08 Alternate Rate of Interest ....................................38 Section 2.09 Termination and Reduction of Commitments ......................38 Section 2.10 Conversion and Continuation of Borrowings .....................39 Section 2.11 Mandatory Repayments and Prepayments. .........................41 Section 2.12 Optional Prepayments ..........................................43 Section 2.13 Reserve Requirements; Certain Changes in Circumstances ........44 Section 2.14 Change in Legality ............................................46 Section 2.15 Indemnity .....................................................46 Section 2.16 Pro Rata Treatment ............................................47 Section 2.17 Sharing of Setoffs ............................................47 Section 2.18 Payments ......................................................48 Section 2.19 Taxes .........................................................48 Section 2.20 Assignment of Commitments Under Certain Circumstances .........50 Section 2.21 Letters of Credit .............................................50 Article III REPRESENTATIONS AND WARRANTIES .......................................54 Section 3.01 Organization; Powers ..........................................54 Section 3.02 Authorization .................................................55 Section 3.03 Enforceability ................................................55 Section 3.04 Consents and Governmental Approvals ...........................56 Section 3.05 Business; Financial Statements ................................56 Section 3.06 No Material Adverse Change ....................................57 Section 3.07 Title to Properties; Possession Under Leases ..................57 Section 3.08 Subsidiaries ..................................................58 Section 3.09 Litigation; Compliance with Laws ..............................58 Section 3.10 Agreements ....................................................58 Section 3.11 Federal Reserve Regulations ...................................58 Section 3.12 Investment Company Act; Public Utility Holding Company Act ........................................................59 Section 3.13 Use of Proceeds ...............................................59 -i- Page ---- Section 3.14 Tax Returns ...................................................59 Section 3.15 No Material Misstatements .....................................59 Section 3.16 Employee Benefit Plans ........................................60 Section 3.17 Environmental and Safety Matters ..............................61 Section 3.18 Security Interests ............................................62 Section 3.19 Solvency ......................................................62 Section 3.20 Transactions with Affiliates ..................................62 Section 3.21 Ownership .....................................................62 Section 3.22 Insurance .....................................................63 Section 3.23 Labor Relations ...............................................63 Section 3.24 Changes, etc ..................................................63 Section 3.25 Indebtedness ..................................................63 Section 3.26 Business ......................................................63 Section 3.27 Chief Executive Office ........................................64 Section 3.28 Fixed Price Supply Contracts ..................................64 Section 3.29 Trading and Inventory Policies ................................64 Section 3.30 Parity Debt ...................................................65Article IV CONDITIONS OF LENDING .................................................65 Section 4.01 Effectiveness .................................................65 Section 4.02 All Extensions of Credit ......................................71Article V ACCOUNTING; FINANCIAL STATEMENTS; INSPECTION ...........................74 Section 5.01 Accounting ....................................................74 Section 5.02 Financial Statements ..........................................74 Section 5.03 Inspection ....................................................79Article VI BUSINESS AND FINANCIAL COVENANTS ......................................80 Section 6.01 Indebtedness ..................................................80 Section 6.02 Liens, etc ....................................................83 Section 6.03 Investments, Guaranties, etc ..................................85 Section 6.04 Restricted Payments ...........................................86 Section 6.05 Transactions with Affiliates ..................................87 Section 6.06 Prohibited Stock and Indebtedness .............................88 Section 6.07 Consolidation, Merger, Sale of Assets, etc ....................88 Section 6.08 Partnership or Corporate Existence etc.; Business .............92 Section 6.09 Payment of Taxes and Claims ...................................92 Section 6.10 Compliance with ERISA .........................................93 Section 6.11 Maintenance of Properties; Insurance ..........................93 Section 6.12 Operative Agreements; Collateral Documents ....................94 Section 6.13 Chief Executive Office ........................................94 Section 6.14 Covenant to Secure Notes Equally ..............................94 Section 6.15 Compliance with Laws ..........................................95 Section 6.16 Further Assurances ............................................95 Section 6.17 Subsidiaries ..................................................95 Section 6.18 Use of Proceeds ...............................................97 Section 6.19 Accounting Changes ............................................97 -ii- Page ---- Section 6.20 Certain Real Property .........................................97 Section 6.21 Sale and Lease-Back Transactions ..............................98 Section 6.22 Acquisitions ..................................................98 Section 6.23 Impairment of Security Interests ..............................99 Section 6.24 Limitation on Restrictions on Subsidiary Dividends, etc .......99 Section 6.25 No Other Negative Pledges .....................................99 Section 6.26 Sales of Receivables ..........................................99 Section 6.27 Fixed Price Supply Contracts; Certain Policies ................99 Section 6.28 Certain Operations ...........................................100 Section 6.29 Independent Corporate Existence ..............................100Article VII EVENTS OF DEFAULT ...................................................101 Section 7.01 Events of Default ............................................101 Section 7.02 Remedies .....................................................105Article VIII THE AGENTS AND ISSUING BANK ........................................105 Section 8.01 Appointment and Authorization ................................105 Section 8.02 Liability of Agents ..........................................106 Section 8.03 Action by Agents .............................................106 Section 8.04 Notice of Default ............................................107 Section 8.05 Successor Agents .............................................107 Section 8.06 Agent and Affiliate ..........................................107 Section 8.07 Indemnification ..............................................108 Section 8.08 Credit Decision ..............................................108 Section 8.09 Intercreditor Agreement ......................................109Article IX MISCELLANEOUS ........................................................109 Section 9.01 Notices ......................................................109 Section 9.02 Survival of Agreement ........................................110 Section 9.03 Binding Effect ...............................................111 Section 9.04 Successors and Assigns; Participations and Assignments .......111 Section 9.05 Expenses; Indemnity ..........................................114 Section 9.06 Right of Setoff ..............................................116 Section 9.07 Applicable Law ...............................................117 Section 9.08 Waivers; Amendment ...........................................117 Section 9.09 Interest Rate Limitation .....................................118 Section 9.10 Entire Agreement .............................................118 Section 9.11 Severability .................................................118 Section 9.12 Counterparts .................................................119 Section 9.13 Headings .....................................................119 Section 9.14 Jurisdiction; Consent to Service of Process; Waiver of Jury Trial ................................................119 Section 9.15 Legend .......................................................120 -iii-SchedulesSchedule 1.01A Lenders and CommitmentsSchedule 1.01B Restricted SubsidiariesSchedule 3.07(a) Real Property Not Owned or LeasedSchedule 3.07(b) Real Property Owned or LeasedSchedule 3.08 SubsidiariesSchedule 3.09 LitigationSchedule 3.14 State TaxesSchedule 3.16 Employee Benefit PlansSchedule 3.17 Environmental MattersSchedule 3.18 Security InterestsSchedule 3.20 Transactions with AffiliatesSchedule 3.28 Fixed Price Supply ContractsSchedule 6.29 Independent Corporate Existence ExhibitsExhibit A Form of NoteExhibit B-1 Form of General Partner Consent and AgreementExhibit B-2 Form of Public Partnership Consent and AgreementExhibit C Form of Subsidiaries Consent and AgreementExhibit D Form of Intercompany NoteExhibit E Form of Assignment and AcceptanceExhibit F-1 Form of Opinion of Phillips Nizer LLPExhibit F-2 Form of Opinion of Local Counsel to BorrowerExhibit G Form of Perfection CertificateExhibit H Form of Supplemental AgreementExhibit I-1 Form of Notice of BorrowingExhibit I-2 Form of Borrowing CertificateExhibit J Form of Agreement of Parity Lenders and Supplement to Intercreditor AgreementExhibit K Form of Compliance CertificateExhibit L Form of Exemption CertificateExhibit M Form of Solvency CertificateExhibit N Form of Cash Collateral Agreement -iv- PARITY DEBT CREDIT AGREEMENT dated as of September 23, 2003, among STAR GASPROPANE, L.P., a Delaware limited partnership (the "Borrower"), the Lenders (asdefined herein), WACHOVIA BANK, N.A., as documentation agent (in such capacity,the "Documentation Agent"), FLEET NATIONAL BANK, as syndication agent (in suchcapacity, the "Syndication Agent"), and JPMORGAN CHASE BANK, as administrativeagent. W I T N E S S E T H : WHEREAS, the Borrower is a party to that certain Parity Debt CreditAgreement dated as of February 22, 2002 with the lenders named therein, FleetNational Bank, as administrative agent, and Bank of America, N.A., asdocumentation agent (as amended, the "Existing Parity Debt Credit Agreement"). WHEREAS, the Borrower has requested that the Lenders make extensions ofcredit available to replace the Existing Parity Debt Credit Agreement; and WHEREAS, the Lenders have agreed to replace the Existing Parity Debt CreditAgreement and make extensions of credit to the Borrower upon the terms andsubject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreementscontained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01 Defined Terms. As used in this Agreement, the following termsshall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any ABR Revolving Loan or ABR Term Loan. "ABR Revolving Loan" shall mean any Revolving Loan bearing interest at arate determined by reference to the Alternate Base Rate in accordance with theprovisions of Article II. "ABR Term Loan" shall mean any Term Loan bearing interest at a ratedetermined by reference to the Alternate Base Rate in accordance with theprovisions of Article II. "Acquired Business Entity" means (i) any business entity the capital stockor assets of which have been acquired substantially as an entirety by theBorrower by purchase, merger or, consolidation, and (ii) any other assets whichwere operated as an identifiable business unit, i.e., a branch or division of abusiness entity and which have been acquired substantially as an entirety by theBorrower. 2 "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowingfor any Interest Period, the rate, rounded upwards to the nearest 1/100%,obtained by dividing (a) the LIBO Rate for such Interest Period by (b) an amountequal to 1 minus the Statutory Reserves, if any; provided, however, that if atany time during such Interest Period the Statutory Reserves applicable to suchEurodollar Borrowing changes, the Adjusted LIBO Rate shall automatically beadjusted to reflect such change, effective as of the date of such change. "Administrative Agent" shall mean JPMorgan Chase Bank, together with itsaffiliates, as the administrative agent for the Lenders under this Agreement andthe other Loan Documents, together with any of its successors in such capacity. "Affiliate", as applied to any Person, shall mean any other Person directlyor indirectly controlling or controlled by or under common control with suchPerson; provided, that (i) for purposes of this definition, "control"(including, with correlative meanings, the terms "controlled by" and "undercommon control with") as used with respect to any Person shall mean thepossession, directly or indirectly, of the power to direct or cause thedirection of the management and policies of such Person, whether as a generalpartner or through the ownership of voting securities or by contract orotherwise, (ii) as applied to the Borrower, the term "Affiliate" shall includePetro Holdings, Petro, all Subsidiaries of Petro, the General Partner and thePublic Partnership, and (iii) no Person which is an institution shall be deemedto be an Affiliate of the Borrower solely by reason of ownership of the FacilityObligations or other securities issued in exchange for the Facility Obligationsor by reason of having the benefits of any agreements or covenants contained inthis Agreement or the other Loan Documents. "After Acquired Property" shall have the meaning assigned to such term inSection 6.20. "Agents" shall mean the Administrative Agent, the Syndication Agent and theDocumentation Agent. "Aggregate Cost of Unmortgaged Property" shall have the meaning assigned tosuch term in Section 6.20. "Agreement" shall mean this Parity Debt Credit Agreement, as amended,supplemented, restated or otherwise modified from time to time. "Agreement of Lenders and Supplement to Intercreditor Agreement" shall meanthe Agreement of Lenders and Supplement to Intercreditor Agreement, dated as ofthe date hereof, among the Borrower, the lenders party to the Working Capitaland Acquisition Facility Credit Agreement and the Trustee. "Agreement of Parity Lenders and Supplement to Intercreditor Agreement"shall mean the Agreement of Parity Lenders and Supplement to IntercreditorAgreement, dated as of the date hereof, among the Borrower, the Lenders and theTrustee, substantially in the form of Exhibit J hereto. "Alternate Base Rate" shall mean, for any day, a rate per annum (roundedupwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) theFederal Funds Effective Rate in effect on such day plus 0.50% and (b) the PrimeRate in effect on such day. If the 3Administrative Agent shall have determined (which determination shall beconclusive absent manifest error) that it is unable to ascertain the FederalFunds Effective Rate for any reason, including the inability or failure of theAdministrative Agent to obtain sufficient quotations in accordance with theterms hereof, the Alternate Base Rate shall be determined without regard toclause (a) of the first sentence of this definition until the circumstancesgiving rise to such inability no longer exist. Any change in the Alternate BaseRate due to a change in the Prime Rate or the Federal Funds Effective Rate shallbe effective on the effective date of such change in the Prime Rate or theFederal Funds Effective Rate, respectively, without notice to the Borrower. "Applicable Margin" shall mean (a) with respect to any ABR Revolving Loanor ABR Term Loan, the Applicable ABR Margin, and (b) with respect to any Eurodollar Revolving Loan or Eurodollar Term Loan, the Applicable EurodollarMargin. "Applicable ABR Margin" shall mean, with respect to any Revolving Loan orTerm Loan outstanding on any day: (i) 0.625%, if such day falls within a Level I Pricing Period; (ii) 0.875%, if such day falls within a Level II Pricing Period; and (iii) 1.125%, if such day falls within a Level III Pricing Period. "Applicable Eurodollar Margin" shall mean, with respect to any RevolvingLoan or Term Loan outstanding on any day. (i) 1.625%, if such day falls within a Level I Pricing Period; (ii) 1.875%, if such day falls within a Level II Pricing Period; and (iii) 2.125%, if such day falls within a Level III Pricing Period. "Assets" shall mean the productive assets of the Borrower and itsRestricted Subsidiaries which are used and useful in their business andoperations and are pledged as Collateral to the Trustee. "Assignee" shall have the meaning set forth in Section 9.04(b)(i). "Assignment and Acceptance" shall mean an assignment and acceptance enteredinto by a Lender and an assignee, and accepted by the Administrative Agent, inthe form of Exhibit E or such other form as shall be approved by theAdministrative Agent. "Audited Financial Statements" shall have the meaning assigned to such termin Section 3.05(c). "Available Cash", with respect to any calendar quarter, shall mean (a) thesum of (i) all cash of the Borrower and the Restricted Subsidiaries on hand atthe end of such quarter and (ii) all additional cash of the Borrower and theRestricted Subsidiaries on hand through available 4borrowings made after the end of such quarter (provided that, such borrowingsshall in no event exceed available borrowings as of the end of such quarter) atthe date of determination of Available Cash with respect to such quarter, less(b) any cash reserves that the General Partner shall determine to be necessaryor appropriate in its reasonable discretion to (A) provide for the properconduct of the business of the Borrower and the Restricted Subsidiaries(including cash reserves for future capital expenditures) or (B) provide fundsfor distributions under Sections 5.4(a)(i), (ii) and (iii) or 5.4(b)(i) of theMLP Agreement in respect of any one or more of the next four quarters or (C)comply with applicable law or any loan agreement (including this Agreement andthe Note Agreements), mortgage, security agreement, debt instrument or otheragreement or obligation to which the Borrower or any Restricted Subsidiary is aparty or its assets are subject (including the payment of principal, Make WholeAmount (as defined in the 1995 Note Agreement), if applicable, and interest inrespect of the Mortgage Notes, the 2000 Parity Notes, the 2001 Parity Notes, theNotes and the notes under the Working Capital and Acquisition Facility CreditAgreement); provided, that Available Cash shall exclude, without duplication,(x) in each calendar quarter a reserve equal to at least 50% of the aggregateamount of all interest payments in respect of all Indebtedness of the Borrowerand the Restricted Subsidiaries to be paid or to accrue in the next quarter(assuming, in the case of Indebtedness incurred hereunder, that suchIndebtedness will bear interest at the then prevailing rate for Eurodollar Loansof the applicable Class for one-month's duration, plus the Applicable Margin forsuch Loans, and assuming in the case of other Indebtedness bearing interest atfluctuating interest rates which cannot be determined in advance, that theinterest rate in effect on the last Business Day of the immediately precedingcalendar quarter will remain in effect until such Indebtedness is due to be paid), (y) with respect to any Indebtedness of which principal and/or interestis payable annually (provided, in the case of principal, that such Indebtednessis secured equally and ratably with the Mortgage Notes), in the third calendarquarter immediately preceding each calendar quarter in which any scheduledprincipal and/or interest payment is due with respect to such Indebtedness (a"payment quarter"), a reserve equal to at least 25% of the aggregate amount ofall principal and interest to be paid in respect of such Indebtedness securedequally and ratably with the Mortgage Notes in such payment quarter; in thesecond calendar quarter immediately preceding a payment quarter, a reserve equalto at least 50% of the aggregate amount of all principal and interest to be paidin respect of such Indebtedness in such payment quarter; and in the calendarquarter immediately preceding a payment quarter, a reserve equal to at least 75%of the aggregate amount of all principal and interest to be paid in respect ofsuch Indebtedness in such payment quarter and (z) with respect to the MortgageNotes and any other Indebtedness of which principal and/or interest is payablesemi-annually or otherwise less frequently than quarterly (provided, in the caseof principal, that such Indebtedness is secured equally and ratably with theMortgage Notes), in each calendar quarter a reserve equal to at least 50% of theaggregate amount of all principal and interest to be paid in respect of theMortgage Notes and such other Indebtedness in the next quarter; provided,further, that the amount of such reserve specified in clauses (x), (y) and (z)of this definition for principal amounts to be paid shall be reduced by theaggregate principal amount of all binding, irrevocable letters of creditestablished to refinance such principal amounts. "Board" shall mean the Board of Governors of the Federal Reserve System ofthe United States. "Borrower" shall have the meaning assigned to such term in the preamblehereto. 5 "Borrower Security Agreement" shall mean the Pledge and Security Agreementdated as of December 13, 1995 among the Borrower, the General Partner, theRestricted Subsidiaries and the Trustee, as amended, supplemented or otherwisemodified from time to time. "Borrowing" shall mean a group of Loans of a single Class and Type made bythe Lenders on a single date and as to which a single Interest Period is ineffect. For purposes of Section 4.02, a "Borrowing" does not include aconversion of any previously outstanding Revolving Loan into a Term Borrowingpursuant to Section 2.01(b). "Borrowing Certificate" shall have the meaning given to such term inSection 4.02(l). "Business" shall mean the operation by the Borrower and its Subsidiaries(other than Petro Holdings or its Subsidiaries) of the wholesale and retailsale, distribution and storage of propane gas, heating oil, diesel fuel andgasoline and related petroleum derivative products and the provision of servicesto customers, and the related retail sale of supplies and equipment, includinghome appliances. "Business Day" shall mean any day (other than a day which is a Saturday,Sunday or legal holiday in the State of New York) on which banks are open forbusiness in New York, New York; provided, however, that when used in connectionwith a Eurodollar Loan, the term "Business Day" shall also exclude any day onwhich banks are not open for dealings in dollar deposits in the applicableinterbank market. "Capital Contribution" shall mean the net cash proceeds received by theBorrower from the General Partner or from the Public Partnership as a capitalcontribution or as consideration for the issuance by the Borrower of additionalpartnership interests, in each case for the sole purpose of funding theexpenditures referred to in Section 6.01(b). "Capital Expenditures" shall mean, for any period, all amounts (whetherpaid in cash or accrued as a liability) which would, in accordance with GAAP, beincluded on a consolidated statement of cash flows of the Borrower and itsRestricted Subsidiaries for such period as additions to property, plant andequipment, Capital Lease Obligations or other capital expenditures; providedthat, it is agreed that the Capital Expenditures of Unrestricted Subsidiaries shall not be consolidated with those of the Borrower and its RestrictedSubsidiaries for purposes of calculating "Capital Expenditures." "Capital Lease Obligations" of any Person shall mean the obligations ofsuch Person to pay rent or other amounts under any lease of (or otherarrangement conveying the right to use) real or personal property, or acombination thereof, which obligations are required to be classified andaccounted for as capital leases on a balance sheet of such Person under GAAP (asopposed to being accounted for as operating lease expenses on an incomestatement of such Person under GAAP) and, for the purposes of this Agreement,the amount of such obligations at any time shall be the capitalized amountthereof at such time determined in accordance with GAAP. "Capital Stock" of any Person shall mean any and all shares, partnership,limited liability company and other interests (general or limited), rights topurchase, warrants, options, 6participations or other equivalents of or interests in (however designated) theequity of such Person. "Cash Collateral Agreement" shall mean the Cash Collateral Agreement datedas of the date hereof among the Borrower, the Administrative Agent and theTrustee, in the form of Exhibit N, as amended, supplemented or otherwisemodified from time to time. "Cash Equivalents" shall mean: (a) marketable obligations issued or unconditionally guaranteed by the United States of America, or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at any date of determination the highest generic rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c) commercial paper maturing no more than 270 days from the date of creation thereof and having as at any date of determination one of the two highest generic ratings obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (d) certificates of deposit maturing one year or less from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States of America or any state thereof or the District of Columbia or Canada, (I) the commercial paper or other short-term unsecured debt obligations of which are rated either A-2 or better (or comparably if the rating system is changed) by Standard & Poor's Ratings Group or Prime-2 or better (or comparably if the rating system is changed) by Moody's Investors Service, Inc. or (II) the long-term debt obligations of which are rated either AA- or better (or comparably if the rating system is changed) by Standard & Poor's Ratings Group or Aa3 or better (or comparably if the rating system is changed) by Moody's Investors Service, Inc. ("Permitted Banks"); (e) bankers' acceptances eligible for rediscount under requirements of the Board and accepted by Permitted Banks; and (f) obligations of the type described in clause (a), (b), (c) or (d) above purchased from a securities dealer designated as a "primary dealer" by the Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Borrower or a Subsidiary by a custodian which is a Permitted Bank and which is not a counterparty to the repurchase agreement in question. 7 "CERCLA" shall mean the Federal Comprehensive Environmental Response,Compensation and Liability Act, as amended. "Charges" shall have the meaning assigned to such term in Section 9.09. "Class" shall have the meaning assigned to such term in Section 1.03. "Closing Date" shall mean the date on which the conditions precedent setforth in Section 4.01 shall have been satisfied, which date is September 23,2003. "Code" shall mean the Internal Revenue Code of 1986, as the same may beamended from time to time. "Collateral" shall mean all the collateral pledged or purported to bepledged pursuant to any of the Collateral Documents. "Collateral Documents" shall mean the Security Agreements, the SubsidiariesConsent and Agreement, the General Partner Consent and Agreement, the PublicPartnership Consent and Agreement, the Motor Vehicle Security Agreements, thePerfection Certificate, the Lockbox Agreements, the Mortgages, the IntercreditorAgreement, the Agreement of Parity Lenders and Supplement to IntercreditorAgreement, the Cash Collateral Agreement, checking and deposit accountagreements and all other security agreements and other documents and instrumentsexecuted and/or delivered pursuant to the terms hereof or thereof (including thecertificates of title referred to in Section 4.01(c) of the Borrower SecurityAgreement) in order to secure the Facility Obligations, other Parity Debt, andthe Working Capital and Acquisition Facility Credit Agreement or perfect anyLien granted for the benefit of the Lenders, the lenders under the WorkingCapital and Acquisition Facility Credit Agreement and the holders of Parity Debtpursuant thereto. "Commitment" shall mean, with respect to each Lender, such Lender'sRevolving Credit Commitment. "Commitment Fee" shall have the meaning assigned to such term in 0. "Commodities Inventory" shall mean all inventory consisting of propane gasand other petroleum derivative products of, and held for sale by, the Borroweror any Restricted Subsidiary. "Commodity Hedging Agreement" shall mean any agreement or arrangementdesigned solely to protect the Borrower and the Restricted Subsidiaries againstfluctuations in the price of propane with respect to quantities of propane thatthe Borrower and the Restricted Subsidiaries reasonably expect to purchase fromsuppliers, sell to their customers or need for their inventory during the periodcovered by such agreement or arrangement. "Conduit Lender" shall mean any special purpose corporation organized andadministered by any Lender for the purpose of making Loans otherwise required tobe made by such Lender and designated by such Lender in a written instrument;provided, that the designation by any Lender of a Conduit Lender shall notrelieve the designating Lender of any of 8its obligations to fund a Loan under this Agreement if, for any reason, itsConduit Lender fails to fund any such Loan, and the designating Lender (and notthe Conduit Lender) shall have the sole right and responsibility to deliver allconsents and waivers required or requested under this Agreement with respect toits Conduit Lender, and provided, further, that no Conduit Lender shall (a) beentitled to receive any greater amount pursuant to Section 2.13, 2.15, 2.19 or9.05 than the designating Lender would have been entitled to receive in respectof the extensions of credit made by such Conduit Lender or (b) be deemed to haveany Commitment. "Confidential Information Memorandum" shall mean the ConfidentialInformation Memorandum dated August 2003 and furnished to certain Lenders. "Consolidated Cash Flow" shall mean at any date of determination, for the Reference Period with respect to such date of determination, (i) the sum of,without duplication, the amounts for such period, taken as a single accountingperiod, (a) Consolidated Net Income and (b) all amounts deducted in arriving atsuch Consolidated Net Income in respect of (I) interest charges (includingamortization of debt discount and expense and imputed interest in Capital LeaseObligations), (II) provisions for all taxes and reserves (including reserves fordeferred income taxes) and (III) non-cash items, including, without limitation,non-cash expenses or losses incurred as a result of Statement of FinancialAccounting Standard Number 133 and the implementation of Statement of FinancialAccounting Standard Numbers 141 and 142, less (ii) without duplication, anynon-cash items added in the determination of such Consolidated Net Income forsuch period. Consolidated Cash Flow shall be calculated after giving effect, ona pro forma basis for the Reference Period with respect to any date ofdetermination to, without duplication, any asset sales or asset acquisitions(including any asset acquisition giving rise to the need to make suchcalculation as a result of the Borrower or any Restricted Subsidiary (includingany Person who becomes a Restricted Subsidiary as a result of such assetacquisition) incurring, assuming or otherwise being liable for acquiredIndebtedness) occurring during the period commencing on the first day of suchReference Period to and including the date of determination, as if such assetsale or asset acquisition occurred on the first day of such Reference Period.The pro forma calculations required by this definition will be determined inaccordance with GAAP, shall be certified by a Financial Officer of the Borrower,and shall be calculated in a manner reasonably satisfactory to the RequiredLenders; provided, however, that such calculation shall be made (i) based on thehistorical sales volume associated with any Eligible Propane Acquisition for theReference Period with respect to the date of such acquisition, less estimatedpost-acquisition loss of sales volume (not to be less than three percent (3%)),(ii) based on the actual cost to the Borrower of the volume of goods sold asdetermined in clause (i) above, (iii) based on the pro forma expenses that wouldhave been incurred by the Borrower in the operation of such Eligible PropaneAcquisition if it had occurred on the first day of such period computed on thebasis of personnel expenses for employees retained or to be retained by theBorrower in the operation of such Eligible Propane Acquisition and non-personnelcosts and expenses incurred by the Borrower or the General Partner in theoperation of the Business at similarly situated facilities of the Borrower andthe Restricted Subsidiaries, and (iv) without inclusion of the operations of anyUnrestricted Subsidiary. "Consolidated Interest Expense" shall mean, as of any date ofdetermination, the total amount payable by the Borrower and its RestrictedSubsidiaries on a consolidated basis (it being understood that amounts payableby Unrestricted Subsidiaries shall not be consolidated with the 9Borrower or any Restricted Subsidiary for purposes of calculating ConsolidatedInterest Expense), during the Reference Period with respect to such date ofdetermination, in respect of all interest charges (including amortization ofdebt discount and expense and imputed interest on actual payments under CapitalLease Obligations) during such Reference Period with respect to Indebtedness ofthe Borrower and its Restricted Subsidiaries. "Consolidated Net Income" shall mean, with reference to any period, the netincome (or deficit) of the Borrower and its Restricted Subsidiaries, for suchperiod (taken as a cumulative whole), after deducting all operating expenses,provisions for all taxes and reserves (including reserves for deferred incometaxes) and all other proper deductions, all determined in accordance with GAAPon a consolidated basis (it being understood that the net income of UnrestrictedSubsidiaries shall not be consolidated with the Borrower or any RestrictedSubsidiary for purposes of calculating Consolidated Net Income), aftereliminating all intercompany transactions and after deducting portions of incomeproperly attributable to minority interests, if any, in the stock and surplus ofRestricted Subsidiaries, provided, that there shall be excluded (a) the income(or deficit) of any Person accrued prior to the date it becomes a RestrictedSubsidiary or is merged into or consolidated with the Borrower or a RestrictedSubsidiary, (b) the income (or deficit) of any Person (other than a RestrictedSubsidiary) in which the Borrower or any Restricted Subsidiary has an ownershipinterest, except to the extent that any such income has been actually receivedby the Borrower or such Restricted Subsidiary in the form of dividends orsimilar distributions (but subject to the limitations specified in the provisobelow), (c) the undistributed earnings of any Restricted Subsidiary to theextent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the time permitted by the terms of itscharter or any agreement, instrument, judgment, decree, order, statute, rule orgovernmental regulation applicable to such Restricted Subsidiary, (d) anyrestoration to income of any contingency reserve, except to the extent thatprovision for such reserve was made out of income accrued during such period,(e) any aggregate net gain (but not any aggregate net loss) during such periodarising from the sale, exchange or other disposition of capital assets (suchterm to include all fixed assets, whether tangible or intangible, all inventorysold in conjunction with the disposition of fixed assets, and all securities),(f) any write-up of any asset, (g) any net gain from the collection of theproceeds of life insurance policies, (h) any gain arising from the acquisitionof any securities, or the extinguishment, under GAAP, of any Indebtedness, ofthe Borrower or any Restricted Subsidiary, (i) any net income or gain (but notany net loss) during such period from any change in accounting, from anydiscontinued operations or the disposition thereof, from any extraordinaryevents or from any prior period adjustments, (j) any deferred creditrepresenting the excess of equity in any Restricted Subsidiary at the date ofacquisition over the cost of the investment in such Restricted Subsidiary, and(k) in the case of a successor to the Borrower by consolidation or merger or asa transferee of its assets, any earnings of the successor corporation prior tosuch consolidation, merger or transfer of assets; provided, further, thatnotwithstanding clause (b) above, there shall be excluded in all events theincome (or deficit) of Petro Holdings and its Subsidiaries, whether or not anyamounts are actually received by the Borrower or any Restricted Subsidiary fromor through Petro Holdings or any of its Subsidiaries in the form of dividends orotherwise. 10 "Consolidated Net Worth" shall mean, as to the Borrower, the amount bywhich (a) the total assets of the Borrower and the Restricted Subsidiaries appearing on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries prepared in accordance with GAAP as of the date of determination (after eliminating all amounts properly attributable to minority interests in the stock and surplus, if any, of the Restricted Subsidiaries) exceeds (b) total liabilities of the Borrower and the Restricted Subsidiaries appearing on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries prepared in accordance with GAAP as of the date of determination on a consolidated basis,in each case after eliminating all intercompany transactions, and as to anyother Person, the amount by which (i) the total assets of such Person and its Subsidiaries appearing on a consolidated balance sheet of such Person and its Subsidiaries prepared in accordance with GAAP as of the date of determination (after eliminating all amounts properly attributable to minority interests in the stock and surplus, if any, of its Subsidiaries) exceeds (ii) total liabilities of such Person and its Subsidiaries appearing on a consolidated balance sheet of such Person and its Subsidiaries prepared in accordance with GAAP as of the date of determination on a consolidated basis,in each case after eliminating all intercompany transactions. "Consolidated Pro Forma Debt Service" shall mean, as of any date ofdetermination, the total amount payable by the Borrower and the RestrictedSubsidiaries on a consolidated basis (it being understood that amounts payableby Unrestricted Subsidiaries shall not be consolidated with the Borrower or anyRestricted Subsidiary for purposes of calculating Consolidated Pro Forma DebtService), during the four consecutive calendar quarters next succeeding the dateof determination, in respect of scheduled principal payments and all interestcharges (excluding amortization of debt discount and expense) with respect toIndebtedness of the Borrower and the Restricted Subsidiaries outstanding on suchdate of determination (other than all scheduled principal payments during anysuch four consecutive calendar quarter period with respect to Funded Debt andFacility B), after giving effect to any Indebtedness proposed to be incurred onsuch date and to the substantially concurrent repayment of any other Indebtedness, and (a) including actual payments under Capital Lease Obligations,(b) assuming, in the case of Indebtedness (other than Indebtedness incurredunder the Working Capital and Acquisition Facility Credit Agreement and thisFacility) bearing interest at fluctuating interest rates which cannot bedetermined in advance, that the rate in effect on such date will remain ineffect throughout such period, (c) assuming in the case of Indebtedness incurredunder the Working Capital and Acquisition Facility Credit Agreement and/or thisFacility, that (i) the interest payments payable during such four consecutivecalendar quarters next succeeding the date of determination will equal theactual interest payments associated with the Working Capital and AcquisitionFacility Credit Agreement or this Facility, as the case may be, during the mostrecent 11four fiscal quarters, (ii) except for the twelve month period immediately priorto the termination or final maturity thereof (unless extended or renewed), noprincipal payments will be made under Facility A and (iii) principal paymentsrelating to Facility B and this Facility will become due based on the assumptionthat the conversion to the fixed amortization schedule pursuant to Sections2.01(c) and 2.11(c) of the Working Capital and Acquisition Facility CreditAgreement and Sections 2.01(b) and 2.11(b) of this Agreement, as applicable, hasoccurred, (d) treating the principal amount of all Indebtedness outstanding asof such date of determination under a revolving credit or similar agreement(other than the Working Capital and Acquisition Facility Credit Agreement andthis Agreement) as maturing and becoming due and payable on the scheduledmaturity date or dates thereof (including the maturity of any payment requiredby any commitment reduction or similar amortization provision), without regardto any provision permitting such maturity date to be extended, (e) including anyother debt repayments due within twelve months from such date of determinationand (f) excluding principal and interest payments in connection with theStar/Petro Intercompany Subordinated Debt. "Control" shall mean the possession, directly or indirectly, of the powerto direct or cause the direction of the management or policies of a Person,whether through the ownership of voting securities, by contract or otherwise,and "Controlling" and "Controlled" shall have meanings correlative thereto. "Conversion Date" shall mean September 30, 2006. "Current Assets" shall mean, as of any date, all assets which would, inaccordance with GAAP, be included on a consolidated balance sheet of theBorrower and its Restricted Subsidiaries as of such date as current assets;provided that, it is understood that the current assets of UnrestrictedSubsidiaries shall not be consolidated with those of the Borrower or anyRestricted Subsidiary for purposes of calculating Current Assets. "Current Liabilities" shall mean, as of any date, without duplication, (a)all liabilities which would, in accordance with GAAP, be included on aconsolidated balance sheet of the Borrower and its Restricted Subsidiaries as ofsuch date as current liabilities; provided, that it is understood that thecurrent liabilities of Unrestricted Subsidiaries shall not be consolidated withthose of the Borrower or any Restricted Subsidiary for purposes of calculatingCurrent Liabilities and (b) all Indebtedness as of such date in respect ofFacility A. "Current Value" shall have the meaning assigned to such term in Section6.20. "Default" shall mean any event or condition which upon notice, lapse oftime or both would constitute an Event of Default. "Disqualified Stock" of any Person shall mean any Capital Stock of suchPerson which by its terms (or by the terms of any security into which it isconvertible or for which it is exchangeable or exercisable), upon the happeningof any event or otherwise (a) matures or is mandatorily redeemable or subject toany mandatory repurchase requirement, pursuant to a sinking fund obligation orotherwise, (b) is convertible into or exchangeable or exercisable forIndebtedness or Disqualified Stock or (c) is redeemable or subject to anymandatory repurchase 12requirement at the option of the holder thereof, in whole or in part, in eachcase on or prior to the first anniversary of the Maturity Date. "Documentation Agent" shall mean Wachovia Bank, N.A., in its capacity asdocumentation agent for the Lenders hereunder, and its successors in suchcapacity. "dollars" or "$" shall mean lawful money of the United States of America. "Eligible Propane Acquisitions" shall mean acquisitions by the Borrower orany Restricted Subsidiary of controlling stock or all or any part of the assetsof Persons primarily engaged in the distribution of propane and, incidentalthereto, propane appliances, within (a) the continental United States of Americaor (b) Canada or Puerto Rico, to the extent that the Trustee, for the benefit ofthe Secured Parties, has a perfected first-priority security interest in suchacquired Capital Stock or assets of such Person pursuant to the CollateralAgreements; provided, that any acquisition made by an Unrestricted Subsidiaryshall not constitute an Eligible Propane Acquisition. A Person shall be"primarily engaged" in the distribution of propane and propane appliances withinthe continental United States of America, Canada or Puerto Rico in the eventthat at least eighty-five percent (85%) of its annual gross revenue is derivedfrom such distribution activities within such locations. "Environmental Laws" shall mean the common law and all Federal, state,local and foreign laws, rules or regulations relating to pollution or protectionof public health, safety or the environment, including laws relating to (a)emissions, discharges, releases or threatened releases of any Hazardous Materialinto the environment (including air, surface water, ground water or land) or (b)the manufacture, processing, distribution, use, treatment, storage, disposal,transport or handling of Hazardous Materials. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, asthe same may be amended from time to time, and the regulations and rules issuedthereunder. "Eurodollar Borrowing" shall mean a Borrowing comprised of EurodollarLoans. "Eurodollar Loan" shall mean any Eurodollar Revolving Loan or EurodollarTerm Loan. "Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interestat a rate determined by reference to the Adjusted LIBO Rate in accordance withthe provisions of Article II. "Eurodollar Term Borrowing" shall mean a Borrowing comprised of EurodollarTerm Loans. "Eurodollar Term Loan" shall mean any Term Loan bearing interest at a ratedetermined by reference to the Adjusted LIBO Rate in accordance with theprovisions of Article II. "Event of Default" shall have the meaning assigned to such term in ArticleVII. "Excess Proceeds" shall mean the meaning specified in Section6.07(c)(iii)(B). 13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,and the rule and regulations promulgated thereunder. "Existing Credit Agreement" shall have the meaning assigned to such term inthe Working Capital and Acquisition Facility Credit Agreement. "Existing Parity Debt Credit Agreement" shall have the meaning assigned tosuch term in the recitals hereto. "Existing Unmortgaged Property" shall have the meaning assigned to suchterm in Section 6.20. "Facilities Obligations" shall have the meaning assigned to such term inthe Working Capital and Acquisition Facility Credit Agreement. "Facility" shall mean the Revolving Loans, the Letters of Credit and theTerm Loans provided or participated in by the Lenders to the Borrower pursuantto this Agreement and the other Loan Documents. "Facility A" shall have the meaning assigned to such term in the WorkingCapital and Acquisition Facility Credit Agreement. "Facility B" shall have the meaning assigned to such term in the WorkingCapital and Acquisition Facility Credit Agreement. "Facility Obligations" shall mean (a) the Borrower's obligations in respectof the due and punctual payment of principal of and interest on (includinginterest accruing after the maturity of the Loans and Letter of CreditDisbursements not yet reimbursed by the Borrower as provided in Section 2.21 andinterest accruing after the filing of any petition in bankruptcy, or thecommencement of any insolvency, reorganization or like proceeding, relating tothe Borrower, whether or not a claim for post-filing or post-petition interestis allowed in such proceeding) the Loans and all amounts drawn under the Lettersof Credit, when and as due, whether at maturity, by acceleration, upon one ormore dates set for prepayment or otherwise, (b) all Fees, expenses, indemnitiesand expense reimbursement obligations of the Borrower under this Agreement orany other Loan Document, (c) all obligations of the Borrower to any Agent orLender under any Interest Rate Agreement and (d) all other obligations, monetaryor otherwise, of the Borrower or any other Loan Party under any Loan Document towhich it is a party, in each case, whether now owing or hereafter existing. "Federal Funds Effective Rate" shall mean, for any day, the rate equal tothe weighted average (rounded upwards to the nearest 1/8%) of the rates onovernight federal funds transactions with members of the Federal Reserve Systemarranged by federal funds brokers, (a) as such weighted average is published forsuch day (or, if such day is not a Business Day, for the immediately precedingBusiness Day) by the Federal Reserve Bank of New York or (b) if such rate is notso published for such Business Day, as determined by the Administrative Agentusing any reasonable means of determination. Each determination by theAdministrative Agent of the Federal Funds Effective Rate shall, in the absenceof manifest error, be conclusive. 14 "Fees" shall mean the Commitment Fee, the other fees payable pursuant toSection 2.05 and the Letter of Credit Fees. "Financial Officer" shall mean, as to any corporation, the chief financialofficer or principal accounting officer of such corporation and, as to anypartnership, an officer of its managing general partner who would qualify as aFinancial Officer of such general partner hereunder. "Funded Debt", as applied to any Person, shall mean all Indebtedness ofsuch Person which by its terms or by the terms of any instrument or agreementrelating thereto matures more than one year from the date of the initialcreation thereof (including any current installment thereof due within one yearof the date of determination); provided, that Funded Debt shall include anyIndebtedness which does not otherwise come within the foregoing definition butwhich is directly or indirectly renewable or extendible at the option of thedebtor to a date one year or more (including an option of the debtor under arevolving credit or similar agreement obligating the lender or lenders to extendcredit over a period of one year or more) from the date of the initial creationthereof; provided, further, that Funded Debt shall not include intercompanyIndebtedness permitted pursuant to Section 6.01(d). "Funding Office" shall mean the office of the Administrative Agentspecified in Section 9.01 or such other office as may be specified from time totime by the Administrative Agent as its funding office by written notice to theBorrower and the Lenders. "GAAP" shall mean generally accepted accounting principles in effect in theUnited States from time to time. "General Partner" shall mean Star Gas LLC or, after an Involuntary Removal, any Person which replaces Star Gas LLC as sole general partner of the Borrowerand the Public Partnership in a Qualifying Involuntary Removal. "General Partner Consent and Agreement" shall mean the General PartnerConsent and Agreement dated as of the date hereof among the General Partner andthe Trustee as to the consent and agreement of the General Partner in connectionwith the General Partner Guarantee and the Partners Security Agreement, in theform attached hereto as Exhibit B-1, as amended, supplemented or otherwisemodified from time to time. "General Partner Guarantee Agreement" shall mean the Guarantee Agreementbetween the General Partner and the Trustee dated as of March 25, 1999, asamended, supplemented or otherwise modified from time to time. "Governmental Authority" shall mean any Federal, state, local or foreigngovernmental department, commission, board, bureau, authority, agency, court,instrumentality or judicial or regulatory body or entity. "Growth-Related Capital Expenditures" shall mean, with respect to anyPerson, all capital expenditures by such Person made to improve or enhance theexisting capital assets or to increase the customer base of such Person or toacquire or construct new capital assets (but excluding capital expenditures madeto maintain, up to the level thereof that existed at the time 15of such expenditure, the operating capacity of the capital assets of such Personas such assets existed at the time of such expenditure). "Guaranty", as applied to any Person, shall mean any direct or indirectliability, contingent or otherwise, of such Person with respect to anyindebtedness, lease, dividend or other obligation of another, including any suchobligation directly or indirectly guaranteed, endorsed (otherwise than forcollection or deposit in the ordinary course of business) or discounted or soldwith recourse by such Person, or in respect of which such Person is otherwisedirectly or indirectly liable or any other obligation under any contract which,in economic effect, is substantially equivalent to a guaranty, including anysuch obligation of a partnership in which such Person is a general partner or ofa joint venture in which such Person is a joint venturer, and any suchobligation in effect guaranteed by such Person through any agreement (contingentor otherwise) to purchase, repurchase or otherwise acquire such obligation orany security therefor, or to provide funds for the payment or discharge of suchobligation (whether in the form of loans, advances, stock purchases, capitalcontributions or otherwise), or to maintain the solvency or any balance sheet orother financial condition of the obligor of such obligation, or to make paymentfor any products, materials or supplies or for any transportation or servicesregardless of the non-delivery or non-furnishing thereof, in any such case ifthe purpose or intent of such agreement is to provide assurance that suchobligation will be paid or discharged, or that any agreements relating theretowill be complied with, or that the holders of such obligation will be protectedagainst loss in respect thereof. "Guarantee Agreements" shall mean the General Partner Guarantee Agreementand the Subsidiaries Guarantee Agreement. "Hazardous Materials" shall mean any toxic or hazardous substance or waste,gasoline or petroleum (including crude oil or any fraction thereof) or petroleumproducts, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos orasbestos-containing materials, pollutants, contaminants, radioactivity, and anyother materials or substances of any kind, whether or not any such substance isdefined as hazardous under any Environmental Law, that is regulated pursuant toany Environmental Law or that could give rise to liability under anyEnvironmental Law. "Hedging Agreement" shall mean any interest rate swap, collar, cap orsimilar interest rate arrangement designed solely to protect the Borroweragainst fluctuations in interest rates on Indebtedness outstanding or committedunder this Facility. "Indebtedness", as applied to any Person, shall mean the following (withoutduplication): (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed; (b) any indebtedness, whether or not for borrowed money, with respect to which such Person has become directly or indirectly liable and which represents the deferred purchase price (or a portion thereof) or has been incurred to finance the purchase price (or a portion thereof) of any property or service or business acquired by such Person, whether by purchase, consolidation, merger or otherwise; 16 (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition or property, assets or businesses, and all obligations upon which interest charges are customarily paid; (d) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (e) any Capital Lease Obligations to the extent such obligations would, in accordance with GAAP, appear on a balance sheet of such Person; (f) any indebtedness, whether or not for borrowed money, secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness, provided, that the amount of such Indebtedness if not so assumed shall in no event be deemed to be greater than the fair market value from time to time (as determined in good faith by such Person) of the property subject to such Lien; (g) all Disqualified Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends; (h) any Preferred Stock of any Subsidiary of such Person valued at the sum of the liquidation preference thereof or any mandatory redemption payment obligations in respect thereof plus, in either case, accrued dividends thereon; (i) any indebtedness of the character referred to in clause (a) through (h) of this definition deemed to be extinguished under GAAP but for which such Person remains legally liable; (j) all obligations of such Person in respect of Interest Rate Agreements; and (k) all standby letters of credit (including the Letters of Credit) of such Person and any indebtedness of any other Person of the character referred to in clause (a) through (i) of this definition with respect to which the Person whose Indebtedness is being determined has become liable by way of a Guaranty.Notwithstanding the foregoing, in determining the Indebtedness of the Borrowerand the Restricted Subsidiaries, there shall be excluded all undrawn commercialletters of credit (not yet due and payable), trade accounts payable, accruedinterest and other accrued expenses and customer credit balances arising in theordinary course of business on ordinary terms. The Indebtedness of any Personshall include the Indebtedness of any partnership in which such Person is ageneral partner. "Indemnified Party" shall have the meaning assigned to such term in Section9.05(b). 17 "Intercompany Notes" shall mean the promissory notes of the Subsidiariesissued to the Borrower as contemplated by Section 6.01(c), either (i) in the form attached hereto as Exhibit D or (ii) such other form as may be satisfactoryto the Administrative Agent, representing all Indebtedness of the Subsidiariesto the Borrower outstanding at any time. "Intercreditor Agreement" shall mean the Intercreditor and Trust Agreementdated as of December 13, 1995, among (i) the Borrower, the Public Partnership,Star Gas LLC and the Restricted Subsidiaries, as trustor, (ii) HSBC Bank USA(formerly known as Marine Midland Bank), as trustee, (iii) the note purchasersnamed therein, (iv) the bank lenders named therein, (v) the Documentation Agent,(vi) the Syndication Agent, and (vii) the Administrative Agent, as amended bythe First Amendment to Intercreditor and Trust Agreement dated as of May 31,1996, the Second Amendment to Intercreditor and Trust Agreement dated as ofSeptember 30, 2000, the Third Amendment to Intercreditor and Trust Agreementdated as of October 25, 2002, and as supplemented by an Agreement of ParityLenders and Supplement to Intercreditor Agreement, dated as of March 15, 2001,the Supplemental Agreement, dated as of March 25, 1999, the Agreement of ParityLenders and Supplement to Intercreditor Agreement, dated as of October 23, 2001,the Agreement of Parity Lenders and Supplement to Intercreditor Agreement, datedas of February 22, 2002, the Agreement of Lenders and Supplement toIntercreditor Agreement and the Agreement of Parity Lenders and Supplement toIntercreditor Agreement, and as further amended, supplemented or otherwisemodified from time to time. "Interest Payment Date" shall mean, with respect to any Loan, the last dayof the Interest Period applicable to the Borrowing of which such Loan is a partand, in the case of any Eurodollar Borrowing with an Interest Period of morethan three months' duration, each day that would have been an Interest PaymentDate had successive Interest Periods of three months' duration been applicableto such Borrowing and, in addition, in the case of any Eurodollar Borrowing, thedate of any refinancing or conversion of such Borrowing with or to a Borrowingof a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the periodcommencing on the date of such Borrowing or on the last day of the immediatelypreceding Interest Period applicable to such Borrowing, as the case may be, andending on the numerically corresponding day (or, if there is no numericallycorresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6months thereafter, as the Borrower may elect, and (b) as to any ABR Borrowing,the period commencing on the date of such Borrowing or on the last day of theimmediately preceding Interest Period applicable to such Borrowing, as the casemay be, and ending on the earliest of (i) the last day of each March, June,September and December and (ii) with respect to any Revolving Loan or Term Loan,the Conversion Date or the Maturity Date, respectively; provided, however, thatif any Interest Period would end on a day other than a Business Day, suchInterest Period shall be extended to the next succeeding Business Day unless, inthe case of a Eurodollar Borrowing only, such next succeeding Business Day wouldfall in the next calendar month, in which case such Interest Period shall end onthe next preceding Business Day. Interest shall accrue from and including thefirst day of an Interest Period to, but excluding, the last day of such InterestPeriod. 18 "Interest Rate Agreement" shall mean any interest rate swap, collar, cap,foreign currency exchange agreement or other arrangement requiring paymentscontingent upon interest or exchange rates. "Inventory" shall mean Commodities Inventory and Non-Commodities Inventory. "Investment", as applied to any Person, shall mean any direct or indirectpurchase or other acquisition by such Person of stock or other securities of anyother Person, or any direct or indirect loan, advance or capital contribution bysuch Person to any other Person, and any other item which would be classified asan "investment" on a balance sheet of such Person prepared in accordance withGAAP, including any direct or indirect contribution by such Person of propertyor assets to a joint venture, partnership or other business entity in which suchPerson retains an interest. For the purposes of Section 6.03, the amountinvolved in Investments made during any period shall be the aggregate cost tothe Borrower of all such Investments made during such period, determined inaccordance with GAAP, but without regard to unrealized increases or decreases invalue, or write-ups, write-downs or write-offs, of such investments and withoutregard to the existence of any undistributed earnings or accrued interest withrespect thereto accrued after the respective dates on which such Investments were made, less any net return of capital realized during such period upon thesale, repayment or other liquidation of such Investment (determined inaccordance with GAAP, but without regard to any amounts received during suchperiod as earnings (in the form of dividends not constituting a return ofcapital, interest or otherwise) on such Investment) or as loans from any Personin whom such Investments have been made. "Involuntary Removal" shall mean an involuntary removal of the GeneralPartner as the general partner of the Borrower pursuant to Section 12.2 of thePartnership Agreement or as the general partner of the Public Partnershippursuant to Section 13.2 of the MLP Agreement. "Issuing Bank" shall mean, as to any Letter of Credit, JPMorgan Chase Bank,in its capacity as the issuer of such Letter of Credit, and its successors insuch capacity. "Legal Requirement" shall mean any law, statute, ordinance, decree,requirement, order, judgment, rule or regulation (or published officialinterpretation by any Governmental Authority of any of the foregoing) of anyGovernmental Authority. "Lender" shall mean each financial institution listed on the signaturepages hereof, each assignee which becomes a Lender pursuant to Section 9.04(b),and their respective successors; provided, that unless the context otherwiserequires, each reference herein to the Lenders shall be deemed to include anyConduit Lender. "Letter Agreement" shall have the meaning set forth in Section 2.05(a). "Letter of Credit Disbursement" shall mean a payment or disbursement madeby the Issuing Bank pursuant to a Letter of Credit. "Letter of Credit Exposure" shall mean at any time the sum of (i) theaggregate undrawn amount of all outstanding Letters of Credit, plus (ii) theaggregate amount of all Letter of Credit Disbursements not yet reimbursed by theBorrower as provided in Section 2.21, minus (iii) other 19than for the purpose of determining compliance with Section 2.01 or Section2.21(a), the aggregate principal amount of cash collateral in respect of Lettersof Credit deposited by the Borrower with the Administrative Agent and heldpursuant to the Cash Collateral Agreement as provided in Section 2.21(j). TheLetter of Credit Exposure of any Lender at any time shall mean its pro ratashare (based on such Lender's Revolving Credit Commitment Percentage) of theaggregate Letter of Credit Exposure at such time. "Letter of Credit Fees" shall mean the fees payable to the Issuing Bank andthe Lenders in respect of Letters of Credit pursuant to Section 2.21(e). "Letters of Credit" shall mean any and all standby letters of credit issuedpursuant to Section 2.21(a). "Level I Pricing Period" shall mean, subject to Section 2.06(c), any periodduring which the Leverage Ratio is less than 3.50 to 1.00 and no Event ofDefault has occurred and is continuing. "Level II Pricing Period" shall mean, subject to Section 2.06(c), anyperiod during which the Leverage Ratio is greater than or equal to 3.50 to 1.00but less than 4.00 to 1.00 and no Event of Default has occurred and iscontinuing. "Level III Pricing Period" shall mean, subject to Section 2.06(c), anyperiod which is not a Level I Pricing Period or a Level II Pricing Period. "Leverage Ratio" as of any date shall mean the ratio of (a) Total FundedDebt as of the last day of the Reference Period with respect to such date to (b)Consolidated Cash Flow for such Reference Period. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for anyInterest Period, the rate per annum determined on the basis of the rate fordeposits in dollars for a period equal to such Interest Period commencing on thefirst day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of suchInterest Period. In the event that such rate does not appear on Page 3750 of theTelerate screen (or otherwise on such screen), the "LIBO Rate" shall bedetermined by reference to such other comparable publicly available service fordisplaying eurodollar rates as may be selected by the Administrative Agent or,in the absence of such availability, by reference to the rate at which theAdministrative Agent is offered dollar deposits at or about 11:00 A.M., New YorkCity time, two Business Days prior to the beginning of such Interest Period inthe interbank eurodollar market where its eurodollar and foreign currency andexchange operations are then being conducted for delivery on the first day ofsuch Interest Period for the number of days comprised therein. "Lien", as to any Person, shall mean any mortgage, lien (statutory orotherwise), pledge, reservation, right of entry, encroachment, easement, rightof way, restrictive covenant, license, charge, security interest or otherencumbrance in or on, or any interest or title of any vendor, lessor, lender orother secured party to or of such Person under any conditional sale or othertitle retention agreement or Capital Lease Obligation with respect to, anyproperty or asset owned or held by such Person, or the signing or filing of afinancing statement with respect to any of the 20foregoing which names such Person as debtor, or the signing of any securityagreement with respect to any of the foregoing authorizing any other party asthe secured party thereunder to file any financing statement or any otheragreement to give or grant any of the foregoing. For the purposes of thisAgreement, a Person shall be deemed to be the owner of any asset which it hasplaced in trust for the benefit of the holders of Indebtedness of such Personand such trust shall be deemed to be a Lien if such Person remains legallyliable therefor, notwithstanding that such Indebtedness is or may be deemed tobe extinguished under GAAP. "Loan Documents" shall mean (a) this Agreement, (b) the Notes, (c) theLetters of Credit, (d) the Guarantee Agreements, (e) the Intercompany Notes, (f)the Collateral Documents, (g) any Interest Rate Agreements entered into by theBorrower with any Agent or Lender and (h) any Supplemental Agreements. "Loan Parties" shall mean the Public Partnership, the General Partner, theBorrower and the Restricted Subsidiaries. "Loans" shall mean any or all of the Revolving Loans and the Term Loans. "Lockbox Agreement" shall mean an agreement among any Lender or other bank,the Borrower or any Restricted Subsidiary, and the Administrative Agent insubstantially the form attached as Exhibit O to the Working Capital andAcquisition Facility Credit Agreement or in such other form as may be reasonablysatisfactory to the Administrative Agent. "Make Whole Amount" shall have the meaning set forth in the 1995 NoteAgreement as in effect on December 13, 1995. "Margin Stock" shall have the meaning assigned to such term underRegulation U. "Material Adverse Effect" shall mean a material adverse effect on (a) thebusiness, operations, property, condition (financial or otherwise) or prospects(financial or otherwise) of the Borrower or the Business, (b) the ability of theBorrower, the General Partner or any Restricted Subsidiary to perform itsobligations under this Agreement or any other Operative Agreement or (c) thevalidity, enforceability, perfection or priority of this Agreement or any otherOperative Agreement or of the rights or remedies of any Lender or the Trustee. "Material Contract" shall mean any "material contract" (within the meaningof Item 601(b)(10) of Regulation S-K under the Exchange Act) except for employeecompensation plans, employee contracts and other employee compensationarrangements approved by the General Partner or, prior to March 25, 1999, byStar Gas Corporation, in its capacity as general partner of the Borrower. "Maturity Date" shall mean September 30, 2008. "Maximum Consolidated Pro Forma Debt Service" shall mean, as of any date ofdetermination, the highest total amount payable by the Borrower and the Restricted Subsidiaries on a consolidated basis (it being understood thatamounts payable by Unrestricted Subsidiaries shall not be consolidated with theBorrower or any Restricted Subsidiary for purposes of calculating MaximumConsolidated Pro Forma Debt Service), during any period of four 21consecutive fiscal quarters, commencing with the fiscal quarter in which suchdate of determination occurs and ending on the maturity date of the MortgageNotes, in respect of scheduled principal payments and all interest charges withrespect to all Indebtedness of the Borrower and the Restricted Subsidiaries(other than all scheduled principal payments with respect to Facility B only tothe extent that the outstanding principal amount of Facility B is zero for aperiod of at least 30 consecutive days during the two-year period prior to anysuch date of determination) outstanding or to be outstanding, after givingeffect to any Indebtedness proposed to be incurred on such date and to thesubstantially concurrent repayment of any other Indebtedness, and (a) includingactual payments under Capital Lease Obligations, (b) assuming, in the case ofIndebtedness (other than Indebtedness incurred under the Working Capital andAcquisition Facility Credit Agreement and this Facility) bearing interest atfluctuating interest rates which cannot be determined in advance, that the ratein effect on such date will remain in effect throughout such period, (c)assuming in the case of Indebtedness incurred under the Working Capital andAcquisition Facility Credit Agreement and this Facility, that (i) the interestpayments payable during such four consecutive calendar quarters next succeedingthe date of determination will equal the actual interest payments associatedwith the Working Capital and Acquisition Facility Credit Agreement or thisFacility, as the case may be, during the most recent four fiscal quarters, (ii)except for the twelve-month period immediately prior to the termination or finalmaturity thereof (unless extended or renewed), no principal payments will bemade under Facility A and (iii) principal payments relating to Facility B andthis Facility will become due based on the assumption that the conversion to thefixed amortization schedule is exercised pursuant to Sections 2.01(c) and2.11(c) of the Working Capital and Acquisition Facility Credit Agreement andSections 2.01(b) and 2.11(b) of this Agreement, as applicable, (d) treating theprincipal amount of all Indebtedness outstanding as of such date ofdetermination under a revolving credit or similar agreement (other than theWorking Capital and Acquisition Facility Credit Agreement and this Facility) asmaturing and becoming due and payable on the scheduled maturity date or datesthereof (including the maturity of any payment required by any commitmentreduction or similar amortization provision), without regard to any provisionpermitting such maturity date to be extended, (e) including any other debtrepayments due within twelve months from such date of determination and (f)excluding principal and interest payments in connection with the Star/PetroIntercompany Subordinated Debt. "Maximum Rate" shall have the meaning assigned to such term in Section9.09. "MLP Agreement" shall mean the Agreement of Limited Partnership of thePublic Partnership. "Mortgage" shall mean each mortgage, assignment of rents, securityagreement and fixture filing, or deed of trust, assignment of rents and fixturefiling, or similar instrument creating and evidencing a lien on a real propertyand other property and rights incidental thereto, which shall be substantiallyin the form of Exhibit P to the Working Capital and Acquisition Facility CreditAgreement, containing such schedules and including such exhibits as shall not beinconsistent with the provisions of Section 4.01(e) or shall be necessary toconform such instrument to applicable local law and which shall be dated thedate of delivery thereof and made by the owner of the real property describedtherein for the benefit of the Trustee, as mortgagee (or beneficiary), assigneeand secured party for the benefit of the Secured Parties, as the same may beamended, supplemented or otherwise modified from time to time. 22 "Mortgage Notes" shall mean the mortgage notes of the Borrower in theaggregate principal amount of $85,000,000 8.04% First Mortgage Notes dueSeptember 15, 2009 issued by the Borrower pursuant to the 1995 Note Agreement. "Mortgaged Properties" shall mean the real properties identified onSchedule 3.07(b) and each other real property subjected to a Mortgage underSection 6.20 or otherwise. "Motor Vehicle Security Agreements" shall mean the Security Agreements forMotor Vehicles and other Rolling Stock between the Borrower or the RestrictedSubsidiary, as applicable, and the Trustee in the form of Exhibit D to theBorrower Security Agreement, as amended, supplemented or otherwise modified fromtime to time. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan asdefined in Section 4001(a)(3) of ERISA. "Net Working Capital" as of any date shall mean the lesser of (a)(i)Current Assets as of such date, minus (ii) Current Liabilities as of such dateand (b) $8,000,000. "1995 Note Agreement" shall mean the Note Agreement dated as of December13, 1995, among the Star Gas LLC, the Borrower and the investors named therein,as amended by the First Amendment to Note Agreement dated as of May 31, 1996,the Second Amendment to Note Agreement dated as of March 25, 1999, the ThirdAmendment to Note Agreement dated as of September 30, 2000, the Fourth Amendmentto Note Agreement dated as of October 25, 2002, and as further amended,supplemented or otherwise modified from time to time in accordance with theIntercreditor Agreement. "Non-Commodities Inventory" shall mean new household appliances, new partsinventory and new supplies inventory which are held for sale by the Borrower orits Restricted Subsidiaries in the normal course of business and which, uponsale, will qualify for the full term of the original manufacturer's warranty, ifany. "Non-Excluded Taxes" shall have the meaning assigned to such term inSection 2.19. "Note" shall mean a promissory note of the Borrower, substantially in theform of Exhibit A, evidencing Revolving Loans and (after the Conversion Date)Term Loans, and any substitutions or replacements therefor. "Note Agreements" shall mean, collectively, the 1995 Note Agreement, the2000 Note Agreement and the 2001 Note Agreement. "Officers' Certificate" shall mean, as to any corporation, a certificateexecuted on its behalf by the Chairman of the Board of Directors (if an officer)or its President or one of its Vice Presidents and its Treasurer, or Controller,or one of its Assistant Treasurers or Assistant Controllers, and, as to anypartnership, a certificate executed on behalf of such partnership by its generalpartner in a manner which would qualify such certificate as an Officers'Certificate of such general partner hereunder. 23 "Operative Agreements" shall mean this Agreement, the Note Agreements, theCollateral Documents, the MLP Agreement and the Partnership Agreement. "Other Taxes" shall mean any and all present or future stamp or documentarytaxes or any other excise or property taxes, charges or similar levies arisingfrom any payment made hereunder or from the execution, delivery or enforcementof, or otherwise with respect to, this Agreement or any other Loan Document. "Parent Consolidated Cash Flow" shall mean at any date of determination,for the Reference Period with respect to such date of determination, (i) the sumof, without duplication, the amounts for such period, taken as a singleaccounting period, (a) Parent Consolidated Net Income and (b) all amountsdeducted in arriving at such Parent Consolidated Net Income in respect of (I)interest charges (including amortization of debt discount and expense andimputed interest in Capital Lease Obligations), (II) provisions for all taxesand reserves (including reserves for deferred income taxes), (III) non-cashitems, including, without limitation, (x) non-cash expenses or losses incurredas a result of Statement of Financial Accounting Standard Number 133 and theimplementation of Statement of Financial Accounting Standard Numbers 141 and 142and (y) non-cash expenses related to unit appreciation rights, and (IV) PetroReorganization Expenses in an aggregate amount of up to $12,000,000, less (ii) without duplication, any non-cash items added in the determination of suchParent Consolidated Net Income for such period. Parent Consolidated Cash Flowshall be calculated after giving effect, on a pro forma basis for the ReferencePeriod with respect to any date of determination to, without duplication, anyasset sales or asset acquisitions (including any asset acquisition giving riseto the need to make such calculation as a result of the Borrower or anyRestricted Subsidiary (including any Person who becomes a Restricted Subsidiaryas a result of such asset acquisition) incurring, assuming or otherwise beingliable for acquired Indebtedness) occurring during the period commencing on thefirst day of such Reference Period to and including the date of determination,as if such asset sale or asset acquisition occurred on the first day of suchReference Period. The pro forma calculations required by this definition will bedetermined in accordance with GAAP, shall be certified by a Financial Officer ofthe Public Partnership, and shall be calculated in a manner reasonablysatisfactory to the Required Lenders; provided, however, that such calculationshall be made (i) based on the historical sales volume associated with anyacquisition of a related business for the Reference Period with respect to thedate of such acquisition, less estimated post-acquisition loss of sales volume(not to be less than three percent (3%)), (ii) based on the actual cost to theBorrower of the volume of goods sold as determined in clause (i) above, (iii)based on the pro forma expenses that would have been incurred by the Borrower inthe operation of such related business if it had occurred on the first day ofsuch period computed on the basis of personnel expenses for employees retainedor to be retained by the Borrower in the operation of such related business andnon-personnel costs and expenses incurred by the Borrower or the General Partnerin the operation of the Business at similarly situated facilities of theBorrower and the Restricted Subsidiaries, and (iv) without inclusion of theoperations of any Unrestricted Subsidiary. "Parent Consolidated Funded Debt" as of any date shall mean all Funded Debtof the Public Partnership and its Subsidiaries as of such date, excludingIndebtedness under Facility A and Indebtedness incurred for working capitalpurposes under the Petro Credit Agreement. 24 "Parent Consolidated Interest Expense" shall mean as of any date ofdetermination, the total amount payable by the Public Partnership and itsSubsidiaries on a consolidated basis, during the Reference Period with respectto such date of determination, in respect of all interest charges (includingamortization of debt discount and expense and imputed interest on actualpayments under Capital Lease Obligations) during such Reference Period withrespect to Indebtedness of the Public Partnership and its Subsidiaries. "Parent Consolidated Net Income" shall mean, with reference to any period,the net income (or deficit) of the Public Partnership and its Subsidiaries(taken as a cumulative whole), after deducting all operating expenses,provisions for all taxes and reserves (including reserves for deferred incometaxes) and all other proper deductions, all determined in accordance with GAAPon a consolidated basis, after eliminating all intercompany transactions andafter deducting portions of income properly attributable to minority interests,if any, in the stock and surplus of Subsidiaries, provided that there shall beexcluded (a) the income (or deficit) of any Person accrued prior to the date itbecomes a Subsidiary or is merged into or consolidated with the PublicPartnership or a Subsidiary, (b) the income (or deficit) of any Person (otherthan a Subsidiary) in which the Public Partnership or any Subsidiary has anownership interest, except to the extent that any such income has been actuallyreceived by the Public Partnership or such Subsidiary in the form of dividendsor similar distributions (but subject to the limitations specified in theproviso below), (c) the undistributed earnings of any Subsidiary to the extentthat the declaration or payment of dividends or similar distributions by suchSubsidiary is not at the time permitted by the terms of its charter or anyagreement, instrument, judgment, decree, order, statute, rule or governmentalregulation applicable to such Subsidiary, (d) any restoration to income of anycontingency reserve, except to the extent that provision for such reserve wasmade out of income accrued during such period, (e) any aggregate net gain (butnot any aggregate net loss) during such period arising from the sale, exchangeor other disposition of capital assets (such term to include all fixed assets,whether tangible or intangible, all inventory sold in conjunction with thedisposition of fixed assets, and all securities), (f) any write-up of any asset,(g) any net gain from the collection of the proceeds of life insurance policies,(h) any gain arising from the acquisition of any securities, or theextinguishment, under GAAP, of any Indebtedness, of the Public Partnership or any Subsidiary, (i) any net income or gain (but not any net loss) during suchperiod from any change in accounting, from any discontinued operations or thedisposition thereof, from any extraordinary events or from any prior periodadjustments, (j) any deferred credit representing the excess of equity in anySubsidiary at the date of acquisition over the cost of the investment in suchSubsidiary, and (k) in the case of a successor to the Public Partnership byconsolidation or merger or as a transferee of its assets, any earnings of thesuccessor corporation prior to such consolidation, merger or transfer of assets. "Parent Indenture" shall mean the Indenture, dated as of February 6, 2003,among the Public Partnership, Star Gas Finance Company and Union Bank ofCalifornia, N.A., as Trustee, with respect to the Public Partnership's issuanceof 10 1/4% Senior Notes due 2013, as amended, modified, replaced, refinanced orotherwise modified from time to time. "Parent Material Adverse Effect" shall mean a material adverse effect on(a) the business, operations, property, condition (financial or otherwise) orprospects of the Public Partnership, the General Partner and the Borrower andits Restricted Subsidiaries, taken as a whole, or (b) the 25validity or enforceability of any of the Loan Documents or the rights orremedies of the Administrative Agent, any Lender or the Trustee thereunder. "Parity Debt" shall mean Indebtedness of the Borrower incurred inaccordance with Sections 6.01(a), 6.01(b), 6.01(e), 6.01(i) (but only to theextent such Indebtedness under Section 6.01(i) is incurred to any Lender) or6.01(g) and secured by the lien of the Collateral Documents in accordance withSection 6.02(g) or 6.02(h). For purposes of clarification, "Parity Debt"includes the 2000 Parity Notes and the 2001 Parity Notes. "Parity Debt Agreements" shall have the meaning assigned to such term inthe Intercreditor Agreement. "Participant" shall have the meaning set forth in Section 9.04(c)(i). "Partners Security Agreement" shall mean the Amended and Restated Pledgeand Security Agreement among the Public Partnership, the General Partner and theTrustee dated as of March 25, 1999, as amended, supplemented or otherwisemodified from time to time. "Partnership Agreement" shall mean the Agreement of Limited Partnership ofthe Borrower, as in effect on March 25, 1999, and as the same may from time totime be amended, modified or supplemented in accordance with the terms thereofand Section 6.12 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation establishedpursuant to Subtitle A of Title IV of ERISA or any successor thereto. "Perfection Certificate" shall mean a certificate from the Borrowersubstantially in the form of Exhibit G. "Permitted Exceptions" shall have the meaning set forth in Section 3.26. "Permitted Insurers" shall mean insurers with ratings of A or betteraccording to Best's Insurance Reports (or a comparable rating agency forinsurance companies located outside of the United States and Canada) and withassets of no less than $500,000,000. "Person" shall mean any natural Person, corporation, business trust, jointventure, association, company, limited liability company, partnership,government (or any agency or political subdivision thereof) or other entity. "Petro" shall mean Petroleum Heat and Power Co., Inc., a Minnesotacorporation. "Petro Credit Agreement" shall mean the Second Amended and Restated CreditAgreement, dated as of June 15, 2001, among Petroleum Heat and Power Co., Inc.,the various financial institutions parties thereto from time to time, Bank ofAmerica, N.A., as administrative agent, Fleet National Bank, as syndicationagent, and First Union National Bank, as documentation agent, as amended,supplemented or otherwise modified from time to time. "Petro Holdings" shall mean, collectively, Petro Holdings, Inc., aMinnesota corporation, and its subsidiaries. 26 "Petro Holdings Dividends" shall mean the cash dividends or distributionsactually received by the Borrower or a Restricted Subsidiary from Petro Holdingswith respect to a calendar quarter during the 45 days immediately following anysuch calendar quarter. "Petro Reorganization Expenses" shall mean expenses relating to thereorganization of Petro Holdings and its Subsidiaries, including but not limitedto severance pay, project consultants, project related travel expense, corporateidentity expense (e.g. repainting trucks), set-up and implementation fees ofoutsourcing arrangements and salary of personnel to the extent relating toservices dedicated to the project and not related to operations in the ordinarycourse of business. "Plan" shall mean an "employee benefit plan" (as defined in Section 3(3) ofERISA) subject to Title IV of ERISA which is or has been established ormaintained, or to which contributions are or have been made, by Star GasCorporation, in its former capacity as general partner of the Borrower, theGeneral Partner, the Borrower or any Related Person or to which Star GasCorporation, in its former capacity as general partner of the Borrower, theGeneral Partner, the Borrower or any Related Person is or has been obligated tocontribute, or an employee benefit plan as to which Star Gas Corporation, in itsformer capacity as general partner of the Borrower, the General Partner, theBorrower or any Related Person could be treated as a contributory sponsor underSection 4069 or Section 4212 of ERISA if such plan were terminated. "Preferred Stock", as applied to the Capital Stock of any Person, shallmean Capital Stock of any class or classes (however designated) which ispreferred as to the payment of dividends, or as to the distribution of assetsupon any voluntary or involuntary liquidation or dissolution of suchcorporation, over shares of Capital Stock of any other class of such Person. "Prime Rate" shall mean the rate of interest per annum publicly announcedfrom time to time by the Administrative Agent as its Base Rate (which may not bethe lowest rate at which the Administrative Agent makes loans to borrowers) ineffect at its principal office in New York, New York. Each change in the PrimeRate shall be effective on the date such change is adopted, without notice tothe Borrower. "Pro Forma Balance Sheet" shall have the meaning assigned to such term inSection 3.05(b). "Public Partnership" shall mean Star Gas Partners, L.P., a Delaware limitedpartnership. "Public Partnership Consent and Agreement" shall mean the PublicPartnership Consent and Agreement dated as of the date hereof among the PublicPartnership and Trustee as to the consent and agreement of the PublicPartnership in connection with the Partners Security Agreement, in the formattached hereto as Exhibit B-2, as amended, supplemented or otherwise modifiedfrom time to time. "Qualifying Involuntary Removal" shall mean any Involuntary Removal;provided, that (a) the Person which shall become the general partner of theBorrower and the Public Partnership shall be satisfactory to the RequiredLenders in their sole discretion or (b)(i) the ratio of (A) Total Funded Debt asof the last day of the Reference Period with respect to the date of 27removal of the predecessor general partner to (B) Consolidated Cash Flow forsuch Reference Period shall be no greater than 4.25 to 1.00, (ii) the ratio ofConsolidated Cash Flow to Maximum Consolidated Pro Forma Debt Service for suchReference Period will be greater than 1.25 to 1.00 and (iii) within 60 daysafter such Involuntary Removal, the successor general partner (which shall be acorporation organized and existing under the laws of the United States of America or any State thereof) shall expressly assume, by a written agreementexecuted and delivered to the Trustee, in form satisfactory to the Trustee andthe Required Lenders, all the obligations of the "General Partner" under thisAgreement and the other Loan Documents. "RCRA" shall mean the Federal Resource Conservation and Recovery Act, asamended. "Reference Period" with respect to any date of determination shall mean theperiod of four consecutive fiscal quarters of the Borrower most recentlycompleted at least 45 days prior to such date, except that in connection withany calculation required pursuant to Section 2.01(b) or 6.04, the "ReferencePeriod" with respect to any date of determination shall mean the period of fourconsecutive fiscal quarters of the Borrower immediately preceding, or ending on,such date of determination. "Register" shall have the meaning assigned to such term in Section9.04(b)(iv). "Regulation T" shall mean Regulation T of the Board as from time to time ineffect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time ineffect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time ineffect and all official rulings and interpretations thereunder or thereof. "Related Person" shall mean any trade or business, whether or notincorporated, which, as of any date of determination, would be treated as asingle employer together with the General Partner or the Borrower under Section414 of the Code. "Repayment Date" shall have the meaning assigned to such term in Section2.11(b). "Reportable Event" shall mean any of the events set forth in Section4043(c) of ERISA, other than those events as to which the 30-day notice periodis waived under subsections .22, .23, .25, .27, or .28 of PBGC Reg. (S)4043. "Required Lenders" shall mean, at any time, Lenders holding Loans andparticipations in Letters of Credit, and having Commitments, representing in theaggregate more than 50% of the sum at such time of (a) the aggregate principalamount of the Loans outstanding, (b) the aggregate amount of the Letter ofCredit Exposure and (c) the aggregate amount of unused Commitments. "Responsible Officer" shall mean the President, any Vice President, theChief Financial Officer, the Treasurer and the Secretary of the General Partnerand any other officer of the General Partner who is responsible for compliancewith or performance of any obligation under 28this Agreement, the other Loan Documents or the other Operative Agreements andany employee of the Borrower performing any of the above functions. "Restricted Payment" shall mean, as to any Person, (a) any payment,dividend or other distribution, direct or indirect, in respect of anypartnership interest (general or limited) or membership interest in, or onaccount of any shares of any class of stock of, such Person, except adistribution payable solely in additional partnership interests or membershipinterests in, or shares of stock of, such Person, and (b) any payment, direct orindirect, on account of the redemption, retirement, purchase or otheracquisition of any partnership interest or membership interest in, or any sharesof any class of stock of, such Person now or hereafter outstanding or of anywarrants, rights or options to acquire any such shares, except to the extentthat the consideration therefore consists of shares of stock of such Person. "Restricted Subsidiary" shall mean any Wholly Owned Subsidiary of theBorrower (excluding Petro Holdings and its direct and indirect subsidiaries) (a)organized under the laws of the United States of America or any state thereof orthe District of Columbia, (b) none of the capital stock or ownership interestsof which is owned by Unrestricted Subsidiaries, (c) substantially all of the operating assets of which are located in, and substantially all of the businessof which is conducted within the United States and which business consists ofthe wholesale and retail sale, distribution and storage of propane gas andrelated petroleum derivative products and/or the related retail sale of suppliesand equipment, including home appliances and (d) designated by the Borrower as aRestricted Subsidiary in Schedule 1.01B or at a subsequent date; provided,however, that (i) to the extent a newly formed or acquired Wholly OwnedSubsidiary satisfying the requirements of the foregoing clauses (a), (b) and (c)is not declared either a Restricted Subsidiary or an Unrestricted Subsidiarywithin 90 days of its formation or acquisition, such Wholly Owned Subsidiaryshall be deemed a Restricted Subsidiary and (ii) a Restricted Subsidiary may bedesignated as an Unrestricted Subsidiary in accordance with the provisions ofSection 6.17. "Revolving Credit Availability Period" shall mean the period from andincluding the Closing Date to but excluding the earlier of (a) the ConversionDate and (b) the termination of the Revolving Credit Commitments of the Lendersin accordance with the terms hereof. "Revolving Credit Borrowing" shall mean a Borrowing comprised of RevolvingLoans. "Revolving Credit Commitment" shall mean, as to any Lender, the obligationof such Lender, if any, to make Revolving Loans and participate in Letters ofCredit in the aggregate principal and/or face amount not to exceed the amountset forth under the heading "Revolving Credit Commitment" opposite such Lender'sname on Schedule 1.01A hereto or in the Assignment and Acceptance pursuant towhich such Lender became a party hereto, as the same may be changed from time totime pursuant to the terms hereof. The original amount of the Revolving CreditCommitments of all the Lenders is $25,000,000. For clarification, upon theConversion Date, the term "Revolving Credit Commitment Percentage" shall referto each Lender's percentage of the Term Loans as determined in accordance withSection 2.01(b). "Revolving Credit Commitment Percentage" shall mean, for each Lender, thepercentage identified as its Revolving Credit Commitment Percentage on Schedule1.01A hereto, as such 29percentage may be modified in connection with any assignment made in accordancewith the provisions of Section 9.04 or as the same may be reduced from time totime pursuant to Section 2.09. For clarification upon the Conversion Date, theterm "Revolving Credit Commitment Percentage" shall refer to each Lender'spercentage of the Term Loans as determined in accordance with Section 2.01(b). "Revolving Loans" shall mean the revolving loans made by the Lenders to theBorrower pursuant to Section 2.01(a). Each Revolving Loan shall be a EurodollarRevolving Loan or an ABR Revolving Loan. "SEC" shall mean the Securities and Exchange Commission or any successorthereto. "Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,the Syndication Agent and the Documentation Agent, in their capacities as suchunder each Loan Document, (c) each Agent or Lender with which the Borrowerenters into an Interest Rate Agreement, in its capacity as a party to suchagreement, (d) the beneficiaries of each indemnification obligation undertakenby the Borrower or any of the Loan Parties under any Loan Document, (e) theholders of any Parity Debt and (f) the successors and assigns of the foregoing. "Security Agreements" shall mean the Partners Security Agreement and theBorrower Security Agreement. "Seller" shall mean, with respect to any Acquired Business Entity, thePerson from whom the Business acquires (whether by purchase, merger orconsolidation) such Acquired Business Entity. "Single Employer Plan" shall mean any Plan which is not a MultiemployerPlan. "Solvent" shall have the meaning assigned to such term in Section 3.19. "Star Gas LLC" shall mean Star Gas LLC, a Delaware limited liabilitycompany and the successor general partner of the Borrower. "Star/Petro" shall mean Star/Petro, Inc., a Minnesota corporation. "Star/Petro Intercompany Subordinated Debt" shall mean the borrowings ofStar/Petro made from time to time pursuant to Section 6.01(d) from the PublicPartnership and evidenced by the Star/Petro Intercompany Subordinated Note,which shall be fully subordinate to the prior payment in full of the principaland premium, if any, and interest on the Notes. "Star/Petro Intercompany Subordinated Note" shall mean the intercompanynote evidencing the Star/Petro Intercompany Subordinated Debt, which shall befully subordinate to the prior payment, in full, of the principal, interest andpremium, if any, on the Notes, with the terms as specified either (i) in theform of Intercompany Note attached as Exhibit D hereto, but modified (as setmore fully forth in Section 6.04(c) hereof) to permit (x) principal and interestpayments to be made solely from proceeds of capital contributions or equityinvestments indirectly made by the Public Partnership into Star/Petro and/ordividends received from Petro 30Holdings and (y) interest payments in the event that the ratio of ConsolidatedCash Flow to Consolidated Interest Expense is greater than 2.0 to 1.0; providedthat, immediately prior to and after giving effect to such principal or interestpayments, no condition or event shall exist which constitutes an Event ofDefault, or (ii) in such other form satisfactory to the Agents and the Lenders,in the sole discretion of each. "Statutory Reserves" shall mean the stated maximum rate (expressed as adecimal) of all reserves (including any basic, supplemental, marginal oremergency reserve or any reserve asset), if any, as from time to time in effect,required by the Board and any other banking authority to which theAdministrative Agent is subject for any legal requirement to be maintained byany Lender against (a) "Eurocurrency liabilities" as specified in Regulation Dof the Board, (b) any other category of liabilities that includes eurodollardeposits by reference to which the LIBO Rate for any Eurodollar Borrowing isdetermined, (c) the principal amount of or interest on any portion of anyEurodollar Borrowing or (d) any other category of extensions of credit, or otherassets, that is based upon the LIBO Rate by a non-United States office of any ofthe Lenders to United States residents, in each case without the benefits ofcredits for prorations, exceptions or offsets that may be available to a Lender. "Subsidiaries Consent and Agreement" shall mean the Subsidiaries Consentand Agreement dated as of the date hereof among the Restricted Subsidiaries andthe Trustee as to the consent and agreement of the Restricted Subsidiaries inconnection with the Subsidiaries Guarantee Agreement and the Borrower SecurityAgreement substantially in the form of Exhibit C, as amended, supplemented orotherwise modified from time to time. "Subsidiaries Guarantee Agreement" shall mean the Guarantee Agreement datedas of December 13, 1995 among the Restricted Subsidiaries and the Trustee, asamended, supplemented or otherwise modified from time to time. "Subsidiary" shall mean any corporation, association, partnership, jointventure or other business entity at least a majority (by number of votes) of thestock of any class or classes (or equivalent interests) of which is at the timeowned by the Borrower or by one or more Subsidiaries of the Borrower or by theBorrower and one or more Subsidiaries of the Borrower, if the holders of thestock of such class or classes (or equivalent interests) (a) are ordinarily, inthe absence of contingencies, entitled to vote for the election of a majority ofthe directors (or Persons performing similar functions) of such business entity,even though the right so to vote has been suspended by the happening of such acontingency, or (b) are at the time entitled, as such holders, to vote for theelection of the majority of the directors (or Persons performing similarfunctions) of such business entity, whether or not the right so to vote existsby reason of the happening of a contingency. Unless the context otherwiserequires, any reference to a Subsidiary shall mean a Subsidiary of the Borrower. "Supplemental Agreement" shall mean an agreement between a RestrictedSubsidiary and the Trustee in the form attached hereto as Exhibit H, as amended,supplemented or otherwise modified from time to time. "Syndication Agent" has the meaning given to such term in the preamblehereto. 31 "Term Borrowing" shall mean a Borrowing comprised of Term Loans. "Term Loans" shall have the meaning assigned to such term in Section2.01(b). Each Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan. "Term-Out Effective Date" shall mean the date that is five Business Daysprior to the Conversion Date. "Term-Out Option" shall have the meaning assigned to such term in Section2.01(b). "Title Company" shall mean such title insurance company as shall besatisfactory to the Agents. "Total Funded Debt" as of any date shall mean (a) all Funded Debt of theBorrower and its Restricted Subsidiaries as of such date, including Indebtednessin respect of the Mortgage Notes, this Facility and Facility B, but excludingIndebtedness under Facility A, minus (b) Net Working Capital of the Borrower andits Restricted Subsidiaries as of such date (or, if such Net Working Capital isnegative, plus the amount thereof). "Tranche B Revolving Credit Commitments" shall have the meaning assigned tosuch term in the Working Capital and Acquisition Facility Credit Agreement. "Transferee" shall mean an Assignee or a Participant. "Trustee" shall mean HSBC Bank USA (formerly known as Marine Midland Bank),as Trustee under the Intercreditor Agreement, and its successors and assignsthereunder. "2000 Note Agreement" shall mean the Note Agreement dated as of March 30,2000, among the Borrower, Star/Petro and the investors named therein, as amendedby the First Amendment to Note Agreement dated as of September 30, 2000, theSecond Amendment to Note Agreement dated as of October 25, 2002, and as furtheramended, supplemented or otherwise modified from time to time in accordance withthe Intercreditor Agreement. "2000 Parity Notes" shall mean the $12,500,000 8.67% First Mortgage Notes,Series A, due March 30, 2012 and the $15,000,000 8.72% First Mortgage Notes,Series B, due March 30, 2015 issued by the Borrower and Star/Petro pursuant tothe 2000 Note Agreement. "2001 Note Agreement" shall mean the Note Agreement dated as of March 15,2001, among the Borrower, Star/Petro and the investors named therein, as amendedby the First Amendment to Note Agreement dated as of October 25, 2002, and asfurther amended, supplemented or otherwise modified from time to time inaccordance with the Intercreditor Agreement. "2001 Parity Notes" shall mean the $7,500,000 7.62% First Mortgage Notes,Series A, due April 1, 2008 and the $22,000,000 7.95% First Mortgage Notes,Series B, due April 1, 2001 issued by the Borrower and Star/Petro pursuant tothe 2001 Note Agreement. "Type" shall have the meaning assigned to such term in Section 1.03. 32 "Unrestricted Subsidiary" shall mean any Wholly Owned Subsidiary other thana Restricted Subsidiary which is organized under the laws of the United Statesof America or any state thereof or the District of Columbia and substantiallyall of the operating assets of which are located in, and substantially all ofthe business of which is conducted within the United States and which businessconsists of the wholesale and retail sale, distribution and storage of propanegas and related petroleum derivative products and the related retail sale ofsupplies and equipment, including home appliances; provided, that at all times Petro Holdings and its subsidiaries shall be deemed Unrestricted Subsidiaries. "Wholly Owned", as applied to any Subsidiary, shall mean a Subsidiary allthe outstanding Capital Stock (other than directors' qualifying shares, ifrequired by law) of which is at the time owned by the Borrower or by one or moreWholly Owned Subsidiaries or by the Borrower and one or more Wholly OwnedSubsidiaries. "Working Capital and Acquisition Facility Credit Agreement" shall mean thatcertain Amended and Restated Credit Agreement dated as of the date hereof amongthe Borrower, the lenders party thereto from time to time and the agents namedtherein, as may be amended, supplemented, restated, replaced, refinanced orotherwise modified from time to time; provided, that in the event such CreditAgreement expires or is terminated the term "Working Capital and AcquisitionFacility Credit Agreement" as used herein shall mean such Credit Agreement inthe form in which it was in effect immediately prior to such expiration ortermination, and provided, further, that nothing in the immediately precedingproviso shall be construed as an agreement or permission that the WorkingCapital and Acquisition Facility Credit Agreement can expire or be terminatedprior to this Agreement. Section 1.02 Terms Generally. The definitions in Section 1.01 shall applyequally to both the singular and plural forms of the terms defined. Whenever thecontext may require, any pronoun shall include the corresponding masculine,feminine and neuter forms. The words "include", "includes" and "including" shallbe deemed to be followed by the phrase "without limitation". All referencesherein to Articles, Sections, Exhibits and Schedules shall be deemed referencesto Articles and Sections of, and Exhibits and Schedules to, this Agreementunless the context shall otherwise require. Unless otherwise expressly providedherein, all terms of an accounting or financial nature used herein shall beinterpreted in accordance with GAAP, as in effect from time to time; provided,however, that, for purposes of (a) making any calculation contemplated by theprovisions of Article II and (b) determining compliance with any covenant setforth in Article VI, such terms shall be construed in accordance with GAAP as ineffect on the date of this Agreement applied on a basis consistent with theapplication used in preparing the Audited Financial Statements. Unless otherwiseexpressly required herein, all calculations with respect to the Borrower and theRestricted Subsidiaries shall be made exclusive of any assets, liabilities,income or losses of any Unrestricted Subsidiary. As used herein, the "knowledge"of the Borrower includes the knowledge of each and every Loan Party. Unlessotherwise expressly provided herein, the word "day" means a calendar day. Section 1.03 Types of Borrowings. The term "Borrowing" refers to theportion of the aggregate principal amount of Loans of any Class outstandinghereunder which bears interest of a specific Type and for a specific InterestPeriod pursuant to a notice of Borrowing pursuant to Section 2.03. Each Lender'sratable share of each Borrowing is referred to herein as a separate 33"Loan". Borrowings, Loans, Letters of Credit and certain related terms hereundermay be distinguished by "Class" and by "Type". The "Class" of a Loan or of aCommitment to make such a Loan or of a Borrowing comprising such Loans or of aLetter of Credit refers to whether such Loan is a Revolving Loan or a Term Loan,each of which constitutes a Class. The "Type" of a Loan refers to whether suchLoan is an ABR Loan or a Eurodollar Loan. Borrowings and Loans may (but neednot) be identified both by Class and Type (e.g., a "Eurodollar Revolving Loan"is a Loan which is both a Revolving Loan and a Eurodollar Loan). ARTICLE II THE CREDITS Section 2.01 Commitment to Make Loans. (a) Subject to the terms andconditions and relying upon the representations and warranties herein set forth,each Lender agrees, severally and not jointly, to make Revolving Loans to theBorrower, at any time and from time to time during the Revolving CreditAvailability Period, in an aggregate principal amount at any time outstandingnot to exceed the excess, if any, of (i) such Lender's Revolving CreditCommitment over (ii) its Letter of Credit Exposure at such time, provided that,in no event shall the Lenders be required to make any Revolving Loans if, aftergiving effect to such Loans, the sum of (A) the aggregate principal amount ofoutstanding Revolving Loans on any date plus (ii) the Letter of Credit Exposure on such date exceed the aggregate Revolving Credit Commitments of all theLenders. On the Closing Date, subject to the satisfaction of the conditionsprecedent set forth in Sections 4.01 and 4.02, the Lenders shall make RevolvingLoans to the Borrower in a minimum amount of $2,000,000. The Revolving Loansmade on the Closing Date shall initially be ABR Revolving Loans. (b) At any time during the period beginning 60 days prior to the ConversionDate and ending on the date that is 30 Business Days prior to the ConversionDate, the Borrower in its sole discretion may elect (the "Term-Out Option") bywritten notice to the Administrative Agent, (i) to convert all or a portion ofthe Revolving Loans outstanding on the Conversion Date into term loans (eachsuch loan, a "Term Loan") on the Conversion Date and (ii) subject to the termsof Section 2.21(a), to request an extension of the expiration of any Letter ofCredit outstanding on the Term-Out Effective Date to a date no later than thedate which is five Business Days prior to the Maturity Date. The Term-Out Optionshall become effective on the Term-Out Effective Date upon the receipt by theAdministrative Agent of an Officers' Certificate, dated as of the Term-OutEffective Date, certifying as of such date, that: (i) the ratio of Parent Consolidated Funded Debt to Parent Consolidated Cash Flow as of the Term-Out Effective Date shall be no greater than 5.00 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating compliance with such condition to the satisfaction of the Agents); (ii) neither the Borrower nor any of its Subsidiaries shall have made any Restricted Payment since the date of the most recent Borrowing or issuance of Letter of Credit if, on the date of such Restricted Payment, the ratio of (x) Parent Consolidated Cash Flow to (y) Parent Consolidated Interest Expense plus the aggregate amount of Restricted Payments made by the Public Partnership to its equityholders during the 34 Reference Period with respect to such date, was less than 0.75 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating compliance with such condition to the satisfaction of the Agents); (iii) on the Term-Out Effective Date, the Public Partnership and its Subsidiaries shall have in effect weather insurance coverage of at least $12,500,000 on a consolidated basis; (iv) the representations and warranties set forth in Article III hereof and the representations and warranties of the Borrower and the other Loan Parties set forth in the other Loan Documents shall be true and correct in all material respects on and as of the Term-Out Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects on and as of such earlier date); (v) no Default or Event of Default shall have occurred and be continuing as of the Term-Out Effective Date; and (vi) the Tranche B Term-Out Effective Date (as defined in the Working Capital and Acquisition Facility Credit Agreement) shall have become, or will concurrently become, effective pursuant to the terms of Section 2.01(c) of the Working Capital and Acquisition Facility Credit Agreement. (c) The Borrower may borrow, pay or prepay and reborrow Revolving Loansduring the Revolving Credit Availability Period, within the limits set forth inSection 2.01(a) and upon the other terms and subject to the other conditions andlimitations set forth herein, provided, that subject to the terms and conditionsset forth herein, at all times, Indebtedness outstanding under the Facilityshall not be less than $2,000,000 until the earlier of (x) the date when theFacility shall have been terminated in full through acceleration or otherwise or(y) the date when the Facilities Obligations with respect to Facility B shallhave been paid in full in cash and the Tranche B Revolving Credit Commitmentsshall have been fully terminated. Amounts paid or prepaid in respect of TermLoans may not be reborrowed. Section 2.02 Loans. (a) Each Loan shall be made as part of a Borrowingconsisting of Loans made by the Lenders ratably in accordance with theirrespective Revolving Credit Commitments; provided, however, that the failure ofany Lender to make any Loan shall not in itself relieve any other Lender of itsobligation to lend hereunder (it being understood, however, that no Lender shallbe responsible for the failure of any other Lender to make any Loan required tobe made by such other Lender). The Loans comprising each Borrowing shall be inan aggregate principal amount which is (i) an integral multiple of $100,000 andnot less than $500,000 in the case of Eurodollar Loans and (ii) an integralmultiple of $100,000 in the case of ABR Loans (or, in the case of ABR Loans, anaggregate principal amount equal to the remaining balance of the RevolvingCredit Commitments). (b) A particular Borrowing of any Class shall consist solely of ABR Loansor Eurodollar Loans of such Class, as the Borrower may request pursuant toSection 2.03. Each 35Lender may at its option fulfill its Commitment with respect to any EurodollarLoan by causing any domestic or foreign branch or Affiliate of such Lender tomake such Loan; provided, that any exercise of such option shall not affect theobligation of the Borrower to repay such Loan in accordance with the terms ofthis Agreement and the applicable Note. Borrowings of more than one Type andEurodollar Loans bearing interest for more than one specific Interest Period maybe outstanding at the same time; provided, however, that the Borrower shall notbe entitled to request any Borrowing which, if made, would result in anaggregate of more than five separate Eurodollar Loans of any Lender beingoutstanding hereunder at any one time. For purposes of the foregoing, Loanshaving different Interest Periods, regardless of whether they commence on thesame date, shall be considered separate Loans. (c) Each Lender shall make a Loan in the amount of its pro rata portion, asdetermined under Section 2.16, of each Borrowing hereunder on the proposed datethereof by wire transfer of immediately available funds to the AdministrativeAgent at the Funding Office, not later than 1:00 p.m., New York City time, andthe Administrative Agent shall by 3:00 p.m., New York City time, credit theamounts so received to the general deposit account of the Borrower with theAdministrative Agent or, if a Borrowing shall not occur on such date because anycondition precedent herein specified shall not have been met, return the amountsso received to the respective Lenders. (d) If the Administrative Agent has not received from the Borrower thepayment required by Section 2.21(f) by 12:30 p.m., New York City time, on thedate on which the Issuing Bank has notified the Borrower and the AdministrativeAgent that payment of a draft presented under any Letter of Credit of any Classwill be made, as provided in Section 2.21(f), the Administrative Agent willpromptly notify the Issuing Bank and each Lender of the Letter of CreditDisbursement of such Class and, in the case of each Lender, its pro rata share(based on such Lender's Revolving Credit Commitment Percentage of such Class) ofsuch Letter of Credit Disbursement. Not later than 2:00 p.m., New York Citytime, on such date, each Lender shall make available its pro rata share, as sodetermined, of such Letter of Credit Disbursement, in Federal or other fundsimmediately available, to the Administrative Agent at the Funding Office, andthe Administrative Agent will promptly make such funds available to the IssuingBank. The Administrative Agent will promptly remit to each Lender that shallhave made such funds available its pro rata share, as so determined, of anyamounts subsequently received by the Administrative Agent from the Borrower inrespect of such Letter of Credit Disbursement. (e) Unless the Administrative Agent shall have received notice from aLender prior to the date of any Borrowing, or prior to the time of any requiredpayment by such Lender in respect of a Letter of Credit Disbursement, that suchLender will not make available to the Administrative Agent such Lender's prorata portion of such Borrowing or payment, the Administrative Agent may assumethat such Lender has made such portion available to the Administrative Agent onthe date of such Borrowing or payment in accordance with Section 2.02(c) or (d),as applicable, and the Administrative Agent may, in reliance upon suchassumption, make available to the Borrower or Issuing Bank, as applicable, onsuch date a corresponding amount. If and to the extent that such Lender shallnot have made such portion available to the Administrative Agent, such Lenderand the Borrower severally agree to repay to the Administrative Agent forthwithon demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower or the Issuing 36Bank (or, if the Administrative Agent and the Issuing Bank are the same Person,from the date of such payment in respect of a Letter of Credit Disbursement), asapplicable, until the date such amount is repaid to the Administrative Agent at,(i) in the case of the Borrower, the interest rate applicable thereto pursuantto Section 2.06 or 2.21(f), as applicable and (ii) in the case of such Lender,the Federal Funds Effective Rate. If such Lender shall repay to theAdministrative Agent such corresponding amount in respect of a Borrowing, suchamount shall constitute such Lender's Loan as part of such Borrowing forpurposes of this Agreement. (f) Notwithstanding any other provision of this Agreement, the Borrowershall not be entitled to request any Revolving Credit Borrowing if the InterestPeriod requested with respect thereto would end after the Conversion Date.Further, and notwithstanding any other provision of this Agreement to thecontrary, the Borrower shall not be entitled to request, nor shall any Lender berequired to make, any Eurodollar Loan during the existence of a Default or anEvent of Default unless the Required Lenders otherwise agree. Section 2.03 Notice of Borrowings. The Borrower shall give theAdministrative Agent telephone notice (promptly confirmed in writing or bytelecopy in the form of Exhibit I-1 hereto) (a) in the case of a EurodollarBorrowing, not later than 11:00 a.m., New York City time, three Business Daysbefore a proposed borrowing and (b) in the case of an ABR Borrowing, not laterthan 11:00 a.m., New York City time, on the Business Day of the proposedborrowing. Such notice shall be irrevocable and shall in each case refer to thisAgreement and specify (i) the applicable Class and Type of such Borrowing; (ii)the date of such Borrowing (which shall be a Business Day) and the amountthereof; and (iii) if such Borrowing is to be a Eurodollar Borrowing, theInterest Period with respect thereto. If no election as to the Type of Borrowingis specified in any such notice, then the requested Borrowing shall be an ABRBorrowing. If no Interest Period with respect to any Eurodollar Borrowing isspecified in any such notice, then the Borrower shall be deemed to have selectedan Interest Period of one month's duration. The Administrative Agent shallpromptly advise the Lenders of any notice given pursuant to this Section 2.03and of each Lender's pro rata portion of the requested Borrowing. Section 2.04 Notes; Repayment of Loans. The Loans made by each Lender shallbe evidenced by a Note, duly executed and delivered on behalf of the Borrower,dated the Closing Date, in substantially the form attached hereto as Exhibit Awith the blanks appropriately filled, payable to the order of such Lender in aprincipal amount equal to such Lender's Revolving Credit Commitment. Theoutstanding principal balance of each Loan, as evidenced by the applicable Note,shall be payable (a) subject to Section 2.01(b), in the case of a RevolvingLoan, on the Conversion Date and (b) in the case of a Term Loan, as provided inSection 2.11. Each Note shall bear interest from the date of the first Borrowinghereunder on the outstanding principal balance thereof as set forth in Section2.06. Each Lender shall, and is hereby authorized by the Borrower to, endorse onthe schedule attached to each Note delivered to such Lender (or on acontinuation of such schedule attached to such Note and made a part thereof), orotherwise to record in such Lender's internal records, an appropriate notationevidencing the date and amount of each applicable Loan from such Lender, eachpayment and prepayment of principal of any such Loan, each payment of intereston any such Loan and the other information provided for on such schedule;provided, however, that the failure of any Lender to make such a notation or anyerror therein shall not affect the obligation of the Borrower to repay the Loansmade by such Lender in accordance with the terms of this Agreement and theapplicable Notes. 37 Section 2.05 Fees. The Borrower shall pay to the Administrative Agent for the account of eachLender, on the last day of March, June, September and December in each year, andon the last day of the Revolving Credit Availability Period, a commitment fee (a"Commitment Fee") on the average daily unused amount of the Revolving CreditCommitment of such Lender during the preceding calendar quarter (or shorter period commencing with the date of this Agreement or ending with the last day ofthe Revolving Credit Availability Period), equal to (i) during any Level IPricing Period, 0.25% per annum, (ii) during any Level II Pricing Period, 0.375%per annum and (iii) at all other times, 0.50% per annum. The "unused amount" ofthe Revolving Credit Commitment of a Lender on any date means the amount of suchLender's Revolving Credit Commitment on such date, less the sum of itsoutstanding Revolving Loans on such date and its Letter of Credit Exposure onsuch date. All Commitment Fees shall be computed on the basis of the actualnumber of days elapsed in a year of 360 days. The Commitment Fee due to eachLender shall commence to accrue from the date of this Agreement and shall ceaseto accrue on the last day of the Revolving Credit Availability Period. (a) The Borrower agrees to pay to the Administrative Agent, for its ownaccount, the fees set forth in the Letter Agreement dated August 19, 2003 (the"Letter Agreement"), among the Administrative Agent, J.P. Morgan Securities Inc.and the Borrower, in the amounts and on the dates provided in the LetterAgreement. Such fees shall be in addition to reimbursement of the Agents'reasonable out- of-pocket expenses. (b) All Fees shall be paid on the dates due, in immediately availablefunds. Once paid, none of the Fees shall be refundable under any circumstances. Section 2.06 Interest on Loans. (a) Subject to Section 2.07, each Revolving Loan or Term Loan comprising anABR Borrowing shall bear interest for each day from the date such Loan is madeuntil it becomes due (computed on the basis of the actual number of days elapsedover a year of 360 days, except that, with respect to ABR Loans the rate ofinterest on which is calculated on the basis of the Prime Rate, the interestthereon shall be calculated on the basis of a 365- (or 366-, as the case may be)day year for the actual days elapsed) at a rate per annum equal to the AlternateBase Rate, plus the Applicable ABR Margin. (b) Subject to Section 2.07, each Revolving Loan or Term Loan comprising aEurodollar Borrowing shall bear interest for each day from the date such Loan ismade until it becomes due (computed on the basis of the actual number of dayselapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBORate for the Interest Period in effect for such Borrowing, plus the ApplicableEurodollar Margin. (c) Any change in any Applicable Margin required hereunder shall be deemedto occur five Business Days after the date the Borrower delivers its financialstatements required by Section 5.02(a) or (b), as the case may be, in respect ofits most recent fiscal quarter and the certificate required by Section 5.02(c);provided, that if the Borrower fails to deliver such financial statements andcertificate on or before the date such statements and certificate are 38required to be delivered pursuant to Section 5.02(a) or (b), as the case may be,and Section 5.02(c), the Applicable Margin for the period from such requireddate until the date such statements and certificate are actually delivered shallbe calculated as if a Level III Pricing Period were in effect, and after thedate such statements and certificate are actually delivered the ApplicableMargin shall be determined as otherwise provided for herein. (d) Interest on each Loan shall be payable on the Interest Payment Datesapplicable to such Loan, except as otherwise provided in this Agreement. Theapplicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period orday within an Interest Period, as the case may be, shall be determined by theAdministrative Agent, and such determination shall be conclusive absent manifesterror. Section 2.07 Default Interest. If the Borrower shall default in the paymentof the principal of or interest on any Loan or any other amount becoming dueunder this Agreement or any other Loan Document, by acceleration or otherwise,interest shall accrue, to the extent permitted by law, on such defaulted amountduring the period from (and including) the date of such default to (but notincluding) the date of actual payment (after as well as before judgment) at (a)in the case of principal or interest on any Loan, the rate per annum (computedon the basis of the actual number of days elapsed over a year of 360 days) thatwould otherwise be applicable to such Loan pursuant to Section 2.06 as if aLevel III Pricing Period were in effect, plus 2.00% or (b) in the case of any other amount, a rate per annum (computed on the basis of the actual number ofdays elapsed over a year of 360 days) equal to the rate applicable to ABRRevolving Loans pursuant to Section 2.06 as if a Level III Pricing Period werein effect, plus 2.00%. The Borrower shall pay all such accrued but unpaidinterest from time to time upon demand. Section 2.08 Alternate Rate of Interest. In the event, and on eachoccasion, that on the day two Business Days prior to the commencement of anyInterest Period for a Eurodollar Borrowing the Administrative Agent shall havedetermined that dollar deposits in the principal amounts of the Loans comprisingsuch Borrowing are not generally available in the applicable interbank market,or that the rates at which such dollar deposits are being offered will notadequately and fairly reflect the cost to any Lender of making or maintainingits Eurodollar Loan during such Interest Period, or that reasonable means do notexist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall,as soon as practicable thereafter, give written or telecopy notice of suchdetermination to the Borrower and the Lenders. In the event of any suchdetermination, any request by the Borrower for a Eurodollar Borrowing pursuantto Section 2.03 or 2.10 shall, until the Administrative Agent shall have advisedthe Borrower and the Lenders that the circumstances giving rise to such noticeno longer exist, be deemed to be a request for an ABR Borrowing. Eachdetermination by the Administrative Agent hereunder shall be conclusive absentmanifest error. Section 2.09 Termination and Reduction of Commitments. (a) The RevolvingCredit Commitments shall be automatically terminated at 5:00 p.m., New York Citytime, on the Conversion Date. (b) Upon at least three Business Days' prior irrevocable written ortelecopy notice to the Administrative Agent, the Borrower may at any time inwhole permanently terminate, or from time to time in part permanently reduce,the Revolving Credit Commitments; provided, 39however, that (i) the Borrower simultaneously reduce Facility B by a pro rataamount, provided that, the Borrower may, at its option, elect the aggregateamount of any such reduction to be applied, first, to this Facility, and,second, to Facility B, (ii) in the event the Borrower permanently terminates orreduces Facility B in whole, the Borrower shall simultaneously terminate orreduce, as the case may be, this Facility, (iii) each partial reduction of theRevolving Credit Commitments and Facility B shall be in a minimum collectiveaggregate principal amount which is an integral multiple of $100,000 and notless than $500,000 and (iv) no such termination or reduction of Revolving CreditCommitments shall be permitted if, (1) after giving effect thereto and to anyprepayments of the Revolving Loans made on the effective date thereof,Indebtedness outstanding under the Facility shall be less than $2,000,000 unlessthe Facility Obligations are simultaneously paid in full in cash and theCommitments under this Facility are fully terminated or (2) the sum of theaggregate outstanding principal amount of Revolving Loans plus the Letter ofCredit Exposure would exceed the Revolving Credit Commitments. (c) In the event, and on each occasion, that the Borrower is required toprepay or repay the Revolving Loans and/or to provide cash collateral for theLetters of Credit as provided in Section 2.11(c) or (d) and Section 2.11(f),then on the date of such required action, the Revolving Credit Commitments shallbe automatically and permanently reduced by an amount equal to the sum of suchrequired payment and cash collateral; provided, however that (i) the Borrowersimultaneously reduce Facility B by a pro rata portion of the amount of suchprepayment or reduction determined pursuant to the allocation method set forthin Section 4(d)(ii) of the Intercreditor Agreement, (ii) in the event theBorrower prepays the amount of Facility B, in whole, the Borrower shallsimultaneously prepay this Facility in its entirety and (iii) in no event shallany such reduction or prepayment reduce either (x) the outstanding Indebtednessunder this Facility to an amount less than $2,000,000 or (y) the outstandingIndebtedness under Facility B to an amount less than $500,000, in each case,unless the Facility Obligations are simultaneously paid in full in cash and theCommitments are terminated in full. In addition, the Revolving CreditCommitments shall be automatically and permanently reduced by the amount ofExcess Proceeds referred to in paragraph (c) or (d) of Section 2.11 which isallocable to reduce such Commitments as provided in Section 2.11(f). Forpurposes of applying the requirements of this Section 2.09(c), the amount of anyExcess Proceeds referred to in paragraph (c) or (d) of Section 2.11 which is allocable to the Facility Obligations shall be calculated as if the definitionset forth in the last sentence of Section 2.11(c) included, in addition, themaximum aggregate amount of the unused Revolving Credit Commitments. (d) Each reduction in the Revolving Credit Commitments in accordance withthis Article II shall be made ratably among the Lenders in accordance with theirrespective Revolving Credit Commitments. The Borrower shall pay to theAdministrative Agent for the account of the Lenders, on the date of eachtermination or reduction of the Revolving Credit Commitments of any Class, theCommitment Fees on the amount of the Revolving Credit Commitments of such Classso terminated or reduced accrued to the date of such termination or reduction. Section 2.10 Conversion and Continuation of Borrowings. The Borrower shallhave the right at any time upon prior irrevocable notice to the AdministrativeAgent (a) not later than 11:00 a.m., New York City time, on the Business Day ofconversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) notlater than 11:00 a.m., New York City time, three Business Days prior toconversion or continuation, to convert any ABR Borrowing into a 40Eurodollar Borrowing or to continue any Eurodollar Borrowing as a EurodollarBorrowing for an additional Interest Period and (c) not later than 11:00 a.m.,New York City time, three Business Days prior to conversion, to convert theInterest Period with respect to any Eurodollar Borrowing to another permissibleInterest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) the aggregate principal amount of such Borrowing converted into or continued as (A) a Eurodollar Borrowing, shall be an integral multiple of $100,000 and not less than $500,000 or (B) an ABR Borrowing, shall be the lesser of (I) the remaining outstanding principal amount of such Borrowing and (II) an integral multiple of $100,000; (iii) each conversion or continuation shall be effected by each Lender by applying the proceeds of the new Loan of such Lender resulting from such conversion or continuation to the Loan (or portion thereof) of such Lender being converted or continued; accrued interest on a Eurodollar Loan (or portion thereof) being converted or continued shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted or continued at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.15; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) unless the Required Lenders otherwise agree, during the existence of a Default or an Event of Default, the Borrower shall not be entitled to elect to have any Borrowing converted into or continued as a Eurodollar Borrowing; (vii) any portion of a Borrowing which cannot be converted into or continued as a Eurodollar Borrowing by reason of clause (v) or (vi) above shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; and (viii) no Interest Period may be selected for any Eurodollar Borrowing that would end later than a Repayment Date occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (A) Eurodollar Borrowings with Interest Periods ending on or prior to such Repayment Date and (B) the ABR Borrowings would not be at least equal to the principal amount of Borrowings to be paid on such Repayment Date. Each notice pursuant to this Section 2.10 shall be irrevocable and shallrefer to this Agreement and specify (I) the principal amount, the Type and, in the case of a Eurodollar Borrowing, the Interest Period of the Borrowing thatthe Borrower requests be converted or continued, (II) whether such Borrowing isto be converted to or continued as a Eurodollar 41Borrowing or an ABR Borrowing, (III) if such notice requests a conversion, thedate of such conversion (which shall be a Business Day) and (IV) if suchBorrowing is to be converted to or continued as a Eurodollar Borrowing, theInterest Period with respect thereto. If no Interest Period is specified in anysuch notice with respect to any conversion to or continuation as a EurodollarBorrowing, the Borrower shall be deemed to have selected an Interest Period ofone month's duration. The Administrative Agent shall advise the other Lenders ofany notice given pursuant to this Section 2.10 and of each Lender's pro rataportion of any converted or continued Borrowing. If the Borrower shall not havegiven notice in accordance with this Section 2.10 to continue any Borrowing intoa subsequent Interest Period (and shall not otherwise have given notice inaccordance with this Section 2.10 to convert such Borrowing), such Borrowingshall, at the end of the Interest Period applicable thereto (unless repaidpursuant to the terms hereof), automatically be continued into a new InterestPeriod as an ABR Borrowing. Section 2.11 Mandatory Repayments and Prepayments. (a) On the Conversion Date, all Revolving Credit Borrowings not convertedinto Term Loans pursuant to Section 2.01(b) shall be due and payable to theextent not previously paid. (b) Subject to adjustment as provided in Section 2.11(f) and Section2.12(b), the Borrower shall repay the Term Loans and reduce the Letter of CreditExposure in quarterly installments, commencing on December 31, 2006, andcontinuing on the last day of every third calendar month thereafter throughSeptember 30, 2008 (the due date of each such installment being called a"Repayment Date"); provided, that notwithstanding anything to the contrarycontained in this Agreement, in no event shall the aggregate amount ofoutstanding Indebtedness under this Facility be less than $2,000,000 at any timeunless the Facility Obligations are simultaneously paid in full in cash and theCommitments under this Facility are terminated in full. The amount of any suchinstallment payable on a Repayment Date shall, subject to the proviso in thepreceding sentence, be the amount, if any, necessary (after giving effect to anyreductions on account of the expiration after the Conversion Date of any Lettersof Credit) to reduce the sum of (i) the aggregate principal amount of the TermLoans outstanding immediately after the Conversion Date and (ii) the Letter ofCredit Exposure outstanding immediately after the Conversion Date by anaggregate percentage of such sum equal to the percentage set forth opposite suchRepayment Date below:December 31, 2006 12.5%March 31, 2007 25.0%June 30, 2007 37.5%September 30, 2007 50.0%December 31, 2007 62.5%March 31, 2008 75.0%June 30, 2008 87.5%September 30, 2008 100.0%On the Repayment Date that is September 30, 2008, the Borrower shall repay theremaining principal and interest owing on all outstanding Term Loans and fullycash collateralize any then existing Letter of Credit Exposure. All paymentsunder this paragraph (c) shall be applied 42(I) first, to repay any outstanding Term Loans and (II) second, after the TermLoans have been paid in full, to reduce the Letter of Credit Exposure. Any suchpayments so applied to reduce the Letter of Credit Exposure shall be depositedwith the Administrative Agent pursuant to the Cash Collateral Agreement asprovided in Section 2.21(j). (c) If at any time the Borrower or any of the Restricted Subsidiariesdisposes of property or such property shall be damaged, destroyed or taken in eminent domain or there shall be title insurance proceeds with respect to suchproperty, in any such case, with the result that there are Excess Proceeds, andthe Borrower does not apply such Excess Proceeds in the manner described inSection 6.07(c)(iii)(B)(I), the Borrower shall prepay, upon notice as providedin paragraph (e) of this Section 2.11 (which notice shall be given not laterthan 180 days after the date of such sale of property), a principal amount ofthe outstanding Facility Obligations equal to the amount of such remainingExcess Proceeds allocable to the Facility Obligations, determined by allocatingsuch remaining Excess Proceeds pro rata among the Lenders, the lenders under theWorking Capital and Acquisition Facility Credit Agreement and the holders ofother Parity Debt, if any, outstanding on the date such prepayment is to bemade, according to the aggregate then unpaid principal amounts of the FacilityObligations, the Facilities Obligations and other Parity Debt (and the MakeWhole Amount on the principal amount of the Mortgage Notes to be prepaid) inaccordance with the allocation method set forth in Section 4(d)(ii) of theIntercreditor Agreement. For purposes of this Section 2.11, the "aggregate thenunpaid principal amount of the Facilities Obligations" shall equal the sum of(A) the aggregate principal amount of the outstanding Loans (as defined in theWorking Capital and Acquisition Facility Credit Agreement), (B) the Letter ofCredit Exposure (as defined in the Working Capital and Acquisition FacilityCredit Agreement), and (C) the maximum aggregate amount of the unused Tranche ARevolving Credit Commitments (as defined in the Working Capital and AcquisitionFacility Credit Agreement). (d) In the event that damage, destruction or a taking shall occur inrespect of all or a portion of the properties subject to any of the CollateralDocuments, or there shall be proceeds under title insurance policies withrespect to any real property, all Net Insurance Proceeds (as defined in theMortgage), self-insurance amounts, Net Awards (as defined in the Mortgage) ortitle insurance proceeds which, as of any date, shall not theretofore have beenapplied to the cost of Restoration (as defined in the Mortgage) shall be deemedto be proceeds of property disposed of voluntarily, shall be subject to theprovisions of Section 6.07(c) and, if subdivision (iii)(B)(I) of Section 6.07(c)is applicable thereto, shall be subject to the prepayment provisions ofparagraph (c) of this Section 2.11; provided, that, if any such event orcircumstances (individually or together with all other related events andcircumstances) shall result in proceeds of more than $25,000,000 in theaggregate, the Borrower shall not apply such proceeds to replacement or otherassets or undertake any Restoration without the prior written consent of theRequired Lenders. (e) The Borrower will give the Administrative Agent irrevocable writtennotice of each prepayment under paragraph (c) or (d) of this Section 2.11 notless than 10 days and not more than 30 days prior to the date fixed for suchprepayment, in each case specifying such prepayment date, the aggregateprincipal amount of the Facility Obligations to be prepaid, the aggregateprincipal amount of the Facilities Obligations to be prepaid and the principalamount of each issue of Parity Debt to be prepaid and the paragraph under whichsuch prepayment is to 43be made. Each Lender shall receive, on the Business Day immediately precedingthe date scheduled for any such prepayment, a certificate of a Financial Officerof the Borrower certifying that the applicable conditions of this Section 2.11have been fulfilled and specifying the particulars of such fulfillment. Suchcertificate shall set forth the principal amount of the Facility Obligationsbeing prepaid and specify how such amount was determined, and certify that suchamount has been computed in accordance with this Section 2.11. (f) All mandatory prepayments of the Facility Obligations under paragraphs(c) and (d) of this Section 2.11 shall be applied (i) first, to pay or prepayany outstanding Revolving Loans or Term Loans and, to the extent that theremaining amount of such prepayment is greater than the aggregate principalamount of outstanding Loans, to reduce the Letter of Credit Exposure and (ii)second, to permanently reduce any remaining unused Commitments as contemplatedby Section 2.09(c), provided that, in the event that any such prepayment wouldreduce the outstanding Indebtedness under this Facility to an amount less than$2,000,000 prior to the date that the Facility Obligations have been paid infull in cash and the Commitments have been fully terminated, an amount equal tothe excess of (x) the amount of such prepayment minus (y) the sum of theaggregate principal amount of outstanding Loans on the date of such prepaymentor reduction plus the Letter of Credit Exposure on such date shall be deposited with the Administrative Agent pursuant to the Cash Collateral Agreement asprovided in Section 2.21(j). All such mandatory prepayments so applied on orafter the Conversion Date shall be applied to reduce the amount of scheduledpayments due under Section 2.11(b) after the date of such prepayment in theinverse order of maturity (without affecting the requirement that suchprepayments be applied first to pay all outstanding Term Loans and onlythereafter to reduce the Letter of Credit Exposure). Subject to the foregoingprovisions, any such mandatory prepayment of Loans of any Class shall be appliedto prepay all ABR Loans of such Class before any Eurodollar Loans of such Classare prepaid. Any such payments under paragraphs (c) and (d) of this Section 2.11so applied to reduce the Letter of Credit Exposure shall be deposited with theTrustee and applied as provided in the Intercreditor Agreement. (g) In the event and on each occasion that the sum of (i) the aggregateoutstanding principal amount of the Revolving Loans and (ii) the Letter ofCredit Exposure exceeds the aggregate amount of the Revolving Credit Commitmentsat such time, the Borrower shall immediately prepay Revolving Loans (and, to theextent that the amount of such excess is greater than the aggregate principalamount of outstanding Revolving Loans, reduce the Letter of Credit Exposure bymaking a deposit with the Administrative Agent pursuant to the Cash CollateralAgreement as provided in Section 2.21(j)) in an aggregate principal amount equalto such excess. (h) Each payment of Borrowings pursuant to this Section 2.11 shall beaccompanied by accrued interest on the principal amount paid to but excludingthe date of payment. The repayments and prepayments of the Loans required by therespective subsections of this Section 2.11 and the optional prepaymentspermitted by Section 2.12 are separate and cumulative, so that any one suchrepayment or prepayment shall reduce any other repayment or prepayment only asand to the extent expressly specified herein. All payments under this Section2.11 shall be subject to Section 2.15, but otherwise shall be without premium orpenalty. Section 2.12 Optional Prepayments. (a) Subject to Section 2.01(c) andSection 2.12(b), the Borrower shall have the right at any time and from time totime to prepay 44any Borrowing or payment due under Section 2.11(b), in whole or in part, uponprior written or telecopy notice (or telephone notice promptly confirmed bywritten or telecopy notice) to the Administrative Agent (i) in the case of anyprepayment of amounts payable under Section 2.11(b), not later than 11:00 a.m.,New York City time, three Business Days in advance of the proposed prepayment,(ii) in the case of any prepayment of Eurodollar Revolving Loans, not later than11:00 a.m., New York City time, three Business Days in advance of the proposedprepayment and (iii) in the case of any prepayment of ABR Revolving Loans, notlater than 11:00 a.m., New York City time, on the Business Day of the proposedprepayment; provided, however, that (A) the Borrower simultaneously reduceFacility B pro rata, such that the prepayments made pursuant to this Section2.12(a) and Section 2.12(a) of the Working Capital and Acquisition FacilityCredit Agreement shall be in equal dollar amounts; provided, that (i) theBorrower may, at its option, elect the aggregate amount of such prepayments tobe applied, first, to this Facility and, second, to Facility B, provided,further, that in no event shall such reduction or prepayment reduce theaggregate outstanding Indebtedness under this Facility to an amount less than$2,000,000 or the aggregate outstanding Indebtedness under Facility B to anamount less than $500,000 at any time, in either case unless the FacilityObligations are simultaneously paid in full in cash and the Commitments areterminated in full, (B) each partial prepayment of ABR Loans shall be in aminimum aggregate amount of $100,000 under each of Facility B and this Facilityand each partial prepayment of Eurodollar Loans shall be in an amount which isan integral multiple of $100,000 under each of Facility B and this Facility andnot less than $500,000 under each of Facility B and this Facility, (C) in theevent that the Borrower prepays the lenders under Facility B with respect to theterm loans thereunder, in whole, the Borrower shall simultaneously prepay inwhole the Term Loans under this Facility and (D) a partial prepayment of aEurodollar Borrowing under this Section 2.12(a) shall not be made that wouldresult in the remaining aggregate outstanding principal amount thereof undereach of Facility B and this Facility being less than $500,000. Each notice ofprepayment of any Borrowing or payment due under Section 2.11(b) shall specifythe prepayment date, the Class, the Type and the Interest Period of theBorrowing to be prepaid (in the case of a Eurodollar Borrowing), and the principal amount thereof to be prepaid, shall be irrevocable and shall committhe Borrower to prepay such Borrowing or payment by the amount stated therein onthe date stated therein. (b) All prepayments under this Section 2.12 shall be subject to Section2.15 but otherwise shall be without premium or penalty. All prepayments underthis Section 2.12 shall be accompanied by accrued interest on the principalamount being prepaid to, but excluding, the date of payment. All prepaymentsunder this Section 2.12 of amounts payable under Section 2.11(b) shall beapplied to reduce the amount of scheduled payments of amounts due under Section2.11(b) after the date of such prepayment in the inverse order of maturity(without affecting the requirement that such prepayments be applied first to payall outstanding Term Loans and only thereafter to provide cash collateral inrespect of Letters of Credit) until the last four of such scheduled paymentsshall have been repaid in full, and thereafter all such prepayments of amountspayable under Section 2.11(b) shall be applied to reduce such remainingscheduled payments pro rata. Subject to the foregoing provisions, any optionalprepayment of Loans of any Class pursuant to Section 2.12(a) shall be applied toprepay all ABR Loans of such Class before any Eurodollar Loans of such Class areprepaid. Section 2.13 Reserve Requirements; Certain Changes in Circumstances. (a)Notwithstanding any other provision herein, if after the date of this Agreementany change in 45applicable law or regulation or in the interpretation or administration thereofby any Governmental Authority charged with the interpretation or administrationthereof (whether or not having the force of law) shall change the basis oftaxation of payments to any Lender of the principal of or interest on anyEurodollar Loan made by such Lender or any Fees or other amounts payablehereunder (other than changes in respect of taxes imposed on the overall netincome of such Lender by the jurisdiction in which such Lender has its principaloffice or by any political subdivision or taxing authority therein), or shallimpose, modify or deem applicable any reserve, special deposit or similarrequirement against assets of, deposits with or for the account of or creditextended by such Lender (except any such reserve requirement which is reflectedin the Adjusted LIBO Rate) or shall impose on such Lender or the applicableinterbank market any other condition affecting this Agreement or EurodollarLoans made by such Lender, and the result of any of the foregoing shall be toincrease the cost to such Lender of making or maintaining any Eurodollar Loan orto reduce the amount of any sum received or receivable by such Lender hereunderor under the Notes (whether of principal, interest or otherwise) or Letters ofCredit by an amount deemed by such Lender to be material, then from time to timethe Borrower shall pay to such Lender upon demand such additional amount oramounts as will compensate such Lender for such additional costs incurred orreduction suffered. (b) If any Lender shall have determined that the adoption after the datehereof of any law, rule, regulation, agreement or guideline regarding capitaladequacy, or any change in any of the foregoing or in the interpretation oradministration of any of the foregoing by any Governmental Authority, centralbank or comparable agency charged with the interpretation or administrationthereof, or compliance by any Lender (or any lending office of such Lender) orany Lender's holding company with any request or directive regarding capitaladequacy (whether or not having the force of law) of any such authority, centralbank or comparable agency, has or would have the effect of reducing the rate ofreturn on such Lender's capital or on the capital of such Lender's holdingcompany, if any, as a consequence of this Agreement, the Letters of Credit orthe Loans made by such Lender pursuant hereto to a level below that which suchLender or such Lender's holding company could have achieved but for suchadoption, change or compliance (taking into consideration such Lender's policiesand the policies of such Lender's holding company with respect to capitaladequacy) by an amount deemed by such Lender or such Lender's holding company tobe material, then from time to time the Borrower shall pay to such Lender upondemand such additional amount or amounts as will compensate such Lender or suchLender's holding company for any such reduction suffered. (c) A certificate of each Lender setting forth such amount or amounts asshall be necessary to compensate such Lender or its holding company as specifiedin paragraph (a) or (b) above, as the case may be, shall be delivered to theBorrower and shall be conclusive absent manifest error. The Borrower shall pay each Lender the amount shown as due on any such certificate delivered by itwithin 10 days after its receipt of the same. (d) No Lender shall be entitled to compensation under this Section 2.13 forany costs incurred or reductions suffered with respect to any date unless suchLender shall have notified the Borrower that it will demand compensation forsuch costs or reductions not more than 120 days after the later of (i) such dateand (ii) the date on which such Lender becomes aware of such costs orreductions. Failure on the part of any Lender to demand compensation for anyincreased costs or reduction in amounts received or receivable or reduction inreturn on capital 46with respect to any period shall not constitute a waiver of such Lender's rightto demand compensation with respect to any other period. The protection of thisSection 2.13 shall be available to each Lender regardless of any possiblecontention of the invalidity or inapplicability of the law, rule, regulation,guideline or other change, condition or circumstances which shall have occurredor been imposed. Section 2.14 Change in Legality. (a) Notwithstanding any other provisionherein, if any change in any law or regulation or in the interpretation thereofby any Governmental Authority charged with the administration or interpretationthereof shall make it unlawful for any Lender to make or maintain any EurodollarLoan or to give effect to its obligations as contemplated hereby with respect toany Eurodollar Loan, then, by written or telecopy notice to the Borrower and tothe Administrative Agent, such Lender may: (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for an ABR Borrowing unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in Section 2.14(b).In the event that any Lender shall exercise its rights under clause (i) or (ii)above, all payments and prepayments of principal which would otherwise have beenapplied to repay the Eurodollar Loans that would have been made by such Lenderor the converted Eurodollar Loans of such Lender shall instead be applied torepay the ABR Loans made by such Lender in lieu of, or resulting from theconversion of, such Eurodollar Loans. (b) For purposes of this Section 2.14, a notice to the Borrower by anyLender shall be effective as to each Eurodollar Loan, if lawful, on the last dayof the Interest Period currently applicable to such Eurodollar Loan; in allother cases such notice shall be effective on the date of receipt by theBorrower. Section 2.15 Indemnity. The Borrower shall indemnify each Lender againstany loss or expense which such Lender may sustain or incur as a consequence of(a) any failure by the Borrower to fulfill on the date of any borrowinghereunder the applicable conditions set forth in Article IV, (b) any failure bythe Borrower to borrow or to refinance, convert or continue any Loan hereunderafter irrevocable notice of such borrowing, refinancing, conversion orcontinuation has been given pursuant to Section 2.03 or 2.10, (c) any payment,prepayment or conversion of a Eurodollar Loan required by any other provision ofthis Agreement or otherwise made or deemed made on a date other than the lastday of the Interest Period applicable thereto, (d) any default in payment orprepayment of the principal amount of any Loan or any part thereof or interestaccrued thereon, as and when due and payable (at the due date thereof, whetherby scheduled maturity, acceleration, irrevocable notice of prepayment orotherwise) or (e) the occurrence of any Event of Default, including, in eachsuch case, any loss or reasonable expense sustained or incurred or to besustained or incurred in liquidating or employing deposits 47 from third parties acquired to effect or maintain such Loan or any part thereofas a Eurodollar Loan. Such loss or reasonable expense shall include an amountequal to the excess, if any, as reasonably determined by such Lender, of (i) itscost of obtaining the funds for the Loan being paid, prepaid, converted or notborrowed, refinanced, converted or continued or not paid or prepaid (assumed tobe the Adjusted LIBO Rate applicable thereto) for the period from the date ofsuch payment, prepayment, conversion or failure to borrow, refinance, convert orcontinue or failure to pay or prepay to the last day of the Interest Period forsuch Loan (or, in the case of a failure to borrow, refinance, convert orcontinue, the Interest Period for such Loan which would have commenced on thedate of such failure) over (ii) the amount of interest (as reasonably determinedby such Lender) that would be realized by such Lender in reemploying the fundsso paid, prepaid, converted or not borrowed, refinanced, converted or continuedfor such period or Interest Period, as the case may be based upon the purchaseof debt securities customarily issued by the Treasury of the United States ofAmerica which have a maturity date approximating the last Business Day of suchInterest Period). A certificate of any Lender setting forth any amount oramounts which such Lender is entitled to receive pursuant to this Section 2.15shall be delivered to the Borrower and shall be conclusive absent manifesterror. The Borrower shall pay each Lender the amount shown as due on any suchcertificate delivered by it within 10 days after its receipt of the same. Section 2.16 Pro Rata Treatment. Except as required under Section 2.13 or2.14 and by the terms of this Agreement requiring pro rata treatment withFacility B, each Borrowing, each payment or prepayment of principal of anyBorrowing, each payment of interest on the Loans, each payment of the CommitmentFees, each reduction of the Commitments, each payment in respect ofparticipations in Letter of Credit Disbursements and each refinancing of anyBorrowing with, conversion of any Borrowing to, or continuation of any Borrowingas a Borrowing of any Type shall be allocated pro rata among the Lenders inaccordance with their respective Commitments of the applicable Class (or, ifsuch Commitments shall have expired or been terminated, in accordance with therespective principal amounts of their outstanding Loans of the applicableClass). Each Lender agrees that in computing such Lender's portion of anyBorrowing to be made hereunder, the Administrative Agent may, in its discretion,round each Lender's share of such Borrowing, computed in accordance withSchedule 1.01A, to the next higher or lower whole dollar amount. Section 2.17 Sharing of Setoffs. Each Lender agrees that if it shall,through the exercise of a right of banker's lien, setoff or counterclaim againstthe Borrower, or pursuant to a secured claim under Section 506 of Title 11 ofthe United States Code or other security or interest arising from, or in lieuof, such secured claim, received by such Lender under any applicable bankruptcy,insolvency or other similar law or otherwise (except pursuant to Section 2.20),or by any other means, obtain payment (voluntary or involuntary) in respect ofany Loan or Loans as a result of which the unpaid principal portion of its Loansof any Class shall be proportionately less than the unpaid principal portion ofthe Loans of such Class of any other Lender, it shall be deemed simultaneouslyto have purchased from such other Lender at face value, and shall promptly payto such other Lender the purchase price for, a participation in such Loans ofsuch other Lender, so that the aggregate unpaid principal amount of the Loansand participations in Loans of any Class held by each Lender shall be in thesame proportion to the aggregate unpaid principal amount of all Loans of suchClass then outstanding as the principal amount of its Loans of such Class priorto such exercise of banker's lien, setoff or counterclaim 48or other event was to the principal amount of all Loans of such Classoutstanding prior to such exercise of banker's lien, setoff or counterclaim orother event; provided, however, that if any such purchase or purchases oradjustments shall be made pursuant to this Section 2.17 and the payment givingrise thereto shall thereafter be recovered, such purchase or purchases oradjustments shall be rescinded to the extent of such recovery and the purchaseprice or prices or adjustment restored without interest (unless the party fromwhich such recovery is made is obligated by law to pay interest on the amountrecovered, in which case each of the Lenders shall be responsible for its prorata share of such interest). The Borrower expressly consents to the foregoingarrangements and agrees that any Lender holding a participation in a Loan deemedto have been so purchased may exercise any and all rights of banker's lien,setoff or counterclaim with respect to any and all moneys owing by the Borrowerto such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. Section 2.18 Payments. (a) The Borrower shall make each payment (includingprincipal of or interest on any Borrowing or any Fees or other amounts)hereunder or under any other Loan Document not later than 12:00 noon, New YorkCity time, on the date when due in dollars to the Administrative Agent at theFunding Office, in immediately available funds. Any such payment received aftersuch time on any date shall be deemed made on the next Business Day. (b) Whenever any payment (including principal of or interest on anyBorrowing or any Fees or other amounts) hereunder or under any other LoanDocument shall become due, or otherwise would occur, on a day that is not aBusiness Day, such payment may be made on the next succeeding Business Day, andsuch extension of time shall in such case be included in the computation ofinterest or Fees, if applicable. Section 2.19 Taxes. (a) All payments made by the Borrower under thisAgreement, the Notes and the Letters of Credit shall be made free and clear of,and without deduction or withholding for or on account of, any present or futureincome, stamp or other taxes, levies, imposts, duties, charges, assessments,fees, deductions or withholdings, now or hereafter imposed, levied, collected,withheld or assessed by any Governmental Authority, excluding net income taxesand franchise taxes (imposed in lieu of net income taxes) imposed on any Agentor any Lender as a result of a present or former connection between such Agentor such Lender and the jurisdiction of the Governmental Authority imposing suchtax or any political subdivision or taxing authority thereof or therein (otherthan any such connection arising solely from such Agent or such Lender havingexecuted, delivered or performed its obligations or received a payment under, orenforced, this Agreement, the Notes or any Letters of Credit). If any suchnon-excluded taxes, levies, imposts, duties, charges, fees deductions orwithholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheldfrom any amounts payable to any Agent or any Lender hereunder or under the Notesor any Letters of Credit, the amounts so payable to such Agent or such Lendershall be increased to the extent necessary to yield to such Agent or such Lender(after payment of all Non-Excluded Taxes or Other Taxes) interest or any suchother amounts payable hereunder at the rates or in the amounts specified in thisAgreement, the Notes and any Letters of Credit, provided, however, that theBorrower shall not be required to increase any such amounts payable to anyLender that is not organized under the laws of the 49United States of America or a state thereof if such Lender fails to comply withthe requirements of Section 2.19(d). (b) In addition, the Borrower shall pay any Other Taxes to the relevantGovernmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes are payable by the Borrower, aspromptly as possible thereafter the Borrower shall send to the AdministrativeAgent for its own account or for the account of the Documentation Agent, theSyndication Agent or such other Lender, as the case may be, a certified copy ofan original official receipt received by the Borrower showing payment thereof.If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriatetaxing authority or fails to remit to the Administrative Agent the requiredreceipts or other required documentary evidence, the Borrower shall indemnifythe Agents and the Lenders for any incremental taxes, interest or penalties thatmay become payable by any Agent or any Lender as a result of any such failure. (d) Each Lender (or Transferee) that is not a "U.S. Person" as defined inSection 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to theBorrower and the Administrative Agent (or, in the case of a Participant, to theLender from which the related participation shall have been purchased) twocopies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or,in the case of a Non-U.S. Lender claiming exemption from U.S. federalwithholding tax under Section 871(h) or 881(c) of the Code with respect topayments of "portfolio interest", a statement substantially in the form ofExhibit L and a Form W-8BEN, or any subsequent versions thereof or successorsthereto, properly completed and duly executed by such Non-U.S. Lender claimingcomplete exemption from, or a reduced rate of, U.S. federal withholding tax onall payments by the Borrower under this Agreement and the other Loan Documents.Such forms shall be delivered by each Non-U.S. Lender on or before the date itbecomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). Inaddition, each Non-U.S. Lender shall deliver such forms promptly upon theobsolescence or invalidity of any form previously delivered by such Non-U.S.Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time itdetermines that it is no longer in a position to provide any previouslydelivered certificate to the Borrower (or any other form of certificationadopted by the U.S. taxing authorities for such purpose). Notwithstanding anyother provision of this paragraph, a Non-U.S. Lender shall not be required todeliver any form pursuant to this paragraph that such Non-U.S. Lender is notlegally able to complete and deliver. (e) The provisions of this Section 2.19 shall remain operative and in fullforce and effect regardless of the expiration of the term of this Agreement, theconsummation of the transactions contemplated hereby, the repayment of any ofthe Loans, the invalidity or unenforceability of any term or provision of thisAgreement or any other Loan Document, or any investigation made by or on behalfof any Agent or any Lender. (f) Any Agent or Lender claiming any indemnity payment or additionalamounts payable pursuant to this Section 2.19 shall use reasonable efforts(consistent with legal and regulatory restrictions) to file any certificate ordocument reasonably requested in writing by the Borrower or to change thejurisdiction of its applicable lending office if the making of such a 50filing or change would avoid the need for or reduce the amount of any suchindemnity payment or additional amounts that may thereafter accrue and wouldnot, in the sole determination of such Agent or Lender, be otherwisedisadvantageous to such Lender. (g) Nothing contained in this Section 2.19 shall require any Agent orLender to make available any of its tax returns (or any other information thatit deems to be confidential or proprietary). (h) No Lender shall be entitled to claim any indemnity payment oradditional amount payable pursuant to this Section 2.19 with respect to any taxunless such Lender shall have notified the Borrower that it will demandcompensation for such payment or amount not more than 120 days after the laterof (i) such date and (ii) the date on which such Lender becomes aware of thecosts or reductions giving rise to such claim. Failure on the part of any Lenderto demand any indemnity payment or any such additional amount with respect toany period shall not constitute a waiver of such Lender's right to demandcompensation with respect to any other period. The protection of this Section2.19 shall be available to each Lender regardless of any possible contention ofthe invalidity or inapplicability of the law, rule, regulation, guideline orother change, condition or circumstances which shall have occurred or beenimposed. Section 2.20 Assignment of Commitments Under Certain Circumstances. In theevent that any Lender shall have delivered a notice or certificate pursuant toSection 2.13 or 2.14, or the Borrower shall be required to pay additionalamounts to any Lender under Section 2.19, the Borrower shall have the right, atits own expense, upon notice to such Lender and the Administrative Agent, torequire such Lender to transfer and assign without recourse (in accordance withand subject to the provisions set forth in Section 9.04, including clause (v) ofthe proviso to Section 9.04(b)) all its interests, rights and obligations underthis Agreement to another financial institution designated by the Borrower whichshall assume such obligations; provided, that (i) a similar assignment by suchLender be made under the Working Capital and Acquisition Facility CreditAgreement of all its interests, rights and obligations under the Working Capitaland Acquisition Facility Credit Agreement, (ii) no such assignment shallconflict with any law, rule, regulation or order of any Governmental Authorityand (iii) the Borrower shall pay to the affected Lender (and shall take the sameactions under the Working Capital and Acquisition Facility Credit Agreement) inimmediately available funds on the date of such assignment the entire amount ofprincipal of and interest accrued to the date of payment on the Loans andparticipations in Letter of Credit Disbursements made by it hereunder and allother amounts accrued for its account or owed to it hereunder; provided,further, that if prior to any such assignment the circumstances or event thatresulted in such Lender's notice or certificate under Section 2.13 or 2.14 ordemand for additional amounts under Section 2.19, as the case may be, shallcease to exist or become inapplicable for any reason or if such Lender shall waive its rights in respect of such circumstances or event under Section 2.13,2.14 or 2,19, as the case may be, then such Lender shall not thereafter berequired to make any such assignment hereunder or under the Working Capital andAcquisition Facility Credit Agreement. Section 2.21 Letters of Credit. (a) The Borrower may request the issuance of Letters of Credit, in a formreasonably acceptable to the Administrative Agent and the Issuing Bank, for theaccount of the Borrower, at 51any time and from time to time during the Revolving Credit Availability Period;provided, that any Letter of Credit shall be issued only if, and each request bythe Borrower for the issuance of any Letter of Credit shall be deemed arepresentation and warranty by the Borrower that, immediately following theissuance of such Letter of Credit, the sum of (i) the Letter of Credit Exposureand (ii) the aggregate principal amount of outstanding Revolving Loans shall notexceed the aggregate amount of the Revolving Credit Commitments at such time,provided that, in no event shall the sum of (A) the aggregate principal amountof outstanding Revolving Loans on any date plus (ii) the Letter of CreditExposure on such date exceed the aggregate Revolving Credit Commitments of allthe Lenders and, provided, further, that the amount of all outstanding Tranche BLetters of Credit (as defined in the Working Capital and Acquisition FacilityCredit Agreement) and the Letters of Credit shall not exceed $12,500,000. EachLetter of Credit shall expire at the close of business on the earlier of (x) thefirst anniversary of the date of issuance thereof and (y) five Business Daysprior to the Conversion Date (or, if the Term-Out Option has become effectivepursuant to Section 2.01(b), five Business Days prior to the Maturity Date)unless such Letter of Credit expires by its terms on an earlier date; provided,that any Letter of Credit with an expiration date on the first anniversary oneyear from date of issuance may provide for the renewal thereof for additionalone-year periods but shall in no event extend beyond the date referred to inclause (y) above. Each Letter of Credit shall provide for payments of drawingsin dollars. (b) Each issuance of any Letter of Credit shall be made on at least twoBusiness Days' prior irrevocable written or telecopy notice (or such shorternotice as shall be acceptable to the Issuing Bank) from the Borrower to theAdministrative Agent and the Issuing Bank specifying, on the Issuing Bank'sstandard form or on such other form as is acceptable to the Issuing Bank, thedate of issuance, the date on which such Letter of Credit is to expire, theamount of such Letter of Credit, the name and address of the beneficiary of suchLetter of Credit, and such other information as may be necessary or desirable tocomplete such Letter of Credit. The Issuing Bank will give the AdministrativeAgent prompt notice of the issuance and amount of such Letter of Credit and theexpiration date of such Letter of Credit (and the Administrative Agent shallgive prompt notice thereof to each Lender). The Issuing Bank also will give theAdministrative Agent a quarterly summary indicating the issuance of any Letterof Credit and the amount thereof, the expiration of any Letter of Credit and theamount thereof and the payment on any draft presented under any Letter ofCredit. The Administrative Agent will promptly provide the Lenders with copiesof each such quarterly summary. (c) By the issuance of a Letter of Credit and without any further action onthe part of the Issuing Bank, the Administrative Agent or the Lenders in respectthereof, the Issuing Bank hereby grants to each Lender, and each Lender herebyacquires from the Issuing Bank, effective upon the issuance of such Letter ofCredit, a participation in such Letter of Credit equal to such Lender's pro ratashare (based on such Lender's Revolving Credit Commitment Percentage) of theaggregate amount available to be drawn under such Letter of Credit. Inconsideration and in furtherance of the foregoing, each Lender hereby absolutelyand unconditionally agrees to pay to the Administrative Agent, on behalf of theIssuing Bank, in accordance with Section 2.02(d), such Lender's pro rata share(based on such Lender's Revolving Credit Commitment Percentage) of each Letterof Credit Disbursement made by the Issuing Bank and not reimbursed by theBorrower when due in accordance with Section 2.21(f); provided, that the Lendersshall not be 52 obligated to make any such payment with respect to any wrongful Letter of CreditDisbursement made as a result of the gross negligence or willful misconduct ofthe Issuing Bank. (d) Each Lender acknowledges and agrees that its obligation to acquireparticipations pursuant to Section 2.21(c) in respect of Letters of Credit isabsolute and unconditional and shall not be affected by any circumstancewhatsoever, including the occurrence and continuance of a Default or Event ofDefault, and that each such payment shall be made without any offset, abatement,withholding or reduction whatsoever (subject only to the proviso set forth inSection 2.21(c)). (e) During the Revolving Credit Availability Period, the Borrower shall payto the Administrative Agent, on the last day of March, June, September andDecember in each year and on the date on which the Revolving Credit Commitmentsshall be terminated as provided herein, (i) for the account of the Lenders,ratably in proportion to their Revolving Credit Commitments, a fee on theaverage daily aggregate amount available to be drawn under all outstandingLetters of Credit during the preceding quarter (or shorter period commencingwith the date of this Agreement) at a rate per annum equal to the ApplicableEurodollar Margin from time to time in effect during such period pursuant toSection 2.06 and (ii) for the account of the Issuing Bank, a fee on the averagedaily aggregate amount available to be drawn under all outstanding Letters ofCredit during the preceding quarter (or shorter period commencing with the dateof this Agreement) at a rate per annum equal to 0.125%. Such fees shall becomputed on the basis of the actual number of days elapsed in a year of 360days. Such fees shall accrue from and including the date of this Agreement tobut excluding the last day of the Revolving Credit Availability Period. Inaddition to the foregoing, the Borrower shall pay directly to the Issuing Bank,for its account, payable within 15 days after demand therefor by the IssuingBank, the Issuing Bank's customary processing and documentation fees inconnection with the issuance or amendment of or payment on any Letter of Credit. (f) The Borrower hereby agrees to reimburse the Issuing Bank for anypayment or disbursement made by the Issuing Bank under any Letter of Credit, bymaking payment in immediately available funds to the Administrative Agent, in anamount equal to the amount of such payment or disbursement, not later than 12:00Noon, New York City time, on (i) the Business Day that the Borrower receivesnotice of such draft, if such notice is received on such day prior to 10:00A.M., New York City time, or (ii) if clause (i) above does not apply, theBusiness Day immediately following the day that the Borrower receives suchnotice, plus interest on the amount so paid or disbursed by the Issuing Bank, tothe extent not reimbursed prior to 3:00 p.m. (New York City time) on the date ofsuch payment or disbursement, from and including the date paid or disbursed tobut excluding the date the Issuing Bank is reimbursed by the Borrower therefor,at a rate per annum equal to the rate applicable to ABR Revolving Loans duringsuch period pursuant to Section 2.06. If the Borrower shall fail to pay anyamount required to be paid by it under this Section 2.21(f) when due, suchunpaid amount shall bear interest as provided in Section 2.07. The Issuing Bankshall give the Borrower prompt notice of each drawing under any Letter ofCredit, provided, that the failure to give any such notice shall in no wayaffect, impair or diminish the Borrower's obligations hereunder. TheAdministrative Agent shall promptly pay any such amounts received by it to theIssuing Bank. 53 (g) The Borrower's obligation to reimburse Letter of Credit Disbursementsas provided in Section 2.21(f) shall be absolute, unconditional and irrevocableand shall be performed strictly in accordance with the terms of this Agreementunder any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any other Loan Document; (ii) the existence of any claim, setoff, defense or other right which the Borrower, any Subsidiary or any other Person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, any Agent, any Lender or any other Person in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or failing to comply with the Uniform Customs and Practices for Documentary Credits, as in effect from time to time, or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document which does not comply with the terms of such Letter of Credit; provided, that such payment was not wrongfully made as a result of the gross negligence or willful misconduct of the Issuing Bank; and (v) any other act or omission or delay of any kind or any other circumstance or event whatsoever, whether or not similar to any of the foregoing and whether or not foreseeable, that might, but for the provisions of this Section 2.21(g), constitute a legal or equitable discharge of the Borrower's obligations hereunder. (h) It is expressly understood and agreed that, for purposes of determiningwhether a wrongful payment under a Letter of Credit resulted from the IssuingBank's gross negligence or willful misconduct, (i) the Issuing Bank's acceptanceof documents that appear on their face to be in order, without responsibilityfor further investigation, regardless of any notice or information to thecontrary, (ii) the Issuing Bank's exclusive reliance on the documents presentedto it under such Letter of Credit as to any and all matters set forth therein,including the amount of any draft presented under such Letter of Credit, whetheror not the amount due to the beneficiary thereunder equals the amount of suchdraft and whether or not any document presented pursuant to such Letter ofCredit proves to be insufficient in any respect (so long as such document on itsface appears to be in order), and whether or not any other statement or anyother document presented pursuant to such Letter of Credit proves to be forgedor invalid or any statement therein proves to be inaccurate or untrue in anyrespect whatsoever and (iii) any noncompliance in any immaterial respect of thedocuments presented under such Letter of Credit with the terms thereof shall, ineach case, be deemed not to constitute willful misconduct or gross negligence ofthe Issuing Bank. It is further understood and agreed that, notwithstanding theproviso to clause (iv) of Section 2.21(g), the Borrower's obligation hereunderto reimburse Letter of Credit Disbursements will not be excused by the grossnegligence or willful misconduct of the Issuing Bank to the extent that suchLetter of Credit Disbursement actually discharged a liability 54of, or otherwise benefited, or was recovered by, the Borrower; provided, thatthe foregoing shall not be construed to excuse the Issuing Bank from liabilityto the Borrower to the extent of any direct damages suffered by the Borrowerthat are caused by the Issuing Bank's gross negligence or willful misconduct indetermining whether drafts and other documents presented under a Letter ofCredit comply with the terms thereof. (i) The Issuing Bank shall, promptly following its receipt thereof, examineall documents purporting to represent a demand for payment under a Letter ofCredit, including as to compliance with the Uniform Customs and Practices forDocumentary Credits, as then in effect. The Issuing Bank shall as promptly aspossible give telephonic notification, confirmed by telex or telecopy, to theAdministrative Agent and the Borrower of such demand for payment and whether theIssuing Bank has made or will make a Letter of Credit Disbursement thereunder,provided, that the failure to give such notice shall not relieve the Borrower ofits obligation to reimburse any such Letter of Credit Disbursement in accordancewith this Section 2.21. The Administrative Agent shall promptly give each Lendernotice thereof. (j) In the event that the Borrower is required or elects pursuant to theterms of this Agreement (other than Sections 2.11(f) and 7.01) to provide cashcollateral in respect of the Letter of Credit Exposure of any Class, theBorrower shall deposit in an account with the Administrative Agent an amount incash equal to the Letter of Credit Exposure of such Class (or such lesser amountas shall be required or elected hereunder). Any such deposit shall be held bythe Administrative Agent in accordance with the Cash Collateral Agreement. Inthe event that the Borrower is required pursuant to the terms of Section 2.11(f)or Section 7.01 of this Agreement to provide cash collateral in respect of theLetter of Credit Exposure of any Class, the Borrower shall deposit such cashcollateral in an account with the Trustee pursuant to the Intercreditor Agreement. Such deposit shall be held by the Trustee in accordance with theIntercreditor Agreement. Any such deposit to be held by the Administrative Agentor the Trustee, as provided herein, shall be accompanied by notice from theBorrower, in form satisfactory to the Administrative Agent or the Trustee, asthe case may be, setting forth the basis for such deposit, identifying inreasonable detail the Letters of Credit to which such deposit relates, andsetting forth any other information related to such deposit reasonably requestedby the Administrative Agent or the Trustee, as the case may be. The Borrowershall promptly provide the Administrative Agent with a copy of any such noticeto the Trustee and shall promptly provide the Trustee with a copy of any suchnotice to the Borrower. ARTICLE III REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each of the Lenders that: Section 3.01 Organization; Powers. Each of the Borrower and the LoanParties (a) is a limited partnership (in the case of the Borrower and the PublicPartnership) or a limited liability company or a corporation (in the case of theother Loan Parties) duly organized, validly existing and in good standing underthe laws of the jurisdiction of its organization, (b) has all requisite powerand authority to own its property and assets and to carry on its business as nowconducted and as proposed to be conducted, (c) is duly qualified or registeredto do business and is in good 55standing as a foreign limited partnership (in the case of the Borrower and thePublic Partnership) or a limited liability company or corporation (in the caseof the other Loan Parties) in all jurisdictions in which the nature of theirrespective activities or the character of the properties they own, lease or usemakes such qualification or registration necessary and in which the failure soto qualify or to be so registered would have a Material Adverse Effect (and theonly such jurisdictions are, in the case of the Borrower and the PublicPartnership, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky,Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey,New York, Ohio, Pennsylvania, Rhode Island, Texas, West Virginia and Wisconsin)and (d) has the power and authority to execute, deliver and perform itsobligations under each of the Loan Documents and each other agreement orinstrument contemplated thereby to which it is or will be a party, to consummatethe transactions contemplated hereunder and, in the case of the Borrower, toobtain extensions of credit hereunder. Section 3.02 Authorization. The execution, delivery and performance by eachof the Borrower and the Loan Parties of each of the Loan Documents to which itis or will be a party, the consummation of the transactions contemplatedhereunder and, in the case of the Borrower, the extensions of credit hereunder(a) have been duly authorized by all requisite action and (b) will not (i)violate (A) any provision of law, statute, rule or regulation, or of theagreement of limited partnership, operating agreement, articles of incorporationor other constitutive documents or by-laws of the Borrower and the other LoanParties, (B) any order of any Governmental Authority or (C) any provision of anyindenture, agreement or other instrument to which the Borrower or any of theother Loan Parties is a party or by which any of them or any of their propertyis or may be bound, including, without limitation, the Working Capital andAcquisition Facility Credit Agreement, the Note Agreements or the Parity DebtAgreements, (ii) be in conflict with, result in a breach of or constitute (aloneor with notice or lapse of time or both) a default or give rise to increased,additional, accelerated or guaranteed rights of any Person under any suchindenture, agreement or other instrument, including, without limitation, theWorking Capital and Acquisition Facility Credit Agreement, the Note Agreementsor the Parity Debt Agreements or (iii) except for the Lien of the CollateralDocuments, result in the creation or imposition of any Lien upon or with respectto any property or assets now owned or hereafter acquired by the Borrower or anyof the other Loan Parties. Section 3.03 Enforceability. This Agreement has been duly executed anddelivered by the Borrower and constitutes, and each other Loan Document whenexecuted and delivered by the Borrower or any of the other Loan Parties does orwill constitute, the legal, valid and binding obligation of such partyenforceable against such party in accordance with its terms. The General Partner Guarantee Agreement and the Subsidiaries Guarantee Agreement are in full forceand effect and constitute the legal, valid and binding obligations of each LoanParty party thereto, and no default on the part of any party thereto existsthereunder. The Partners Security Agreement, the Borrower Security Agreement,the Cash Collateral Agreement and the Motor Vehicle Security Agreements are infull force and effect and (i) constitute the valid and binding obligation ofeach Loan Party party thereto, (ii) constitute a valid assignment of, and createa valid, presently effective security interest of record in the property coveredthereby and all interests described therein, subject to no prior securityinterest in any such personal property other than as specifically permittedtherein for the benefit of the Lenders under this Agreement, and (iii) nodefault on the part of any such party exists thereunder. The Mortgages are infull 56force and effort and (a) constitute legal, valid and binding obligations of eachLoan Party party thereto, (b) constitute a valid first mortgage lien of recordon the real property and all other interests described therein which may besubjected to a mortgage lien, subject only to Permitted Exceptions for thebenefit of the Lenders under this Agreement, and (c) constitute a validassignment of, and create a valid, presently effective security interest ofrecord in equipment and all other interests (other than real property interests)described therein for the benefit of the Lenders under this Agreement, subjectto no prior security interest in such property other than as specificallypermitted therein, and no default on the part of any party thereto existsthereunder. The Intercreditor Agreement is in full force and effect andconstitutes the legal, valid and binding obligation of each Loan Party partythereto, and no default on the part of any party thereto shall exist thereunder.All Operative Agreements, and all amendments thereto have been duly authorized,executed and delivered by the respective parties thereto, are in full force andeffect and constitute the legal, valid and binding obligations of the LoanParties party thereto. Section 3.04 Consents and Governmental Approvals. No consent or approvalof, registration or filing with or any other action by (a) any GovernmentalAuthority, (b) any creditor, including, without limitation, any creditor orholder under the Working Capital and Acquisition Facility Credit Agreement, theNote Agreements or the Parity Debt Agreements, or holder of any Capital Stock ofthe Borrower, any of the other Loan Parties or any Affiliate thereof or (c) anyother Person is or will be required in connection with the transactionscontemplated hereby, this Facility or the performance by the Borrower or any ofthe other Loan Parties of the Loan Documents to which it is or will be a party,in each case except such as have been made or obtained and are in full force andeffect. Section 3.05 Business; Financial Statements. (a) The Business includes, andhas in the past included, only (whether conducted by the Loan Parties or any oftheir predecessors) the sale, distribution or storage of heating oil, propanegas, diesel fuel and gasoline) and other related derivative petroleum productsand the provision of services to customers, and the related retail sale ofsupplies and equipment, including home appliances. (b) The Borrower has delivered to the Agents the unaudited pro formabalance sheet of the Borrower as of June 30, 2003 (the "Pro Forma BalanceSheet"). The Pro Forma Balance Sheet presents fairly the financial condition ofthe Borrower as of that date in accordance with GAAP. (c) The Borrower has heretofore furnished to the Lenders (i) (x) theaudited consolidated balance sheets of the Public Partnership and itsSubsidiaries as at September 30, 2000, September 30, 2001 and September 30,2002, and the related consolidated statements of operations and of cash flowsfor the fiscal years ended on such dates contained in the Public Partnership'sAnnual Report on Form 10-K for the fiscal year ended September 30, 2002 filedwith the SEC, and (y) the audited consolidated balance sheets of the Borrowerand the Restricted Subsidiaries as at September 30, 2000, September 30, 2001 andSeptember 30, 2002, and the related consolidated statements of operations and ofcash flows for the fiscal years ended on such dates, in each case, accompaniedby the opinion of KPMG LLP, independent public accountants (collectively, theAudited Financial Statements") and (ii) (A) the unaudited consolidated balancesheet of the Borrower and its Subsidiaries as at June 30, 2003, and the relatedunaudited statements of operations and cash flows for the nine-month periodended on such date contained 57in the Public Partnership's Quarterly Report on Form 10-Q filed with the SEC forthe fiscal quarter ended June 30, 2003 and (B) the consolidated andconsolidating balance sheet of the Borrower and the Restricted Subsidiaries asat June 30, 2003, and the related consolidated and consolidating statementsconforming to the requirements of Section 5.02(a) (the "Unaudited FinancialStatements"), and such Unaudited Financial Statements present fairly theconsolidated financial condition of the Public Partnership and its Subsidiariesor the Borrower and the Restricted Subsidiaries, as the case may be, as at suchdate, and the consolidated results of its operations and its consolidated cashflows for the nine-month period then ended (subject to normal year-end auditadjustments). All such financial statements, including the related schedules andnotes thereto, have been prepared in accordance with GAAP applied consistentlythroughout the periods involved (except as disclosed by the aforementioned firmof accountants and disclosed therein). Except for borrowings under the ExistingCredit Agreement and the Existing Parity Debt Credit Agreement, the balancesheets and the notes thereto included in the Audited Financial Statementsdisclose all material liabilities, actual or contingent, of the Loan Parties asof the dates thereof. Except for borrowings under the Existing Credit Agreementand the Existing Parity Debt Credit Agreement and liabilities incurred in theordinary course of business since the date thereof (none of which, individuallyor in the aggregate, would have a Material Adverse Effect), the Borrower doesnot have any material guarantee obligations, contingent liabilities andliabilities for taxes, or any long-term leases or unusual forward or long-termcommitments, including any interest rate or foreign currency swap or exchangetransaction or other obligation in respect of derivatives, that are notreflected in the most recent financial statements referred to in this paragraph.Notwithstanding the foregoing representation made in the two immediatelypreceding sentences, such representation will be deemed breached (except forpurposes of Article IV hereof) only to the extent that such representationinvolves undisclosed liabilities which could reasonably be expected,individually or in the aggregate, to have a Material Adverse Effect. The AuditedFinancial Statements were prepared in accordance with GAAP applied on aconsistent basis during the periods involved (except as may be indicated in thenotes thereto). Section 3.06 No Material Adverse Change. As of the Closing Date, there hasoccurred since September 30, 2002, no material adverse change, and there existsno condition, event or occurrence that, individually or in the aggregate, couldreasonably be expected to result in a material adverse change, in the business,operations, property or condition (financial or otherwise) of the Loan Parties.Since the date of this Agreement, there has occurred no condition, event orother occurrence that, individually or in the aggregate, has had, and thereexists no condition, event or other occurrence, that, individually or in theaggregate, could reasonably be expected to have, a Material Adverse Effect. Section 3.07 Title to Properties; Possession Under Leases. (a) The Borrowerand the Restricted Subsidiaries own or hold valid leasehold interests in all theproperties and assets used in the operation of the Business, except forproperties and assets set forth on Schedule 3.07(a). None of the properties andassets set forth on Schedule 3.07(a) is material to the Business. Each of theBorrower and the Restricted Subsidiaries has good and marketable title to, orvalid leasehold interests in, all its properties and assets, free and clear ofLiens, except for (i) minor defects in title that do not interfere with itsability to conduct its business as currently conducted or to utilize suchproperties and assets for their intended purposes and (ii) Liens permitted bySection 6.02. 58 (b) Schedule 3.07(b) sets forth, as of the Closing Date, a true, completeand correct list of (i) all real property owned by the Borrower and theRestricted Subsidiaries; (ii) all real property leased by the Borrower or anyRestricted Subsidiary; and (iii) the location and use of each such property. (c) Each of the Borrower and the Restricted Subsidiaries has complied withall obligations under all material leases to which it is a party and all suchleases are in full force and effect. Each of the Borrower and the RestrictedSubsidiaries enjoys peaceful and undisturbed possession under all such material leases. Section 3.08 Subsidiaries. Schedule 3.08 sets forth as of the Closing Datea list of all the Subsidiaries, the respective jurisdictions of organizationthereof and the percentage ownership interest, direct or indirect, of theBorrower therein. Section 3.09 Litigation; Compliance with Laws. (a) Except as set forth inSchedule 3.09, there are no actions, suits or proceedings at law or in equity orby or before any Governmental Authority now pending or, to the knowledge of theBorrower, threatened against or affecting the Borrower, any other Loan Party orany business, property or rights of the Borrower or any other Loan Party (i)which involve any Loan Document or the transactions contemplated by thisAgreement or (ii) as to which there is a reasonable possibility of an adversedetermination and which, if adversely determined, could be reasonably expectedto result, individually or in the aggregate, in a Material Adverse Effect. (b) Neither the Borrower nor any other Loan Party is in violation of anylaw, rule or regulation, or in default with respect to any judgment, writ,injunction or decree, of any Governmental Authority, where such violation ordefault could be reasonably expected to result, individually or in theaggregate, in a Material Adverse Effect. Except as set forth in Schedule 3.09,neither the Borrower nor any other Loan Party has received any writtencommunication during the past three years from any Governmental Authority thatalleges that the Borrower or any other Loan Party or the Business is not incompliance in any material respect with any law, rule or regulation or anyjudgment, writ, injunction or decree. Section 3.10 Agreements. Neither the Borrower nor any of the other LoanParties is a party to any agreement or instrument or subject to any corporaterestriction that has resulted or could reasonably be expected to result,individually or in the aggregate, in a Material Adverse Effect. As of the dateof this Agreement, neither the Borrower nor any of the Restricted Subsidiariesis a party to any Material Contract and none of the assets or properties of theBorrower or any Loan Party is or may be bound by any Material Contract. Section 3.11 Federal Reserve Regulations. (a) Neither the Borrower nor anyof the other Loan Parties is engaged principally, or as one of its importantactivities, in the business of extending credit for the purpose of purchasing orcarrying Margin Stock. (b) No part of the proceeds of any Loan and no Letter of Credit will beused, whether directly or indirectly, and whether immediately, incidentally orultimately, for any purpose which entails a violation of, or which isinconsistent with, the provisions of the regulations of the Board, includingRegulation T, U and X. 59 Section 3.12 Investment Company Act; Public Utility Holding Company Act.Neither the Borrower nor any of the other Loan Parties is (a) an "investmentcompany" as defined in, or subject to Regulation under, the Investment CompanyAct of 1940, (b) a "holding company" as defined in, or subject to regulationunder, the Public Utility Holding Company Act of 1935 or (c) subject toregulation as a "public utility" or a "public service corporation" or theequivalent under any Federal or state law. Section 3.13 Use of Proceeds. The proceeds of all Revolving Loans and theLetters of Credit will be used solely (i) to fund the purchase price of anyEligible Propane Acquisition by the Borrower or any Restricted Subsidiary or toreimburse the Borrower or any Restricted Subsidiary for cash amounts paid by theBorrower or such Restricted Subsidiary for the purchase price of any EligiblePropane Acquisition made by the Borrower or such Restricted Subsidiary withinthe six-month period immediately preceding the date of the Borrowing of theRevolving Loans to which such proceeds relate (provided, in the case of anacquisition of Capital Stock, that the Person so acquired becomes a RestrictedSubsidiary), (ii) to fund Growth-Related Capital Expenditures, (iii) for theother purposes set forth in Section 6.01(b) of the Working Capital andAcquisition Facility Credit Agreement, Section 10.1(b) of the Note Agreementsand the comparable provisions in the other Parity Debt Agreements and (iv) withrespect to the initial Borrowing on the Closing Date, to refinance the ExistingParity Debt Credit Agreement. Section 3.14 Tax Returns. Each of the Borrower and its Affiliates has filedall tax returns required by law to be filed by it and has paid all taxes,assessments and other governmental charges levied upon it or any of itsproperties, assets, income or franchises which are due and payable, other than(a) those which are not past due or are presently being contested in good faithby appropriate proceedings diligently conducted for which such reserves or otherappropriate provisions, if any, as shall be required by GAAP have been made and(b) in the case of any such Person other than the Borrower and the RestrictedSubsidiaries, those which could not reasonably be expected, individually or inthe aggregate, to have a Material Adverse Effect. The Borrower is a limitedpartnership not subject to taxation with respect to its income or gross receiptsunder applicable Federal laws. The Borrower is a limited partnership not subjectto taxation with respect to its income or gross receipts under applicable statelaws, except for laws of the states set forth on Schedule 3.14, none of whichwould, individually or in the aggregate, have a Material Adverse Effect. No taxLien has been filed and, to the knowledge of the Borrower and its Affiliates, noclaim is being asserted with respect to any such tax, fee or other charge. Section 3.15 No Material Misstatements. (a) No information, report,financial statement, exhibit or schedule furnished by or on behalf of theBorrower or any of its Affiliates to any Agent or Lender in connection with thenegotiation of any Loan Document or included therein or delivered pursuantthereto contained, contains or will contain any material misstatement of fact oromitted, omits or will omit to state any material fact necessary to make thestatements therein, in the light of the circumstances under which they were, areor will be made, not misleading. There is no fact known to the Borrower whichhas or in the future would (so far as the Borrower can now foresee) have aMaterial Adverse Effect which has not been set forth in this Agreement(including the schedules hereto). 60 (b) All representations and warranties of the Borrower and Star GasCorporation or Star Gas LLC, as applicable, set forth in the Note Agreements,the Working Capital and Acquisition Facility Credit Agreement and other ParityDebt Agreements were true and correct on and as of the date of such agreementand will be true and correct in all material respects on and as of the ClosingDate with the same effect as though made on and as of the Closing Date, exceptto the extent such representations and warranties expressly relate to an earlierdate (in which case such representations and warranties were true and correct inall material respects on and as of such earlier date). Section 3.16 Employee Benefit Plans. Except as disclosed in Schedule 3.16,none of the General Partner, the Borrower or any Related Person of the GeneralPartner or the Borrower has ever established, maintained, contributed to or beenobligated to contribute to, and neither the Borrower nor any Related Person ofthe Borrower has any liability or obligation with respect to, any Plan. Exceptas disclosed in Schedule 3.16, neither the Borrower nor any Related Person ofthe Borrower has assumed, either by agreement (including the PartnershipAgreement and the Operative Agreements), by operation of law or otherwise, anyliability or obligation with respect to any "employee benefit plan" (as definedin ERISA) or any other compensation or benefit arrangement, agreement, policy,practice or understanding. Neither the General Partner, nor the Borrower nor anyRelated Person of the Borrower, or the General Partner has incurred any materialliability under Title IV of ERISA with respect to any Plan and no event orcondition exists or has occurred as a result of which such a liability couldreasonably be expected to be incurred. None of the General Partner, the Borrowernor any Related Person of the General Partner or the Borrower has engaged in anytransaction, including the transactions contemplated hereunder, which couldsubject the Borrower or any Related Person of the Borrower to liability pursuantto Section 4069(a) or 4212(c) of ERISA. There has been no reportable event(within the meaning of Section 4043(c) of ERISA) or any other event or conditionwith respect to any Plan which presents a risk of the termination of, or theappointment of a trustee to administer, any such Plan by the PBGC. No prohibitedtransaction (within the meaning of Section 406 of ERISA or Section 4975 of theCode) exists or has occurred with respect to any Plan which has subjected orcould reasonably be expected to subject the General Partner or the Borrower to amaterial liability under Section 502(i) or 502(l) of ERISA or Section 4975 ofthe Code. No liability to the PBGC (other than liability for premiums not yetdue) has been or is expected to be incurred with regard to any Plan by theGeneral Partner, the Borrower or any Related Person. Neither the GeneralPartner, nor the Borrower nor any Related Person of the General Partner or theBorrower contributes or is obligated to contribute or has ever contributed or been obligated to contribute to any Single Employer Plan that has at least twocontributing sponsors not under common control. The Borrower is not, nor is itexpected to become, a "substantial employer" as defined in Section 4001(a)(2) ofERISA with respect to any Plan. Neither the General Partner nor the Borrower hasever maintained or contributed to any plan or arrangement which providespost-employment welfare benefits or coverage (other than continuation coverageprovided pursuant to Section 4980B of the Code). With respect to anypost-employment welfare benefit plan or arrangement (other than continuationcoverage provided pursuant to Section 4980B of the Code) established,maintained, or contributed to, by any Related Person (or with respect to which aRelated Person is obligated to contribute), (i) the FAS 106 liabilities and theassumptions used therefor accurately reflect the costs associated with therights and benefits of all participants and (ii) such benefits may be terminatedat any time without liability to the Borrower, General Partner or any RelatedParty. 61 Section 3.17 Environmental and Safety Matters. (a) Each of the Borrower andthe General Partner is in compliance with all Environmental Laws applicable toit or to the Business or the Assets, except where such noncompliance would nothave a Material Adverse Effect. The Borrower has timely and properly applied forrenewal of all environmental permits or licenses that have expired or are aboutto expire and are necessary for the conduct of the Business as now conducted andas proposed to be conducted, except where the failure to timely and properlyreapply would not have a Material Adverse Effect. Schedule 3.17 lists (i) allnotices from Federal, state or local environmental agencies to the Borrower, theGeneral Partner or any Affiliate thereof citing environmental violationsaffecting the Business or the Assets that have not been finally resolved anddisposed of, and no such violation, whether or not notice regarding suchviolation is listed on Schedule 3.17, if ultimately resolved against such party,would have a Material Adverse Effect and (ii) all current reports filed by theBorrower, the General Partner or any Affiliate thereof with respect to theBusiness or the Assets with any Federal, state or local environmental agencyhaving jurisdiction over the Business or the Assets, true and complete copies ofwhich reports have been made available to the Lenders. Notwithstanding any suchnotice, except for matters the consequences of which will not have a MaterialAdverse Effect, the Business and the Assets is currently being operated in allrespects within the limits set forth in such environmental permits or licensesand any current noncompliance with such permits or licenses will not result inany liability or penalty to the Borrower or the Subsidiaries or in therevocation, loss or termination of any such environmental permits or licenses. (b) All facilities located on the real property owned or leased by the LoanParties which are subject to regulation by RCRA are and have been operated incompliance with RCRA, except where such noncompliance would not have a MaterialAdverse Effect and none of the Borrower, the General Partner and theirAffiliates has received, or, to the knowledge of the Borrower, been threatenedwith, a notice of violation of RCRA regarding such facilities. (c) No Hazardous Materials are or have been located or present at any ofthe real property owned or leased by the Loan Parties or any previously ownedproperties in violation of any Environmental Law, which violation will have aMaterial Adverse Effect, or in such circumstances as to give rise to liability,which liability will have a Material Adverse Effect, and with respect to suchreal property there has not occurred (i) any release or threatened release ofany such hazardous substance, (ii) any discharge or threatened discharge of anysubstance into ground, surface, or navigable waters which violates anyEnvironmental Law or (iii) any assertion of any lien pursuant to EnvironmentalLaws resulting from any use, spill, discharge or clean-up of any hazardous ortoxic substance or waste, which occurrence referred to in clause (i), (ii) or(iii) above will have a Material Adverse Effect. (d) The Borrower has not received notice that it has been identified as apotentially responsible party under CERCLA or any comparable state, local orforeign law nor has the Borrower received any notification that any HazardousMaterials that it has used, generated, stored, treated, handled, transported ordisposed of or arranged for transport for disposal or treatment of, or arrangedfor disposal or treatment of, has been found at any site at which anyGovernmental Authority or private party is conducting or plans to conduct aremedial investigation or other action pursuant to any Environmental Law. 62 (e) None of the matters disclosed in Schedule 3.17, either individually orin the aggregate, involves a violation of or a liability under any EnvironmentalLaw, the consequences of which will have a Material Adverse Effect. Section 3.18 Security Interests. The Trustee for the benefit of the SecuredParties will at all times have the Liens provided for in the CollateralDocuments and, subject to the filing by the Trustee of continuation statementsto the extent required by the Uniform Commercial Code, the Collateral Documentswill at all times constitute a valid and continuing lien of record and firstpriority perfected security interest in all the Collateral referred to therein.No filings or recordings, or amendments or supplements to any of the CollateralDocuments are required in order to perfect the security interests created underthe Collateral Documents, except for amendments, supplements, filings orrecordings listed on Schedule 3.18. All such amendments, supplements, listedfilings and recordings were made on or prior to the Closing Date, except asotherwise expressly provided in Schedule 3.18. Section 3.19 Solvency. Upon the making of the initial Loan or the issuanceof the initial Letter of Credit hereunder, each of the Borrower and theRestricted Subsidiaries will be Solvent. "Solvent" means, with respect to anyPerson, that (a) the sum of the assets of such Person, both at a fair valuationand at present fair saleable value, will exceed the liabilities of such Person,(b) such Person will have sufficient capital with which to conduct its businessas presently conducted and as proposed to be conducted and (c) such Person hasnot incurred debts, and does not intend to incur debts, beyond its ability topay such debts as they mature. For purposes of the foregoing definition, "debts"means any liabilities on claims, and "claim" means (i) a right to payment,whether or not such right is reduced to judgment, liquidated, unliquidated,fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,secured or unsecured or (ii) a right to an equitable remedy for breach ofperformance if such breach gives rise to a payment, whether or not such right toan equitable remedy is reduced to judgment, fixed, contingent, matured,unmatured, disputed, undisputed, secured or unsecured. With respect to anycontingent liabilities, such liabilities shall be computed at the amount which,in light of all the facts and circumstances existing at the time, represents theamount which can reasonably be expected to become an actual or maturedliability. Section 3.20 Transactions with Affiliates. Except as set forth in Schedule3.20 and except for agreements and arrangements among the Borrower and WhollyOwned Restricted Subsidiaries or among Wholly Owned Restricted Subsidiaries,neither the Borrower nor any of the Subsidiaries is a party to, and none of theproperties and assets of the Borrower or any of the Subsidiaries is subject toor bound by, any agreement or arrangement with, and neither the Borrower nor anyof the Subsidiaries is engaged in any transaction with, (a) any Affiliate of theBorrower or any of the Subsidiaries or (b) any Affiliate of Petro or the GeneralPartner. Section 3.21 Ownership. The only general partner of the Borrower is theGeneral Partner. The General Partner owns approximately 0.01% generalpartnership interest in the Borrower. The only limited partner of the Borroweris the Public Partnership. The Public Partnership owns a 99.99% limited partnerinterest in the Borrower. The only general partner of the Public Partnership isthe General Partner. 63 Section 3.22 Insurance. The Borrower and the Subsidiaries maintain withPermitted Insurers policies of fire and casualty, liability, businessinterruption and other forms of insurance in such amounts, with such deductiblesand against such risks and losses as are reasonable for the business and assetsof the Borrower and the Subsidiaries. All such policies are in full force andeffect, all premiums due and payable thereon have been paid (other thanretroactive or retrospective premium adjustments that are not yet, but may be,required to be paid with respect to any period ending prior to the Closing Dateunder comprehensive general liability and workmen's compensation insurancepolicies) and no notice of cancellation or termination has been received withrespect to any such policy which has not been replaced on substantially similarterms prior to the date of such cancellation. The activities and operations ofthe Borrower and the Subsidiaries have been conducted in a manner so as to conform in all material respects to all applicable provisions of such insurancepolicies. Section 3.23 Labor Relations. Neither the Borrower nor any of theSubsidiaries is engaged in unfair labor practice that could reasonably beexpected to have, individually or in the aggregate, a Material Adverse Effect.There is (a) no unfair labor practice complaint pending against the Borrower orany of the Subsidiaries or affecting the Business or, to the knowledge of theBorrower, threatened against any of them, before the National Labor RelationsBoard, (b) no grievance or arbitration proceeding arising out of or under anycollective bargaining agreement pending against the Borrower or any of theSubsidiaries or affecting the Business or, to the knowledge of the Borrower,threatened against any of them, (c) no strike, labor dispute, slowdown orstoppage pending against the Borrower or any of the Subsidiaries or, to theknowledge of the Borrower, threatened against the Borrower or any of theSubsidiaries, (d) to the knowledge of the Borrower, no union representationquestion existing with respect to the employees of the Borrower or any of theSubsidiaries and (e) to the knowledge of the Borrower, no union organizingactivities are taking place. Section 3.24 Changes, etc. Except as contemplated by this Agreement or theother Loan Documents, the Borrower and the other Loan Parties have not incurredany material liabilities or obligations, direct or contingent, or entered intoany material transaction not in the ordinary course of business, and no eventshave occurred which, individually or in the aggregate, could have a MaterialAdverse Effect, and there has not been any Restricted Payment of any kinddeclared, paid or made by the Borrower or the General Partner. Section 3.25 Indebtedness. Other than the Indebtedness represented by theMortgage Notes, the 2000 Parity Notes and the 2001 Parity Notes, and theIndebtedness incurred hereunder and under the Working Capital and AcquisitionFacility Credit Agreement, none of the Borrower and the Restricted Subsidiarieshas any secured or unsecured Indebtedness outstanding as of the Closing Date. Asof the Closing Date, no instrument or agreement to which the Borrower or any ofthe Subsidiaries is a party or by which the Borrower or any of the Subsidiariesis bound or which is applicable to the Borrower or any of the Subsidiaries(other than this Agreement, the Note Agreements, the Working Capital andAcquisition Facility Credit Agreement, the other Parity Debt Agreements and theParent Indenture) contains any restrictions on the incurrence by the Borrower orany of the Restricted Subsidiaries of additional Indebtedness. Section 3.26 Business. (a) The Borrower is in possession of and operatingin compliance in all respects with all franchises, grants, authorizations,approvals, licenses, permits, 64easements, rights-of-way, consents, certificates and orders required to own,lease or use its properties and to permit the conduct of the Business as nowconducted and proposed to be conducted, except for those franchises, grants,authorizations, approvals, licenses, permits, easements, rights-of-way,consents, certificates and orders (collectively, "Permitted Exceptions") (i)which are not required at this time and are routine or administrative in natureand are expected in the reasonable judgment of the Borrower to be obtained orgiven in the ordinary course of business after the Closing Date, or (ii) which,if not obtained or given, would not, individually or in the aggregate, have aMaterial Adverse Effect. (b) The Borrower has good and marketable title to all of its assets andproperties, subject to no Liens except those permitted under Section 6.02. TheAssets currently owned by the Borrower are all of the assets and propertiesnecessary to enable the Borrower to conduct the Business. (c) (i) The Borrower has beneficial and (except in the case of motorvehicles covered by certificates of title where the certificates of title havebeen duly executed in favor of the Borrower, the Lien of the Trustee has beenduly provided for thereon and such certificates of title have been delivered tothe Borrower and/or the Trustee), record ownership of all properties (includingtrademarks, tradenames and other intellectual property used in the Business),easements and licenses comprising the Business and (ii) the Collateral Documents(other than the Intercreditor Agreement), or proper notices, statements or otherinstruments in respect thereof, have been duly recorded, published, registeredand filed as required by Sections 4.01(e) and 4.01(f). The Borrower holds all right, title and interest in and to the trade name "Star Gas" necessary toconduct the Business, and all other trademarks and trade names used in theBusiness and holds exclusive right, title and interest in and to all customerlists used in the Business. Section 3.27 Chief Executive Office. The chief executive office of theBorrower and the General Partner and the office where each maintains its recordsrelating to the transactions contemplated by the Loan Documents and theOperative Agreements are located at 2187 Atlantic Street, Stamford, CT 06902.The Borrower is only organized in the State of Delaware and "Star Gas Propane,L.P." is the name that appears in official filings in the State of Delaware. TheGeneral Partner is only organized in the State of Delaware and "Star Gas LLC" isthe name that appears in official filings. Section 3.28 Fixed Price Supply Contracts. None of the Borrower and theRestricted Subsidiaries is a party to any contract for the purchase or supply bysuch parties of propane or other product except where (a) the purchase price isset with reference to a spot index or indices substantially contemporaneouslywith the delivery of such product or (b) delivery of such propane or otherproduct is to be made no more than one year after the purchase price is agreedto. All such contracts referred to in the foregoing clause (b) which are ineffect on the Closing Date are set forth in Schedule 3.28. Section 3.29 Trading and Inventory Policies. The Borrower maintains atrading policy to the effect that neither it nor any of the RestrictedSubsidiaries will trade any commodities. The Borrower maintains a supplyinventory position policy to the effect that neither it nor any of theRestricted Subsidiaries will hold on hand, as of any date, more CommoditiesInventory than 65will be sold in the normal course of business during the following 90 days. TheBorrower and the Restricted Subsidiaries are in compliance with such policies. Section 3.30 Parity Debt. The obligations evidenced by this Agreement andany Notes hereunder constitute Parity Debt (as defined in the IntercreditorAgreement) and this Agreement shall be considered a Parity Debt Agreement. ARTICLE IV CONDITIONS OF LENDING Section 4.01 Effectiveness. This Agreement shall become effective when allof the conditions precedent set forth in this Section 4.01 shall have beensatisfied: (a) Each Lender shall have received counterparts of this Agreement signedby each of the parties hereto. (b) Each Lender shall have received duly executed Notes, dated the ClosingDate, complying with the provisions of Section 2.04. (c) Each Lender shall have received duly authorized, executed and deliveredcounterparts of (i) the General Partner Guarantee Agreement, and General PartnerConsent Agreement dated the Closing Date and (ii) the Subsidiaries GuaranteeAgreement, and Subsidiaries Consent and Agreement dated the Closing Date. (d) The Administrative Agent shall have received satisfactory evidence thatthe Working Capital and Acquisition Facility Credit Agreement shall have becomeeffective in accordance with its terms. (e) The Trustee on behalf of the Secured Parties shall have a securityinterest in the Collateral of the type and priority described in each CollateralDocument, perfected to the extent contemplated by Section 3.18 and each Lendershall have received: (i) duly authorized, executed and delivered counterparts of (A) the Partners Security Agreement, duly executed by the General Partner and the Public Partnership and any documents related thereto, (B) the Borrower Security Agreement, duly executed by the Borrower, the General Partner and the Restricted Subsidiaries and any documents related thereto, (C) the Public Partnership Consent and Agreement dated the Closing Date, (D) the Cash Collateral Agreement, duly executed by the Borrower, (E) the Motor Vehicle Security Agreements duly executed by the Borrower or the Restricted Subsidiary, as the case may be, and (F) a duly completed and executed Perfection Certificate from the Borrower dated the Closing Date; (ii) acknowledgment copies of Uniform Commercial Code financing statements which create in favor of the Trustee for the benefit of the Secured Parties a valid, legal and perfected security interest in or lien on the Collateral that is the subject of the Security Agreements; 66 (iii) certified copies of Requests for Information (form UCC-11), or equivalent reports from an independent search service satisfactory to the Lenders, listing (A) any judgment naming any Loan Party as judgment debtor, (B) any tax lien that names any Loan Party as a delinquent taxpayer in any of the jurisdictions referred to in clause (ii) above and (C) any Uniform Commercial Code financing statement that names any Loan Party as debtor or seller filed in any of the jurisdictions referred to in clause (ii) above; (iv) duly authorized, executed and delivered counterparts of each Mortgage (including any amendments or supplements thereto) filed by the Borrower, along with duly executed copies of all related documents, including landlord waivers, subordination agreements and estoppel certificates and legal opinions; and (v) satisfactory evidence that the Intercreditor Agreement and the Collateral Documents shall have been amended, to the extent necessary, to secure the Facility Obligations on a pari passu basis with the Mortgage Notes, the 2000 Parity Notes, the 2001 Parity Notes, the Facilities Obligations and other Parity Debt, in each case, together with certified true and complete copies of such agreements. (f) The Trustee shall have received: (i) a mortgagee's policy of title insurance, including mechanic's lien coverage, with respect to the properties and facilities so identified on Schedule 3.07(b), issued by a Title Company or Companies authorized to issue title insurance in the states in which such properties or facilities are located with satisfactory provisions for coinsurance or reinsurance, insuring the interest of the Trustee under the Collateral Documents as valid first liens on the Mortgaged Properties, free of Liens (other than Liens permitted by Section 6.02) or other exceptions to title not approved and accepted by the Lenders, such policies to be in an amount at least equal to the amounts set forth opposite each of the individual properties and facilities so identified on Schedule 3.07(b); (ii) satisfactory copies of "As-Built" ALTA surveys with respect to the properties and facilities so identified on Schedule 3.07(b), certified to the Trustee and the Title Company or Companies; (iii) satisfactory environmental reviews, audits and appraisals of the properties of the Borrower and the Subsidiaries; (iv) the original stock certificates representing all outstanding Capital Stock of the Subsidiaries, along with undated stock powers endorsed in blank and duly executed Intercompany Notes; (v) each of (A) the original Intercompany Note, dated as of the Closing Date, in the face amount of $10,000,000, made by each of Star/Petro, Stellar Propane Service Corp. and Ohio Gas & Appliance Company in favor of the Borrower and the General Partner, (B) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Star/Petro in favor of the Borrower, 67 (C) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Stellar Propane Service Corp. in favor of the Borrower and (D) the original Intercompany Note, dated as of the Closing Date, in the face amount of $25,000,000, made by Ohio Gas & Appliance Company in favor of the Borrower, in each case, endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof; (vi) a certificate of the Borrower dated as of the Closing Date duly executed by the Borrower addressed to the Trustee complying with Section 6 of the Intercreditor Agreement, which shall specify the date and principal amount of the Notes, the name, address and tax payer identification number of the Lenders and which shall state that this Agreement is a Parity Debt Agreement, that this Agreement is entitled to the benefits of the Intercreditor Agreement and of the Security (as defined in the Intercreditor Agreement) and funds held under Section 4 of the Intercreditor Agreement and that this Agreement are subject to the terms of the Intercreditor Agreement; and (vii) a duly executed Agreement of Parity Lenders and Supplement to Intercreditor Agreement. (g) The Lenders shall have received opinions of Phillips Nizer LLP, counselto the Borrower, substantially in the form of Exhibit F-1 hereto and localcounsel to the Borrower satisfactory to the Lenders in each jurisdictionrequested by the Lenders, substantially in the form of Exhibit F-2 hereto,including, without limitation, an opinion from Phillips Nizer LLP concerning theparity nature of the Parity Debt to be dated the Closing Date and addressed tothe Lenders and addressed to the Trustee. (h) The Administrative Agent shall have received: (i) a certificate, dated the Closing Date and signed by a Responsible Officer of each of the Loan Parties, confirming compliance with the conditions precedent set forth in this Section 4.01; (ii) a copy of the partnership agreement, certificate of incorporation or other constitutive documents, including all amendments thereto, of each of the Loan Parties, certified, to the extent applicable, as of a recent date by the Secretary of State of the State of its organization, and, to the extent applicable, a certificate as to the good standing of each such party as of a recent date, from such Secretary of State; (iii) a certificate of the Secretary or Assistant Secretary of each of the Loan Parties dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws, operating agreement or partnership agreement of such party, as applicable, as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party (or, in the case of the Borrower and the Public Partnership, of the General Partner) authorizing the execution, delivery and performance of the Loan Documents to which such Loan Party is or will be a party, and, in the case of the Borrower, the 68 extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation, certificate of organization or other constitutive documents of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (ii) above and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iv) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (iii) above; (v) a certified true and complete copy of the Note Agreements, the other Parity Debt Agreements, the Existing Parity Debt Credit Agreement, together with all amendments and supplements thereto through the Closing Date and, as requested by the Lenders, other Operative Agreements; (vi) The conditions specified in Section 10.1(b), 10.1(f) or 10.1(i) of the Note Agreements, as applicable, Section 6.01(b), 6.01(f) or 6.01(h) of the Working Capital and Acquisition Facility Credit Agreement, as applicable, and the comparable provisions in the Parity Debt Agreements shall have been fulfilled and the Lenders shall have received such evidence as they may reasonably request (including copies of certificates and opinions required by such provisions) demonstrating fulfillment of the conditions, including, without limitation, (1) the opinion referred to in Section 4.01(g) hereof, (2) a copy of the opinion of Phillips Nizer LLP delivered to the Trustee to the effect that the Lien of the Security Documents (as defined in the Intercreditor Agreement) has attached and is perfected to the extent additional property and assets are being acquired on the Closing Date and (3) a copy of the certificate of the Borrower to the Trustee, in form and substance satisfactory to the Lenders in their sole discretion, to the extent additional property and assets are being acquired on the Closing Date, demonstrating that the principal amount of the Indebtedness incurred hereunder does not exceed the lesser of the cost to the Borrower of such property or assets and the fair market value of such property or assets (as determined in good faith by the General Partner); and (vii) such other documents, opinions, certificates and agreements in connection with this Facility, in form and substance satisfactory to the Lenders, as they or their counsel shall reasonably request, including counterpart originals or certified copies of all the other Operative Agreements. (i) Each Lender shall be satisfied with each of the following (it beingagreed that the execution of this Agreement shall demonstrate suchsatisfaction): (i) the results of, its due diligence investigation of (A) the business, assets, condition (financial and otherwise), liabilities (actual and contingent) and prospects of the Borrower, (B) litigation, tax, accounting, labor, health and safety, environmental, insurance, pension and other employee benefit matters and (C) real estate 69 leases, material contracts, debt agreements, property ownership, and contingent liabilities of the Borrower and the Subsidiaries; (ii) (A) the amount, terms and conditions (including maturity, amortization, interest rates and fees, covenants, events of default, redemption and other provisions) of the Mortgage Notes, the Working Capital and Acquisition Facility Credit Agreement and the other Parity Debt Agreements and (B) the ownership structure of the Borrower, the Public Partnership and the General Partner; (iii) there shall not have occurred and be continuing since the date of the Letter Agreement a material adverse change in the market for bank credit facilities similar in nature to this Facility or a material disruption of, or a material adverse change in, financial, banking or capital market conditions; (iv) all legal matters and documentation incident to the Facility and all corporate and other proceedings taken or to be taken in connection therewith; (v) such information as the Lenders may request as to the aging and concentration of the accounts receivable of the Borrower and the Subsidiaries and as to their inventory, and shall have completed and be satisfied with their review thereof; (vi) insurance, which shall be in full force and effect and which complies with the provisions of this Agreement and the Collateral Documents, and a report, on or prior to the Closing Date, from the Borrower's independent insurance broker, Weeks & Calloway, together with any other evidence reasonably requested by the Agents, demonstrating that the insurance required by Section 6.11 and by the terms of the other Loan Documents is in effect and a certificate from a Responsible Officer of the Borrower stating that the Public Partnership and its Subsidiaries have in effect weather insurance coverage of at least $12,500,000 on a consolidated basis; and (vii) all agreements and transactions between any of the Borrower and the Subsidiaries, on the one hand, and any of their Affiliates, on the other hand. (j) Since September 30, 2002, (x) there shall not have occurred or becomeknown any material adverse change or prospective material adverse change withrespect to the business, assets, operations, properties, condition (financial orotherwise), liabilities (actual or contingent) or prospects of the Borrower fromthat shown in the information and projections contained in the ConfidentialInformation Memorandum and (y) there has been no development or event that hashad or could reasonably be expected to have a Parent Material Adverse Effect. (k) In the case of each Lender, each other Lender, the AdministrativeAgent, the Issuing Bank, the Syndication Agent and the Documentation Agent shallhave simultaneously executed and delivered this Agreement. (l) (i) The Borrower and the Restricted Subsidiaries shall have noindebtedness or other liabilities to third parties (including affiliates),whether accrued, absolute, contingent or threatened, and whether due or tobecome due, except in respect of (A) Facility A, Facility B and this Facility,(B) the Mortgage Notes and the Parity Debt, (C) accounts payable and other 70liabilities disclosed in the financial statements referred to in Section 4.01(m)and satisfactory in all respects to the Lenders, (D) intercompany Indebtednesspermitted by Section 6.01 and (E) liabilities (other than indebtedness forborrowed money) incurred in the ordinary course of business since June 30, 2003(none of which other liabilities, individually or in the aggregate, could have aMaterial Adverse Effect) and (ii) any liens on or claims or encumbrancesaffecting any assets or properties of the Borrower and the Subsidiaries or anyother Collateral (including the Capital Stock of the Borrower) shall have beenreleased in a manner satisfactory to the Agents. (m) The Lenders shall have received (i) the Pro Forma Balance Sheet, theAudited Financial Statements and the Unaudited Financial Statements referred toin Section 3.05, and such financial statements shall not, in the reasonablejudgment of the Lenders, reflect any material adverse change in the consolidatedfinancial condition of Borrower and its consolidated Subsidiaries, as reflectedin the financial statements or projections contained in the ConfidentialInformation Memorandum, and (ii) satisfactory projections for the Borrower andits Subsidiaries through the 2007 fiscal year. (n) All governmental, regulatory, shareholder and third party consents(including under the Intercreditor Agreement, the Parent Indenture and the NoteAgreements), approvals, filings, registrations and other actions required inorder to consummate the transactions contemplated by this Facility shall havebeen obtained or made, as applicable, and shall remain in full force and effect,in each case without the imposition of any condition or restriction which is, inthe judgment of the Lenders, materially adverse to the Borrower or any of theSubsidiaries. (o) There shall not be any pending proceeding requesting an injunction orrestraining order with respect to this Facility or challenging the validity orenforceability of this Facility. (p) The representations and warranties set forth in Article III hereof andthe representations and warranties of the Borrower and the other Loan Partiesset forth in the other Loan Documents shall be true and correct in all materialrespects on and as of the Closing Date with the same effect as though made onand as of the Closing Date, except to the extent such representations andwarranties expressly relate to an earlier date (in which case suchrepresentations and warranties shall be true and correct in all materialrespects on and as of such earlier date). No Default or Event of Default shallhave occurred and be continuing. (q) The Administrative Agent shall have received a satisfactory solvencycertificate from the Chief Financial Officer of the Borrower, substantially inthe form of Exhibit M, certifying to the solvency of the Borrower and itsSubsidiaries after giving effect to the transactions contemplated hereby. (r) The Borrower shall have paid all Fees and other amounts due and payableto any Agent or Lender on or prior to the Closing Date, including reimbursementor payment of all reasonable out-of-pocket expenses required to be reimbursed orpaid by the Borrower under the Letter Agreement or under any Loan Document,including, without limitation, all reasonable fees and expenses of legal counselto the Administrative Agent and the Lenders and all search and filing fees of acompany acceptable to the Lenders (to the extent invoices or statements thereforhave been received on or prior to the Closing Date). The Borrower shall alsohave paid all fees, 71expenses and other amounts due and payable in connection with the assignments ofcommitments under the Working Capital and Acquisition Facility Credit Agreementmade on the Closing Date. (s) On the Closing Date, the commitments under the Existing Parity DebtCredit Agreement shall have been terminated, all loans outstanding thereundershall have been repaid in full, together with accrued interest thereon, allletters of credit issued thereunder shall have been terminated and all otheramounts owing pursuant to the Existing Parity Debt Credit Agreement shall havebeen repaid in full, and the Administrative Agent shall have received evidencein form, scope and substance satisfactory to it that the matters set forth inthis subsection have been satisfied at such time. (t) The Administrative Agent shall have received a Notice of Borrowing asrequired by Section 2.03 or a notice requesting the issuance of each Letter ofCredit as required by Section 2.21(b), as applicable, in either case such noticeshall specify a borrowing of at least $2,000,000. Section 4.02 All Extensions of Credit. The obligations of the Lenders tomake Loans hereunder, and the obligation of the Issuing Bank to issue Letters ofCredit hereunder, are subject to the satisfaction of the conditions precedentset forth in this Section 4.02 on the date of each Borrowing and on the date ofissuance of each Letter of Credit: (a) The Administrative Agent shall have received a notice of such Borrowingas required by Section 2.03 or a notice requesting the issuance of a Letter ofCredit as required by Section 2.21(b), as applicable. (b) The representations and warranties set forth in Article III hereof andthe representations and warranties of the Borrower and the other Loan Partiesset forth in the other Loan Documents shall be true and correct in all materialrespects on and as of the date of such Borrowing or the date of the issuance ofsuch Letter of Credit with the same effect as though made on and as of suchdate, except to the extent such representations and warranties expressly relateto an earlier date (in which case such representations and warranties shall betrue and correct in all material respects on and as of such earlier date). (c) At the time of and immediately after such Borrowing or the issuance ofsuch Letter of Credit, the aggregate outstanding principal amount of the Loansof each Class and the Letter of Credit Exposure of each Class will not exceedthe limitations set forth in Sections 2.01 and 2.21, respectively. (d) At the time of and immediately after such Borrowing or the issuance ofsuch Letter of Credit, no Default or Event of Default shall have occurred and becontinuing. (e) If Capital Stock is being purchased with proceeds from such RevolvingCredit Borrowing, the Agents and the Trustee shall have received counterparts ofa Supplemental Agreement duly executed by the issuer of such Capital Stock (andall terms of such Supplemental Agreement shall have been satisfied). 72 (f) In the case of any Revolving Credit Borrowing and Tranche B RevolvingCredit Borrowing (or series of related Revolving Credit Borrowings and Tranche BRevolving Credit Borrowings (as defined in the Working Capital and AcquisitionFacility Credit Agreement) not in the ordinary course of business consistentwith past practice) in a principal amount, and/or any Letter of Credit and/or Tranche B Letter of Credit (as defined in the Working Capital and AcquisitionFacility Credit Agreement) (or series of related Letters of Credit and/orTranche B Letters of Credit (as defined in the Working Capital and AcquisitionFacility Credit Agreement) not in the ordinary course of business consistentwith past practice) having a face amount, in excess of $1,500,000 to be used forGrowth-Related Capital Expenditures, (i) the Agents shall be satisfied with allaspects of such Growth-Related Capital Expenditures, including all legal, taxand accounting matters relating such Growth-Related Capital Expenditures and theterms of all agreements and instruments to be entered into in connection withsuch Growth-Related Capital Expenditures, (ii) the Agents shall be satisfiedwith all legal matters and documentation incident to such Growth-Related CapitalExpenditures and all corporate and other proceedings taken or to be taken inconnection therewith and (iii) the Agents shall have received (A) all financialinformation reasonably requested by the Agents in connection with suchGrowth-Related Capital Expenditures and (B) a statement of sources and uses offunds in connection with such Growth-Related Capital Expenditures, in each casecertified by a Financial Officer of the Borrower. (g) All components of such acquisition or Growth-Related CapitalExpenditure shall be consummated in accordance with applicable laws andregulations. (h) All governmental, regulatory, shareholder and third party consents,approvals, filings, registrations and other actions required in order toconsummate such acquisition or Growth-Related Capital Expenditure (other thanany such actions the absence of which could not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect) shall havebeen obtained or made and shall remain in full force and effect, without theimposition of any condition or restriction which is, materially adverse to theBorrower or any of the Subsidiaries. (i) There shall not be any pending proceeding requesting an injunction orrestraining order with respect to such acquisition or Growth-Related CapitalExpenditure or challenging the validity or enforceability of such acquisition orGrowth-Related Capital Expenditure. (j) In the case of any issuance of a Letter of Credit, immediatelyfollowing the issuance of such Letter of Credit, the aggregate undrawn amount ofthe sum of all outstanding Letters of Credit and all Tranche B Letters of Credit(as defined in the Working Capital and Acquisition Facility Credit Agreement)shall not exceed $12,500,000. (k) The Borrower shall have directly paid in full to any company acceptableto the Lenders, all invoices of such company for any Uniform Commercial CodeSearch (lien, tax or judgment) and filings and no such invoices shall be unpaid. (l) The Administrative Agent shall have received a certificate,substantially in the form of Exhibit I-2 hereto, of a Responsible Officer of theBorrower dated as of the date of such Borrowing or issuance of Letter of Credit(the "Borrowing Certificate"), certifying as of such date, that: 73 (i) (x) the proposed use of proceeds of such Borrowing or such Letter of Credit complies with Section 3.13, describing such proposed use and specifying the basis for such conclusion in reasonable detail, and (y) such Borrowing or Letter of Credit is permitted under the Note Agreements, the Parent Indenture and the Working Capital and Acquistion Facility Credit Agreement, specifying the relevant exceptions thereunder for such purpose (together with supporting calculations and pro forma financial statements demonstrating compliance with such exception to the satisfaction of the Agents); (ii) at the time of and immediately after such Borrowing or issuance of Letter of Credit, the Leverage Ratio as of the date of such Borrowing or issuance (after giving effect to the acquisition or Growth-Related Capital Expenditure for which such Borrowing or Letter of Credit is being used) shall be no greater than 4.50 to 1.00; and, in the case of each such Borrowing or issuance of each such Letter of Credit, the Borrower shall have prepared and furnished to the Agents prior to such Borrowing or issuance pro forma financial statements demonstrating the fulfillment of such condition to the satisfaction of the Agents. For purposes of calculating the Leverage Ratio as required by this Section 4.02(l)(ii), Consolidated Cash Flow for the Reference Period shall mean the greater of (A) Consolidated Cash Flow for the most recent period of four consecutive fiscal quarters prior to the date of determination and (B) 50% of Consolidated Cash Flow for the most recent period of eight consecutive fiscal quarters prior to the date of determination (together with supporting calculations and pro forma financial statements demonstrating compliance with such condition to the satisfaction of the Agents); (iii) after giving effect to such Borrowing or issuance of Letter of Credit requested to be made or issued hereunder, the ratio of Parent Consolidated Funded Debt to Parent Consolidated Cash Flow as of the date of such Borrowing or issuance of such Letter of Credit, as applicable, shall be no greater than 5.00 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating fulfillment of such condition to the satisfaction of the Agents); (iv) neither the Borrower nor any of its Subsidiaries shall have made any Restricted Payment since the date of the most recent Borrowing or issuance of Letter of Credit if, on the date of such Restricted Payment, the ratio of (x) Parent Consolidated Cash Flow to (y) Parent Consolidated Interest Expense plus the aggregate amount of Restricted Payments made by the Public Partnership to its equityholders during the Reference Period with respect to such date, was less than 0.75 to 1.00 (together with supporting calculations and pro forma financial statements demonstrating fulfillment of such condition to the satisfaction of the Agents); (v) as of the date of such Borrowing or issuance of such Letter of Credit, the Public Partnership and its Subsidiaries shall have in effect weather insurance coverage of at least $12,500,000 on a consolidated basis; and (vi) with respect to the Plans as to which any of Star Gas Partners, L.P., the Borrower or any of their respective Subsidiaries or Related Person of Star Gas Partners, L.P. or the Borrower may have any liability, the excess of the present value of 74 the accrued benefits (vested and unvested) of the participants in each such Plan over the assets of each such plan (each as determined on a projected benefit obligation basis, based on the actuarial methods and assumptions indicated in the most recent applicable actuarial valuation reports), does not exceed an aggregate amount equal to $7,500,000 on such date. (m) Since September 30, 2002, there has been no development or event thathas had or could reasonably be expected to have a Parent Material AdverseEffect. (n) Within 90 days after the Closing Date, the Borrower shall have providedevidence satisfactory to the Administrative Agent with respect to each accountof the Borrower covered by an effective Lockbox Agreement under the WorkingCapital and Acquisition Facility Credit Agreement as of the Closing Date eitherthat (i) the depositary banks under such Lockbox Agreement has been notifiedthat JPMorgan Chase Bank has replaced Fleet National Bank as the administrativeagent and has been instructed to redirect the monies required to be transferredto an account of the Borrower with Fleet National Bank pursuant to the terms ofsuch Lockbox Agreement to an account of the Borrower with JPMorgan Chase Bank,acknowledged in writing by such depositary bank or (ii) such account has beenclosed.Each Revolving Credit Borrowing hereunder and each request for the issuance of aLetter of Credit hereunder shall be deemed to constitute a representation andwarranty by the Borrower on the date of such Borrowing or issuance that theconditions in this Section 4.02 have been satisfied. For purposes of thisSection 4.02, the "issuance" of a Letter of Credit shall include any extension,renewal or amendment of a Letter of Credit. ARTICLE V ACCOUNTING; FINANCIAL STATEMENTS; INSPECTION The Borrower covenants and agrees with each Lender that so long as thisAgreement shall remain in effect or any Facility Obligations shall be unpaid, and until the Commitments have been terminated and the Loans, together withinterest, Fees and all other Facility Obligations have been paid in full, allLetters of Credit have been cancelled or have expired and all Letter of CreditDisbursements have been reimbursed in full, unless the Required Lenders shallotherwise consent in writing: Section 5.01 Accounting. The Borrower will maintain, and will cause eachRestricted Subsidiary to maintain, a system of accounting established andadministered in accordance with GAAP, and will accrue, and will cause eachRestricted Subsidiary to accrue, all such liabilities as shall be required byGAAP. Section 5.02 Financial Statements. The Borrower will deliver to theLenders: (a) as soon as practicable, but in any event within 45 days after the endof each of the first three quarterly fiscal periods in each fiscal year of theBorrower, consolidated (and (A) if the Restricted Subsidiaries constitute aSubstantial Portion (as defined below), then as to the Restricted Subsidiariesor (B) if the Restricted Subsidiaries do not constitute a Substantial Portion,but one or more Restricted Subsidiaries have outstanding Indebtedness owing toPersons 75other than the Borrower or any Restricted Subsidiary, other than the Star/PetroIntercompany Subordinated Debt, then as to such Restricted Subsidiaries,consolidating) balance sheets of the Borrower and the Restricted Subsidiaries asat the end of such period and the related consolidated (and, as to statements ofincome and cash flows, if applicable and as appropriate, consolidating)statements of income, surplus or partners' capital, cash flows and stockholders'equity of the Borrower and the Restricted Subsidiaries for such period and forthe period from the beginning of the current fiscal year to the end of suchquarterly period, setting forth in each case in comparative form theconsolidated and, where applicable and as appropriate, consolidating figures forthe corresponding periods of the previous fiscal year, all in reasonable detailand certified by the principal financial officer of the General Partner aspresenting fairly, in all material respects, the information contained therein(subject to changes resulting from normal year-end adjustments), in accordancewith GAAP (except as noted in the proviso that follows) applied on a basisconsistent with prior fiscal periods; provided, that, it is understood that thefinancial statements provided in accordance with this Section 5.02(a) shall beadjusted to show Petro Holdings as consolidated with the Borrower; provided,that delivery within the time period specified above of copies of the PublicPartnership's Quarterly Report on Form 10-Q prepared in compliance with therequirements therefor and filed with the SEC shall be deemed to satisfy therequirements hereof, but only to the extent such reports otherwise satisfy therequirements of this Section 5.02(a), so long as the Public Partnership does notconduct any material business or activity other than holding Capital Stock ofthe Borrower; and provided, further, that, for purposes of this Section 5.02,"Substantial Portion" shall mean that either (X) the book value of the assets ofthe Restricted Subsidiaries exceeds 5% of the book value of the consolidatedassets of the Borrower and the Restricted Subsidiaries or (Y) the RestrictedSubsidiaries account for more than 5% of the Consolidated Net Income of theBorrower and its Restricted Subsidiaries (it being agreed that the net income ofUnrestricted Subsidiaries shall not be consolidated with the Borrower and theRestricted Subsidiaries for purposes of this calculation of Consolidated NetIncome), in each case in respect of the four fiscal quarters ended as of thedate of the applicable financial statement; provided, that, with respect toStar/Petro, (i) the book value of the common stock of Petro Holdings shall beexcluded from the determination of Substantial Portion in clause (X) above and(ii) the income of Petro Holdings shall be excluded from the determination ofSubstantial Portion in clause (Y) above; (b) as soon as practicable, but in any event within 90 days after the endof each fiscal year of the Borrower ending after the date of this Agreement,consolidated (and (A) if the Restricted Subsidiaries constitute a SubstantialPortion, then as to the Restricted Subsidiaries or (B) if the RestrictedSubsidiaries do not constitute a Substantial Portion, but one or more RestrictedSubsidiaries have outstanding Indebtedness owing to Persons other than theBorrower or any Restricted Subsidiary other than the Star/Petro IntercompanySubordinated Debt, then as to such Restricted Subsidiaries, consolidating)balance sheets of the Borrower and the Restricted Subsidiaries and the consolidated balance sheet of the General Partner as at the end of such year andthe related consolidated (and, as to statements of income and cash flows, ifapplicable and as appropriate, consolidating) statements of income, partners'capital, cash flows and stockholders' equity of the Borrower and the RestrictedSubsidiaries and the consolidated statements of income, surplus, cash flow andstockholders' equity of the General Partner for such fiscal year, setting forthin each case in comparative form the consolidated and, where applicable and asappropriate, consolidating figures for the previous fiscal year, all inreasonable detail; provided, that, it is understood that the financialstatements provided in accordance with this 76Section 5.02(b) shall be adjusted to show Petro Holdings as consolidated withthe Borrower, provided, that delivery within the time periods specified above ofcopies of the Public Partnership's Annual Report on Form 10-K prepared incompliance with the requirements therefor and filed with the SEC shall be deemedto satisfy the requirements hereof, but only to the extent such reports (X)otherwise satisfy the requirements of this Section 5.02(b) so long as the PublicPartnership does not conduct any material business or activity other thanholding Capital Stock of the Borrower, (Y) are accompanied by a report thereonof KPMG LLP or other independent public accountants of recognized nationalstanding selected by the Borrower and acceptable to the Required Lenders, whichreport shall state that such consolidated financial statements present fairlythe financial position of the Borrower and its Restricted Subsidiaries as at thedates indicated and the results of their operations and cash flows for theperiods indicated in conformity with GAAP applied on a basis consistent withprior years and that the audit by such accountants in connection with suchconsolidated financial statements has been made in accordance with GAAP and (Z)in the case of such consolidated financial statements of the General Partner andsuch consolidating financial statements of the Borrower certified by theprincipal financial officer of the General Partner, as presenting fairly theinformation contained therein, in accordance with GAAP applied on a basisconsistent with prior fiscal periods; (c) together with each delivery of financial statements pursuant toparagraphs (a) and (b) of this Section 5.02 (or, in the case of clause (vi)below only, within 15 days thereafter), an Officers' Certificate of the Borrowerin the form of Exhibit K hereto (i) stating that the signers have reviewed theterms of this Agreement and the other Loan Documents, and have made, or causedto be made under their supervision, a review in reasonable detail of thetransactions and condition of the Borrower and the Restricted Subsidiariesduring the accounting period covered by such financial statements and that thesigners do not have knowledge of the existence and continuance as at the date ofsuch Officers' Certificate of any condition or event which constitutes an Eventof Default or Default or, if any such condition or event exists, specifying thenature and period of existence thereof and what action the Borrower has taken oris taking or proposes to take with respect thereto, (ii) stating whether, sincethe date of the most recent financial statements previously delivered, there hasbeen any material change in GAAP applied in the preparation of the Borrower'sfinancial statements and, if so, describing such change, (iii) specifying theamount available at the end of such accounting period for Restricted Payments incompliance with Section 6.04 and showing in reasonable detail all calculationsrequired in arriving at such amount, (iv) demonstrating in reasonable detail, ifapplicable, compliance during and at the end of such accounting period with therestrictions contained in Sections 6.01(b), (d), (e) and (f), the last paragraphof Section 6.01, 6.02(i), 6.03(iv) and 6.07(c)(iii), (v) if not specified in therelated financial statements being delivered pursuant to paragraphs (a) and (b)above, specifying the aggregate amount of interest paid or accrued by theBorrower and the Restricted Subsidiaries, and the aggregate amount ofdepreciation, depletion and amortization charged on the books of the Borrowerand the Restricted Subsidiaries, during the fiscal period covered by suchfinancial statements, (vi) describing in reasonable detail the number and natureof the parcels of real property, or rights thereto or interests therein, causedto be released by the Borrower from the liens of the Security Documents pursuantto the Intercreditor Agreement and in the case of the fee owned property, thesales price of the fee owned property caused to be released by the Borrowerduring such accounting period and (vii) specifying any adjustments that weremade to the definitions of "Consolidated Net Income" 77 or "Consolidated Cash Flow" for any non-cash gains or losses recognized as aresult of Statement of Financial Accounting Standard Numbers 133, 141 and 142; (d) together with each delivery of consolidated financial statementspursuant to paragraph (b) of this Section 5.02, a written statement by theindependent public accountants giving the report thereon (i) stating that inconnection with their audit examination, the terms of this Agreement and theother Loan Documents were reviewed to the extent considered necessary for thepurpose of expression of an opinion on the consolidated financial statements andfor making the statement contained in clause (ii) of this paragraph (d) (itbeing understood that no special audit procedures in addition to those requiredby generally accepted auditing standards then in effect in the United Statesshall be required) and (ii) stating whether, in the course of their auditexamination, they obtained knowledge (and whether, as of the date of suchwritten statement, they have knowledge) of the existence and continuance of anycondition or event which constitutes an Event of Default or Default, and, if so,specifying the nature and period of existence thereof; (e) promptly upon receipt thereof, copies of all reports submitted to theBorrower by independent public accountants in connection with each special auditor each annual or interim audit of the books of the Borrower or any RestrictedSubsidiary made by such accountants, including the comment letter submitted bythe accountants to management in connection with their annual audit; (f) promptly upon their becoming publicly available, copies of allfinancial statements, reports, notices and proxy statements sent or madeavailable by the Borrower, the General Partner or the Public Partnership to allof its security holders in compliance with the Exchange Act or any comparableFederal or state laws relating to the disclosure by any Person of information toits security holders, of all regular and periodic reports and all registrationstatements and prospectuses filed by the Borrower, the General Partner or thePublic Partnership with any securities exchange or with the SEC (other thanregistration statements on Form S-8), and of all press releases and otherstatements made available by the Borrower, the General Partner or the PublicPartnership to the public concerning material developments in the business ofthe Borrower, the General Partner or the Public Partnership, as the case may be; (g) promptly, but in any event within five days, after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know that (i) any condition or event which constitutes an Event ofDefault or Default has occurred or exists, or is expected to occur or exist,(ii) any Lender has given any notice or taken any other action with respect to aclaimed Event of Default or Default or (iii) any Person has given any notice tothe Borrower or any Restricted Subsidiary or taken any other action with respectto a claimed default or event or condition of the type referred to in Section7.01(f), an Officers' Certificate of the Borrower describing the same and theperiod of existence thereof and what action the Borrower has taken, is takingand proposes to take with respect thereto; (h) promptly, but in any event within five days, after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know of the commencement of or significant development in any materiallitigation or material proceeding (including those regarding environmentalmatters) with respect to the Borrower or affecting the 78Borrower, any Restricted Subsidiary or any of their assets, a written noticedescribing in reasonable detail such commencement of or significant developmentin such litigation or proceeding; (i) promptly, but in any event within five days after any ResponsibleOfficer knows or should (in the course of the normal performance of his or herduties) know that any of the events or conditions specified below with respectto any Plan has occurred or exists, or is expected to occur or exist, astatement setting forth details respecting such event or condition and theaction, if any, that the Borrower or any Related Person has taken, is taking andproposes to take or cause to be taken with respect thereto (and a copy of anynotice or report filed with or given to or communication received from the PBGC,the Internal Revenue Service or the Department of Labor with respect to suchevent or condition): (i) any reportable event, as defined in Section 4043(c) of ERISA and the regulations issued thereunder; (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) a substantial cessation of operations within the meaning of Section 4062(e) of ERISA under circumstances which could result in the treatment of the Borrower or any Related Person as a substantial employer under a "multiple employer plan" or the application of the provisions of Section 4062, 4063 or 4064 of ERISA to the Borrower or any Related Person; (iv) the taking of any steps by the PBGC or the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Borrower or any Related Person of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (v) the complete or partial withdrawal by the Borrower or any Related Person under Section 4063, 4203 or 4205 of ERISA from a Plan which is a "multiple employer plan" or a Multiemployer Plan, or the receipt by the Borrower or any Related Person of notice from a Multiemployer Plan regarding any alleged withdrawal or that it intends to impose withdrawal liability on the Borrower or any Related Person or that it is in reorganization or is insolvent within the meaning of Section 4241 or 4245 of ERISA or that it intends to terminate under Section 4041A of ERISA or from a "multiple employer plan" that it intends to terminate; (vi) the taking of any steps concerning the threat or the institution of a proceeding against the Borrower or any Related Person to enforce Section 515 of ERISA; (vii) the occurrence or existence of any event or series of events which could result in a liability to the Borrower or any Related Person pursuant to Section 4069(a) or 4212(c) of ERISA; 79 (viii) the failure to make a contribution to any Plan, which failure, either alone or when taken together with any other such failure, is sufficient to result in the imposition of a lien on any property of the Borrower or any Related Person pursuant to Section 302 of ERISA or Section 412(n) of the Code or could result in the imposition of a material tax or material penalty pursuant to Section 4971 of the Code on the Borrower or any Related Person; (ix) the amendment of any Plan in a manner which would be treated as a termination of such Plan under Section 4041 of ERISA or require the Borrower or any Related Person to provide security to such Plan pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code; or (x) the incurrence of liability in connection with the occurrence of a "prohibited transaction" (within the meaning of Section 406 of ERISA or Section 4975 of the Code); (j) promptly, but in any event within five days, after an officer of any ofthe Borrower, any Subsidiary or the General Partner receives any notice orrequest from any Person (other than any agent, attorney or similar partyemployed by the Borrower or the General Partner) for information, or if theBorrower, any Subsidiary or the General Partner by an officer provides anynotice or information to any such Person (other than any agent, attorney orsimilar party employed by the Borrower or the General Partner), concerning thepresence or release of any hazardous substance (as defined in CERCLA) orhazardous waste (as defined in RCRA) or other contaminants (as defined by anyapplicable Federal, state, local or foreign laws) within, on, from, relating toor affecting any property owned, leased, or subleased by the Borrower or anySubsidiary, copies of each such notice, request or information; (k) as soon as available, and in any event no later than 30 days after theend of each fiscal year of the Borrower, quarterly financial projections for thenext fiscal year, including all material assumptions to such projections; (l) within 15 days of receipt, any management letter issued or provided bythe auditors of the Borrower or any Restricted Subsidiary; and (m) promptly, from time to time, such other information regarding theoperations, business affairs and financial condition of the Borrower, any otherLoan Party or (to the extent such information relates to environmental mattersor any material litigation or proceeding) any Unrestricted Subsidiary, or in anyevent compliance with the terms of any Loan Document, as any Lender mayreasonably request. Section 5.03 Inspection. The Borrower will permit, or cause the GeneralPartner to permit, any authorized representatives designated by the Lenders tovisit and inspect any of the properties of the Borrower, any RestrictedSubsidiary and (to the extent relating to environmental or litigation matters)any Unrestricted Subsidiary, and in any event any properties of the GeneralPartner or of the General Partner's subsidiaries relating to the Business,including the books of account of the Borrower, the Restricted Subsidiaries,such Unrestricted Subsidiaries, the General Partner and the General Partner'ssubsidiaries, and to make copies and take extracts therefrom, 80and to discuss its and their affairs, finances and accounts with its and theirofficers and (with reasonable notice) independent public accountants (and bythis provision each of the Borrower and the General Partner authorizes suchaccountants to discuss with such representatives the affairs, finances andaccounts of the Borrower, any Restricted Subsidiary, such UnrestrictedSubsidiaries, the General Partner or any of such subsidiaries of the GeneralPartner, as the case may be, all at such times and as often as may berequested), provided, that the Borrower will bear the expense for the foregoingif an Event of Default or Default has occurred and is continuing. ARTICLE VI BUSINESS AND FINANCIAL COVENANTS The Borrower covenants and agrees with each Lender that so long as thisAgreement shall remain in effect or any Facility Obligations shall be unpaid,and until the Commitments have been terminated and the Loans, together withinterest, Fees and all other Facility Obligations have been paid in full, allLetters of Credit have been cancelled or have expired and all Letter of CreditDisbursements have been reimbursed in full, unless the Required Lenders shallotherwise consent in writing: Section 6.01 Indebtedness. The Borrower will not, and will not permit anyRestricted Subsidiary to, directly or indirectly, create, incur, assume,guarantee or otherwise become or remain directly or indirectly liable withrespect to (collectively, "incur"), any Indebtedness, except that: (a) the Borrower may become and remain liable with respect to theIndebtedness evidenced by the Mortgage Notes, the 2000 Parity Notes, the 2001Parity Notes and the Working Capital and Acquisition Facility Credit Agreement; (b) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Funded Debt incurred by the Borrower and the RestrictedSubsidiaries to finance the making of expenditures for the improvement, repairor alteration of any Assets or the replacement of any Assets due to obsolescencewith like-kind property, or to renew, refund, refinance or replace any suchFunded Debt; provided, that (i) such Funded Debt is incurred to financeimprovements, repairs, alterations or replacements made within the period of 365days ending on the date such Funded Debt is incurred, (ii) the aggregateprincipal amount of Funded Debt does not exceed the amount of CapitalContributions made during such 365-day period which are applied to finance themaking of such improvements, repairs, alterations or replacements and (iii) ifsuch Funded Debt is to be secured under the Collateral Documents as provided inSection 6.02(h), the agreement or instrument pursuant to which such Funded Debtis incurred (A) contains no financial or business covenants that are morerestrictive on the Borrower or its Subsidiaries than, or that are in additionto, those contained in Section 10 of the Note Agreements (unless prior to orsimultaneously with the incurrence of such Funded Debt, the Note Agreements, theWorking Capital and Acquisition Facility Credit Agreement and the other loandocuments related thereto, this Agreement and the other Loan Documents areamended to provide the benefits of such more restrictive covenants to the Secured Parties thereunder) and (B) specifies no events of default (other thanwith respect to the payment of 81principal and interest on such Funded Debt or the accuracy of representationsand warranties made in connection with such agreement or instrument) which arecapable of occurring prior to the occurrence of the Events of Default specifiedin Section 11 of the Note Agreements (unless prior to or simultaneously with theincurrence of such Funded Debt, the Note Agreements, the Working Capital andAcquisition Facility Credit Agreement and the other loan documents relatedthereto, this Agreement and the other Loan Documents are amended to provide thebenefits of such events of default to the holders of the Notes, the Notes (asdefined in the Working Capital and Acquisition Facility Credit Agreement), theMortgage Notes, the 2000 Parity Notes, the 2001 Parity Notes and the otherParity Debt, as applicable); (c) any Restricted Subsidiary may become and remain liable with respect tounsecured Indebtedness of such Restricted Subsidiary owing to the Borrower or toanother Restricted Subsidiary; provided, that such Indebtedness is created andis outstanding under an agreement or instrument pursuant to which suchIndebtedness is subordinated to the Notes and the Indebtedness secured under theCollateral Documents and is evidenced by an Intercompany Note pledged to theTrustee pursuant to the Borrower Security Agreement; (d) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to unsecured Indebtedness (including, without limitation, inthe case of Indebtedness of Star/Petro, the Star/Petro Intercompany SubordinatedDebt) owing to the General Partner or the Public Partnership; provided, that (i)the aggregate principal amount of such Indebtedness of the Borrower and theRestricted Subsidiaries outstanding at any time shall not be in excess of$10,000,000 (plus the Star/Petro Intercompany Subordinated Debt), (ii) suchIndebtedness is created and is outstanding under an agreement or instrument, orthe Star/Petro Intercompany Subordinated Note, as the case may be, pursuant towhich such Indebtedness is subordinated to the Indebtedness secured under theCollateral Documents at least to the extent provided in the subordinationprovisions set forth in Exhibit D and (iii) such Indebtedness is evidenced by apromissory note, or the Star/Petro Intercompany Subordinated Note, as the casemay be, in form and substance satisfactory to the Required Lenders which ispledged to the Trustee pursuant to the Partners Security Agreement; (e) the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Indebtedness, in addition to that otherwise permitted bythe foregoing paragraphs of this Section 6.01, if on the date the Borrower or aRestricted Subsidiary becomes liable with respect to any such additionalIndebtedness and immediately after giving effect thereto and to thesubstantially concurrent repayment of any other Indebtedness (i) the ratio ofConsolidated Cash Flow to Consolidated Pro Forma Debt Service is greater than2.50 to 1.00 and (ii) the ratio of Consolidated Cash Flow to MaximumConsolidated Pro Forma Debt Service is greater than 1.25 to 1.00; provided,that, in addition to the foregoing, if such Indebtedness is Funded Debt incurredby the Borrower or any Restricted Subsidiary to finance the making ofexpenditures for the improvement or repair of or additions to the Assets, and ifsuch Indebtedness is to be secured under the Collateral Documents as provided inSection 6.02(h), such Indebtedness shall be incurred pursuant to an agreement orinstrument which complies with the requirements set forth in clause (iii) of theproviso to Section 6.01(b); (f) the Borrower and any Restricted Subsidiary may become and remain liablewith respect to pre-existing Indebtedness relating to any Person, business orassets acquired by the 82Borrower or such Restricted Subsidiary, as the case may be; provided, that (i)no condition or event shall exist which constitutes an Event of Default orDefault, (ii) such Indebtedness was not incurred in anticipation of theacquisition of such Person, business or assets, (iii) after giving effect tosuch Person becoming a Restricted Subsidiary, or the acquisition of suchbusiness or assets, the Borrower or such Restricted Subsidiary could incur atleast $1.00 of additional Indebtedness in compliance with the requirements set forth in clauses (i) and (ii) of Section 6.01(e) and (iv) the acquisition ofsuch Person, business or assets is permitted by all other applicable provisionsof the Loan Documents, including Sections 6.03 and 6.22; (g) so long as no Event of Default or Default has occurred and iscontinuing, the Borrower and the Restricted Subsidiaries may become and remainliable with respect to Indebtedness evidenced by Funded Debt incurred for anyrefinancing, refunding or replacement of the Mortgage Notes, the 2000 ParityNotes, the 2001 Parity Notes, the Existing Parity Debt Credit Agreement (in anaggregate outstanding principal amount not in excess of $2,000,000) and theTranche B Notes (as defined in the Working Capital and Acquisition FacilityCredit Agreement); provided, that (i) the aggregate principal amount of suchFunded Debt shall not exceed the aggregate principal amount of such outstandingIndebtedness being refinanced, refunded, or replaced together with any accruedinterest and Make Whole Amount with respect thereto, (ii) at the time of suchincurrence and after giving effect thereto, the ratio of Consolidated Cash Flowto Consolidated Interest Expense shall exceed 2.25 to 1.00, (iii) the maturitydate of such Funded Debt shall not be sooner than the maturity date of suchIndebtedness being refinanced, refunded or replaced, (iv) such Funded Debt shallbe secured on a pari passu basis with Indebtedness secured by the CollateralDocuments; and (v) the proceeds of such Funded Debt are used to refinance,refund or replace existing Indebtedness within 45 days after the incurrence ofsuch Funded Debt (such proceeds are to be held in a bank account with theAdministrative Agent (other than an account subject to the Cash CollateralAgreement) and such proceeds shall be remitted to the Borrower only upondelivery to the Administrative Agent by the Borrower of a certificate certifyingthat such proceeds will be used solely to refinance, refund or replace existingIndebtedness pursuant to this Section 6.01(g)), provided, further, that FundedDebt incurred pursuant to this clause (g) shall not be deemed to be outstandingIndebtedness of the Borrower for any purpose during the 45-day or lesser periodreferred to above while such proceeds are held by the Administrative Agent solong as the proceeds of such Funded Debt are placed in such account at the timeof incurrence and applied to such refinancing, refunding or replacement withinthe 45-day period; (h) so long as no Event of Default or Default has occurred and iscontinuing, the Borrower and the Restricted Subsidiaries may become and remainliable with respect to unsecured Indebtedness incurred for any extension,renewal, refinancing, refunding or replacement of Indebtedness permittedpursuant to subdivisions (a), (b), (e) or (f) of this Section 6.01; provided,that (i) the principal amount of such unsecured Indebtedness to be incurredshall not exceed the principal amount of such Indebtedness being extended,renewed, refinanced, refunded or replaced together with any accrued interestand, in the case of the Mortgage Notes, the 2000 Parity Notes and the 2001Parity Notes, Make Whole Amount with respect thereto and (ii) such unsecuredIndebtedness to be incurred shall not mature prior to the stated maturity ofsuch Indebtedness being extended, renewed, refinanced, refunded or replaced; 83 (i) the Borrower may create and become liable with respect to any HedgingAgreements and Commodity Hedging Agreements; (j) any Restricted Subsidiary may become and remain liable with respect toIndebtedness evidenced by the Collateral Documents; and (k) the Borrower may become and remain liable with respect to unsecuredIndebtedness owing to a Seller in connection with the acquisition of an AcquiredBusiness Entity from such Seller, provided, that (i) the aggregate principalamount of such Indebtedness of the Borrower at any time shall not exceed$5,000,000, and (ii) the aggregate Consolidated Cash Flow generated by suchAcquired Business Entity for so long as such Indebtedness is outstanding shallexceed the aggregate amount of all principal and interest that will become dueand payable on such Indebtedness until such Indebtedness is repaid in full.Notwithstanding the foregoing, the aggregate principal amount of allIndebtedness of all Restricted Subsidiaries at any time outstanding (other thanIndebtedness secured by the Collateral Documents) shall not exceed $10,000,000(plus the Star/Petro Intercompany Subordinated Debt). For the purpose of thisSection 6.01, any Person becoming a Restricted Subsidiary after the date of thisAgreement shall be deemed to have become liable with respect to all of its thenoutstanding Indebtedness at the time it becomes a Restricted Subsidiary, and anyPerson extending, renewing or refunding any Indebtedness shall be deemed to have become liable with respect to such Indebtedness at the time of such extension,renewal or refunding. The Borrower or any Restricted Subsidiary shall be deemedto have become liable with respect to any Indebtedness securing any realproperty acquired by the Borrower or such Restricted Subsidiary, as the case maybe, at the time of such acquisition. Section 6.02 Liens, etc. The Borrower will not, and will not permit anyRestricted Subsidiary to, directly or indirectly create, incur, assume or permitto exist any Lien on or with respect to any property or asset (including anydocument or instrument in respect of goods or accounts receivable) of theBorrower or any Restricted Subsidiary, whether now owned or held or hereafteracquired, or any income or profits therefrom (whether or not provision is madefor the equal and ratable securing of the Facility Obligations in accordancewith the provisions of Section 6.14), except: (a) Liens for taxes, assessments or other governmental charges the paymentof which is not at the time required by Section 6.09; (b) Liens of landlords and carriers, vendors, warehousemen, mechanics,materialmen, repairmen and other like Liens incurred in the ordinary course ofbusiness for sums not yet due or the payment of which is not at the timerequired by Section 6.09, in each case not incurred or made in connection withthe borrowing of money, the obtaining of advances or credit or the payment ofthe deferred purchase price of property; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits madein the ordinary course of business (i) in connection with workers' compensation,unemployment insurance and other types of social security or (ii) to secure (orto obtain letters of credit that secure) the performance of tenders, statutoryobligations, surety and appeal bonds, bids, leases, 84performance bonds, purchase, construction or sales contracts and other similarobligations, in each case not incurred or made in connection with the borrowingof money, the obtaining of advances or credit or the payment of the deferredpurchase price of property; (d) any attachment or judgment Lien, unless the judgment it secures shallnot, within 60 days after the entry thereof, have been discharged or executionthereof stayed pending appeal, or shall not have been discharged within 60 daysafter expiration of any such stay; (e) leases or subleases granted to others, easements, rights-of-way,restrictions and other similar charges or encumbrances, which, in each case aregranted, entered into or created in the ordinary course of the business of theBorrower or any Restricted Subsidiary and which do not interfere with theordinary conduct of the business of the Borrower or any Restricted Subsidiary; (f) Liens on property or assets of any Restricted Subsidiary securingIndebtedness of such Restricted Subsidiary owing to the Borrower or any otherRestricted Subsidiary; (g) Liens created by any of the Collateral Documents; (h) Liens created by any of the Collateral Documents securing Indebtednessincurred in accordance with Section 6.01(b), 6.01(g) or 6.01(i) (but only to theextent such Indebtedness under Section 6.01(i) is incurred to any Lender) or, tothe extent incurred to finance the making of capital improvements, repairs andadditions to the Borrower's Assets, Section 6.01(e) (but only to the extent suchLiens comply with the requirements thereof), provided, that (i) such Liens areeffected through an amendment to the Collateral Documents to the extentnecessary to provide the holders of such Indebtedness equal and ratable securityin the property and assets subject to the Collateral Documents with the SecuredParties, (ii) the Collateral Documents are amended to the extent necessary toextend the Lien thereof to any property or assets acquired or otherwise financedwith the proceeds of such Indebtedness, (iii) the Borrower has delivered to theTrustee an Officers' Certificate demonstrating that the principal amount of suchIndebtedness does not exceed the lesser of the cost to the Borrower of suchproperty or assets and the fair market value of such property or assets (asdetermined in good faith by the General Partner) and to the effect that theamendments to the Collateral Documents required by this Section 6.02(h) and thefiling and recordation of such amendments and related supplements will not have a Material Adverse Effect and that such incurrence of Indebtedness pursuant toSection 6.01(b), 6.01(e), 6.01(g) or 6.01(i), as the case may be, complies inall respects with the requirements of such Section and (iv) the Borrower hasdelivered to the Trustee an opinion of counsel reasonably satisfactory to theTrustee to the effect that the Lien of the Collateral Documents has attached andis perfected with respect to such additional property and assets; (i) Liens existing on any property of a newly-acquired RestrictedSubsidiary at the time of acquisition or existing prior to the time ofacquisition (and not created in anticipation of such acquisition) upon anyproperty acquired by the Borrower or any Restricted Subsidiary; provided, that(i) any such Lien shall be confined solely to the item or items of property soacquired and, if required by the terms of the instrument originally creatingsuch Lien, other property which is an improvement to or is acquired for specificuse in connection with such acquired property, (ii) such item or items ofproperty so acquired (other than property (which 85may include stock or other equity interests) subject to Liens existing prior tothe time of acquisition and not created in anticipation of such acquisition) arenot required to become part of the Mortgaged Properties under the terms of theCollateral Documents, (iii) the principal amount of the Indebtedness secured byany such Lien shall at no time exceed an amount equal to the lesser of (A) thecost of such property to the Borrower or such Restricted Subsidiary, as the casemay be, and (B) the fair market value of such property (as determined in goodfaith by the General Partner) at the time of such acquisition by the Borrower orsuch Restricted Subsidiary, and (iv) any such Lien shall not have been createdor assumed in contemplation of such acquisition of a Restricted Subsidiary orproperty by the Borrower or any Restricted Subsidiary; (j) Liens in amounts not exceeding $100,000 incurred, required or providedfor under state law in connection with self-insurance arrangements; (k) Liens arising from or constituting encumbrances or exceptions to titleto the Assets expressly permitted by the Collateral Documents; (l) Liens securing Capital Lease Obligations of the Borrower or any otherRestricted Subsidiary, including, without limitation, protective filings,provided that, (i) such Capital Lease Obligation is permitted under Section6.01, (ii) such Liens shall be created substantially simultaneously with thelease of fixed or capital assets, (iii) such Liens do not at any time encumberany property other than the property financed by such Indebtedness and (iv) theamount of Indebtedness secured thereby is not increased; and (m) any Lien renewing, extending or refunding any Lien permitted by theforegoing paragraphs of this Section 6.02; provided, that (i) the Indebtednesssecured by any such Lien shall not exceed the amount of such Indebtednessoutstanding immediately prior to the renewal, extension or refunding of suchLien, (ii) no Assets encumbered by any such Lien other than the Assetsencumbered immediately prior to such renewal, extension or refunding shall beencumbered thereby and (iii) the Indebtedness secured by any such Lien shall notmature prior to the stated maturity of such Indebtedness outstanding immediatelyprior to the renewal, extension or refunding of such Lien. Section 6.03 Investments, Guaranties, etc . The Borrower will not, and will not permit any Restricted Subsidiary to,directly or indirectly (a) make or own any Investment in any Person or (b)create or become liable with respect to any Guaranty, except: (i) the Borrower or any Restricted Subsidiary may make and own Investments in Cash Equivalents; (ii) the Borrower and any Restricted Subsidiary may make and own Investments in any Restricted Subsidiary or Investments in Capital Stock of any Person which simultaneously therewith becomes a Restricted Subsidiary; (iii) any Restricted Subsidiary may make and permit to be outstanding Investments in the Borrower and may create or become liable with respect to any Guarantee in respect of the Facility Obligations, the Mortgage Notes, the Working 86 Capital and Acquisition Facility Credit Agreement, the 2000 Parity Notes, the 2001 Parity Notes and any other Parity Debt; (iv) (A) the Borrower or any Restricted Subsidiary may make and own Investments in the Capital Stock of, or contributions to capital in the ordinary course of business of, any Unrestricted Subsidiary or joint venture, except Petro Holdings and its Subsidiaries, if (i) immediately after giving effect to the making of any such Investment the aggregate amount of all such Investments made and outstanding pursuant to this paragraph (iv) shall not at any time exceed $15,000,000 and (ii) the aggregate amount of all investments made and outstanding pursuant to this clause (iv) as of the end of any fiscal quarter of the Borrower shall not exceed by more than $5,000,000 the amount of such investments as of the immediately preceding fiscal quarter of the Borrower, in the cases of both subclauses (i) and (ii) of this clause, disregarding any such investment which on the date of determination could be made pursuant to clause (ii) of this Section 6.03 and net of cash distributions received from all Unrestricted Subsidiaries and joint ventures for such period, excluding Petro Holdings, for such period, and (B) Star/Petro may make and own Investments in Petro Holdings, but only with the proceeds of (x) borrowings constituting Star/Petro Intercompany Subordinated Debt or (y) capital contributions or equity investments indirectly made by the Public Partnership in Star/Petro on or after March 25, 1999; (v) the Borrower or any Restricted Subsidiary may make and own Investments (A) constituting trade credits or advances to any Person incurred in the ordinary course of business, (B) arising out of loans and advances to employees for travel, entertainment and relocation expenses, in each case incurred in the ordinary course of business or (C) acquired by reason of the exercise of customary creditors' rights upon default or pursuant to the bankruptcy, insolvency or reorganization of a debtor; (vi) the Borrower or any Restricted Subsidiary may create or become liable with respect to any Guaranty constituting an obligation, warranty or indemnity, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business; and (vii) the Borrower may create and become liable with respect to Hedging Agreements and Commodity Hedging Agreements. Section 6.04 Restricted Payments. (a) The Borrower will not directly orindirectly declare, order, pay, make or set apart any sum for any RestrictedPayment, except that the Borrower may make, pay or set apart once during eachcalendar quarter a Restricted Payment if (i) such Restricted Payment is in anamount not exceeding Available Cash for the immediately preceding calendarquarter determined as of the last day of such calendar quarter or thereafter upto the date of declaration of such Restricted Payment, (ii) prior to andimmediately after giving effect to any such proposed action no condition orevent shall exist which constitutes an Event of Default or Default, (iii) theratio of Consolidated Cash Flow to Consolidated Interest Expense for theReference Period with respect to the date of such payment is greater than 1.75to 1.00 and (iv) the Borrower shall have delivered to the Lenders, not laterthan the date such Restricted Payment is declared (which declaration date shallbe at least 10 days prior to the date such 87Restricted Payment is made) an Officers' Certificate to the effect that suchRestricted Payment is permitted under this Section 6.04 and showing inreasonable detail all calculations required in arriving at such conclusion,including the calculation of the aggregate amount available at the end of thepreceding quarter for payment of cash distributions in compliance with thisSection 6.04; provided, that Star/Petro may prepay principal amounts outstandingunder the Star/Petro Intercompany Subordinated Debt if and only if (x) the fundsused for such prepayment have been received by Star/Petro directly or indirectlyas a capital contribution made by the Public Partnership or as a dividend fromPetro Holdings on or after March 25, 1999 and (y) prior to and immediately aftergiving effect to any such prepayment no condition or event shall exist whichconstitutes an Event of Default or Default. The Borrower will not, in any event,directly or indirectly declare, order, pay or make any Restricted Payment except for cash distributions payable to the holders of its Capital Stock. (b) The Borrower may make, pay or set apart once within 45 days from thelast day of each calendar quarter a Restricted Payment in an amount equal to thePetro Holdings Dividends, if any; provided, that the following conditions aremet: (i) such Restricted Payment is in an amount not exceeding the PetroHoldings Dividends less any amounts used to pay principal or interest on theStar/Petro Intercompany Subordinated Debt in accordance with this Agreement,(ii) prior to and immediately after giving effect to such proposed RestrictedPayment no condition or event shall exist which constitutes an Event of Defaultor Default under Section 7.01(b), (iii) prior to and immediately after givingeffect to such proposed Restricted Payment the ratio of Consolidated Cash Flowplus the Petro Holdings Dividends to Consolidated Interest Expense (excludingthe interest payable on the Star/Petro Intercompany Subordinated Debt, if any)for the Reference Period with respect to the date of such payment is greaterthan 1.75 to 1.00, and (iv) the Borrower shall have given to the Lenders writtennotice thereof on the date such Restricted Payment is declared, which date shallbe at least 10 days prior to the date such Restricted Payment is made. TheBorrower will not, in any event, directly or indirectly declare, order, pay ormake any Restricted Payment except in cash. (c) Notwithstanding any other provision of the Star/Petro IntercompanySubordinated Note, until all amounts due under the Notes, this Agreement andeach of the other Loan Documents have been paid in full, no principal orinterest payment on the Star/Petro Intercompany Subordinated Note may be made,except (A) if the proceeds used for such repayment have been received from theproceeds of capital contributions or equity investments indirectly made by thePublic Partnership in Star/Petro on or after March 25, 1999 or from the proceedsof dividends received from Petro Holdings, (B) with respect to a payment ofinterest on the Star/Petro Intercompany Subordinated Note, the ratio ofConsolidated Cash Flow to Consolidated Interest Expense is greater than 2.0 to1.0 for the four quarters ending on the calendar quarter immediately precedingsuch payment and (C) prior to and immediately after giving effect to any suchinterest or principal payment, no condition or event shall exist whichconstitutes an Event of Default or Default. Section 6.05 Transactions with Affiliates. Except for the transactions orconduct effected pursuant to the Operative Agreements as in effect on theClosing Date, the Borrower will not, and will not permit any RestrictedSubsidiary to, directly or indirectly, engage in any transaction with anyAffiliate of the Borrower, including the purchase, sale or exchange of assets orthe rendering of any service, except pursuant to the reasonable requirements ofthe Borrower's 88or such Restricted Subsidiary's business and upon fair and reasonable terms thatare no less favorable to the Borrower or such Restricted Subsidiary, as the casemay be, than those which might be obtained in an arm's-length transaction at thetime such transaction is agreed upon from Persons which are not such anAffiliate; provided, that the foregoing limitations and restrictions shall notapply to any transaction between the Borrower and any Restricted Subsidiary orbetween Restricted Subsidiaries. Section 6.06 Prohibited Stock and Indebtedness. The Borrower will not: (a) directly or indirectly sell, assign, pledge or otherwise dispose of anyIndebtedness or Capital Stock of (or warrants, rights or options to acquireCapital Stock of) any Subsidiary, except (i) to a Restricted Subsidiary, (ii) inthe case of the sale of all the Capital Stock of a Restricted Subsidiary as anentirety, as permitted under Section 6.07 and (iii) pursuant to the CollateralDocuments; (b) permit any Restricted Subsidiary directly or indirectly to sell,assign, pledge or otherwise dispose of any Indebtedness of (i) the Borrower or(ii) any other Restricted Subsidiary, or any Capital Stock of (or warrants,rights or options to acquire Capital Stock of) any other Subsidiary, except (A)to, in the case of clause (i), the Borrower or, in all other cases, a RestrictedSubsidiary, (B) in the case of the sale of all the Capital Stock of a RestrictedSubsidiary as an entirety, as permitted under Section 6.07 and (c) pursuant tothe Collateral Documents; (c) permit any Restricted Subsidiary to have outstanding any Preferred Stock (other than Preferred Stock owned by the Borrower); or (d) permit any Subsidiary directly or indirectly to issue or sell(including in connection with a merger or consolidation of a RestrictedSubsidiary otherwise permitted by Section 6.07(a)) any of its Capital Stock (orwarrants, rights or options to acquire its Capital Stock) except to the Borroweror a Restricted Subsidiary;provided, that, (i) any Restricted Subsidiary may sell, assign or otherwisedispose of Indebtedness of the Borrower if, assuming such Indebtedness wereincurred immediately after such sale, assignment or disposition, suchIndebtedness would be permitted under Section 6.01 (and, if such Indebtedness issecured, such Lien would be permitted pursuant to Section 6.02) and (ii) subjectto compliance with Section 6.07(c), all Indebtedness and Capital Stock of anyRestricted Subsidiary owned by the Borrower may be simultaneously sold as anentirety for a cash consideration at least equal to the fair value thereof (asdetermined in good faith by the General Partner) at the time of such sale ifsuch Restricted Subsidiary does not at the time own (A) any Indebtedness of theBorrower (other than Indebtedness which, if incurred immediately after suchtransaction, would be permitted under Section 6.01) or (B) any Indebtedness orCapital Stock in any other Restricted Subsidiary which is not also beingsimultaneously sold as an entirety in compliance with this proviso. Section 6.07 Consolidation, Merger, Sale of Assets, etc. The Borrower willnot, and will not permit any Restricted Subsidiary to, directly or indirectly: 89 (a) consolidated with or merge into any other Person or permit any otherPerson to consolidate with or merge into it, provided that: (i) any Restricted Subsidiary may consolidate with or merge into the Borrower or, except in the case of Star/Petro, another Restricted Subsidiary if, in the case of a consolidation with or merger into the Borrower, the Borrower shall be the surviving Person and if, immediately after giving effect to such transaction, no condition or event shall exist which constitutes an Event of Default or Default; and (ii) any entity (other than a Restricted Subsidiary) may consolidate with or merge into the Borrower or a Restricted Subsidiary if the Borrower or such Restricted Subsidiary, as the case may be, shall be the surviving Person and if, immediately after giving effect to such transaction, (A) the Borrower (1) shall not have a Consolidated Net Worth (determined in accordance with GAAP applied on a basis consistent with the financial statements of the Borrower most recently delivered pursuant to Section 5.02(b)) of less than the Consolidated Net Worth of the Borrower immediately prior to the effectiveness of such transaction, (2) shall not be liable with respect to any Indebtedness or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction, and (3) could incur, if the consolidating or merging entity has outstanding Indebtedness, at least $1.00 of additional Indebtedness in compliance with Section 6.01(e) after giving effect to such transaction, (B) substantially all of the assets of the Borrower and the Restricted Subsidiaries shall be located and substantially all of their business shall be conducted within the continental United States, and (C) no condition or event shall exist which constitutes an Event of Default or Default; and (iii) the Borrower may consolidate with or merge into any other entity if (A) the surviving entity is a corporation or limited partnership organized and existing under the laws of the United States of America or a state thereof or the District of Columbia, with substantially all of its properties located and its business conducted within the continental United States, (B) such corporation or limited partnership expressly and unconditionally assumes the obligations of the Borrower under this Agreement, each of the other Loan Documents, and delivers to each Lender at the time outstanding in connection with such assumption an opinion of counsel reasonably satisfactory to the Required Lenders with respect to such matters incident to such assumption as may be reasonably requested by such holders, including, without limitation, as to the due authorization and execution of the related agreement of assumption and the enforceability of such agreement against such corporation or partnership, (C) immediately after giving effect to such transaction, such corporation or limited partnership (1) shall not have a Consolidated Net Worth (determined in accordance with GAAP applied on a basis consistent with the financial statements of the Borrower most recently delivered pursuant to Section 5.02(b)) of less than the Consolidated Net Worth of the Borrower immediately prior to the effectiveness of such transaction, (2) shall not be liable with respect to any Indebtedness or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction and (3) could incur at least $1.00 of additional Indebtedness in compliance with 90 Section 6.01(e) after giving effect to such transaction, and (D) immediately after giving effect to such transaction no condition or event shall exist which constitutes an Event of Default or Default; or (b) sell, lease, abandon or otherwise dispose of (i) all or substantiallyall its assets or (ii) all Capital Stock of any Restricted Subsidiary as anentirety; provided, that: (A) any Restricted Subsidiary may sell, lease or otherwise dispose of all or substantially all its assets to the Borrower or, except in the case of Star/Petro, to a Restricted Subsidiary; and (B) the Borrower may sell, lease or otherwise dispose of all or substantially all its assets to any corporation or limited partnership into which the Borrower could be consolidated or merged in compliance with subdivision (a)(iii) of this Section 6.07; provided that, (1) each of the conditions set forth in such subdivision (a)(iii) shall have been fulfilled, and (2) no such disposition shall relieve the Borrower from its obligations under this Agreement, the other Operative Agreements or the Notes; or (c) sell, lease, abandon or otherwise dispose of any property to any Personother than the Borrower or any Restricted Subsidiary (except in a transactionpermitted by subdivision (a)(iii) or (b)(B) of this Section 6.07 or anabandonment or other disposition of Inventory in the ordinary course ofbusiness) unless: (i) at least 80% of the consideration therefor shall be in the form of cash consideration; (ii) immediately after giving effect to such proposed disposition no condition or event shall exist which constitutes an Event of Default or Default; (iii) either (A) the aggregate net proceeds of all property so disposed of (whether or not leased back) by the Borrower and all Restricted Subsidiaries during the current fiscal year (including property disposed of through dispositions of Capital Stock permitted under Section 6.06 or sales of assets permitted under Section 6.07(b) and including all proceeds under title insurance policies with respect to real property and all Net Insurance Proceeds, self-insurance amount and Net Awards (as defined in the Mortgage) with respect to property lost as a result of damage, destruction or a taking which have not been applied to the cost of Restoration (as defined in the Mortgage)), less the sum of (x) the amount of all such net proceeds previously applied in accordance with paragraph (iii)(B) of this Section 6.07(c) and (y) an amount equal to the purchase price of any assets acquired (so long as (1) such assets were acquired within 180 days prior to the date of such disposal of property, (2) the purchase price of such assets was not previously applied to reduce the amount of net proceeds of property disposed of under this Section 6.07(c), (3) such assets were acquired for subsequent replacement of the property so disposed of or may be productively used in the 91 United States in the conduct of the Business, (4) such assets are subject to the Lien of the Collateral Documents and (5) to the extent such assets were acquired (in whole or in part) with the proceeds of Indebtedness, such Indebtedness has been repaid in full), shall not exceed $5,000,000 during such fiscal year, and when aggregated with such net proceeds of all prior transactions under this Section 6.07(c), shall not exceed $15,000,000; (B) in the event that such net proceeds less the sum of (x) the amount thereof previously applied in accordance with this paragraph (iii)(B) and (y) an amount equal to the purchase price of any assets acquired (so long as (1) such assets were acquired within 180 days prior to the date of such disposal of property, (2) the purchase price of such assets was not previously applied to reduce the amount of net proceeds of property disposed of under this Section 6.07(c), (3) such assets were acquired for subsequent replacement of the property so disposed of or may be productively used in the United States in the conduct of the Business, (4) such assets are subject to the Lien of the Collateral Documents and (5) to the extent such assets were acquired (in whole or in part) with the proceeds of Indebtedness, such Indebtedness has been repaid in full)), during the current fiscal year exceed $5,000,000 or, when aggregated with such net proceeds of all prior transactions under this Section 6.07(c), exceed $15,000,000 (the amount of such excess net proceeds actually realized being herein called "Excess Proceeds"), the Borrower shall promptly pay over to the Trustee such Excess Proceeds not at the time held by the Trustee for application by the Trustee (I) within 180 days of the date of the disposal or loss of property, to the acquisition of assets in replacement of the property so disposed of or lost or of assets which may be productively used in the United States in the conduct of the Business (and such newly acquired assets shall be subjected to the Lien of the Collateral Documents) or to the cost of Restoration (as defined in the Mortgage), or (II) to the extent of Excess Proceeds not applied pursuant to the immediately preceding clause (I), to the payment and/or prepayment of the Facility Obligations and Parity Debt, if any, pursuant to Section 2.11, all as provided in Section 4(d) of the Intercreditor Agreement and Section 2.11, and the Trustee shall have received an Officers' Certificate from the General Partner certifying that the consideration received for such property is at least equal to its fair value (as determined in good faith by the Board of Directors) and that such consideration has been applied in accordance with the terms of this Agreement; and (iv) in the case of any sale, lease or other disposition of Collateral which includes real property (or any interest therein), or any sale, lease or other disposition of Collateral resulting in the aggregate net proceeds of all such sales, leases or other dispositions exceeding $10,000,000, the Trustee shall have received an Officers' Certificate from the General Partner certifying that such sale, lease or other disposition is in the best interest of the Borrower and will not have a Material Adverse Effect.Notwithstanding the foregoing, the Borrower and any Restricted Subsidiary maysell or dispose of (x) real property assets sold or disposed of within 12 monthsof the acquisition of such assets and (y) all other assets sold or disposed ofwithin 6 months of the acquisition of such assets, in 92each case referred to in clause (x) or (y) constituting a portion of an acquiredbusiness; provided, that (1) such assets are specifically designated to theAdministrative Agent in writing prior to such acquisition as assets to bedisposed of and (2) the Administrative Agent shall have received an Officers'Certificate from the General Partner certifying that the consideration receivedfor such property is at least equal to its fair market value (as determined ingood faith by the General Partner). Such dispositions under this paragraph willnot be applied towards the cumulative limitations in paragraph (c)(iii)(A) ofthis Section 6.07. The Lenders agree to take, at the expense of the Borrower,all actions necessary to cause dispositions of Collateral made in compliancewith this Section 6.07 to be made free and clear of the liens created by theCollateral Documents. Section 6.08 Partnership or Corporate Existence etc.; Business. (a) (i) TheBorrower will at all times preserve and keep in full force and effect itspartnership existence and its status as a partnership not taxable as acorporation for Federal income tax purposes; (ii) the Borrower will cause eachRestricted Subsidiary to keep in full force and effect its partnership orcorporate existence; and (iii) the Borrower will, and will cause each RestrictedSubsidiary to, at all times preserve and keep in full force and effect all ofits material rights and franchises (in each case except as otherwisespecifically permitted in Sections 6.06 and 6.07 and except that the partnershipor corporate existence of any Restricted Subsidiary, and any right or franchiseof the Borrower or any Restricted Subsidiary, may be terminated if, in the goodfaith judgment of the General Partner, such termination is in the best interestof the Borrower, is not disadvantageous to the Lenders in any material respectand would not have a Material Adverse Effect). (b) The Borrower will not be obligated to preserve its status as apartnership not taxable as a corporation for Federal income tax purposes if (i)the Borrower's failure to preserve such status shall be the result of anamendment to the tax laws enacted by the Congress of the United States and (ii)after giving effect to the loss of such status the ratio of Consolidated CashFlow to Maximum Consolidated Pro Forma Debt Service, determined as of the dateof the loss of such status, would be greater than 1.1 to 1.0, assuming, for thepurposes of the computation of Consolidated Cash Flow, that Consolidated CashFlow would be reduced by taxes at the applicable tax rate for the Borrower forsuch period had the Borrower been taxable as a corporation. (c) The Borrower will not, and will not permit any Restricted Subsidiaryto, engage in any line of business other than the Business in which the Borroweror its Restricted Subsidiaries are engaged on the Closing Date and described inthe Public Partnership's SEC Form 10-K for the fiscal year ended September 30,2000 and other activities incidental or related to the Business. Section 6.09 Payment of Taxes and Claims. The Borrower will, and will causeeach Subsidiary to, pay all taxes, assessments and other governmental charges orlevies imposed upon it or any of its properties or assets or in respect of anyof its franchises, business, income or profits when the same become due andpayable, but in any event before any penalty or interest accrues thereon, andall claims (including claims for labor, services, materials and supplies) forsums which have become due and payable and which by law have or might become aLien upon any of its properties or assets, and promptly reimburse the Agents,the Issuing Bank and the Lenders for any such taxes, assessments, charges orclaims paid by them; provided, that no such 93tax, assessment, charge or claim need be paid or reimbursed if being contestedin good faith by appropriate proceedings promptly initiated and diligentlyconducted and if such reserves or other appropriate provision, if any, as shallbe required by GAAP shall have been made therefor and be adequate in the goodfaith judgment of the General Partner. Section 6.10 Compliance with ERISA. The Borrower will not, and will notpermit any Subsidiary or Related Person of the Borrower to: (a) (i) engage in any transaction in connection with which the Borrower orany Related Person or Subsidiary could be subject to either a civil penaltyassessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 ofthe Code, (ii) terminate (within the meaning of Title IV of ERISA) or withdrawfrom any Plan in any manner, or take, or fail to take, any other action withrespect to any Plan (including a substantial cessation of operations within themeaning of Section 4062(e) of ERISA), (iii) establish, maintain, contribute toor become obligated to contribute to any welfare benefit plan (as defined inSection 3(1) of ERISA) or other welfare benefit arrangement which providespost-employment benefits, which cannot be unilaterally terminated by theBorrower, (iv) fail to make full payment when due of all amounts which, underthe provisions of any Plan or applicable law, the Borrower or any Subsidiary orRelated Person of the Borrower is required to pay as contributions thereto,result in the imposition of a Lien or permit to exist any material accumulatedfunding deficiency, whether or not waived, with respect to any Plan, or (v)engage in any transaction in connection with which the Borrower, any Subsidiaryor any Related Person of the Borrower could be subject to liability pursuant toSection 4069(a) or 4212(c) of ERISA, if, as a result of any such event,condition or transaction described in clauses (i) through (v) above, either individually or together with any other such event or condition, could result in(x) the imposition of a Lien on any assets or property of the Borrower or anyRelated Person or (y) any liability to the Borrower, any Subsidiary or anyRelated Person of the Borrower, which liability could have a Material AdverseEffect; or (b) as of any date of determination (i) permit the amount of unfundedbenefit liabilities under any Plan to exceed the current value of the assets ofany such Plan by more than $250,000 or (ii) permit the aggregate liabilityincurred by the Borrower and any Subsidiary and Related Persons of the Borrowerpursuant to Title IV of ERISA with respect to one or more terminations of, orone or more complete or partial withdrawals from, any Plan to exceed $1,000,000.As used in this Section 6.10, the term "accumulated funding deficiency" has themeaning specified in Section 302 of ERISA and Section 412 of the Code, the term"current value" has the meaning specified in Section 3 of ERISA and the terms"benefit liabilities" and "amount of unfunded benefit liabilities" have themeanings specified in Section 4001 of ERISA. Section 6.11 Maintenance of Properties; Insurance. (a) The Borrower willmaintain or cause to be maintained in working order and condition, in accordancewith normal industry standards, all material properties used or useful in thebusiness of the Borrower and the Restricted Subsidiaries and from time to timewill make or cause to be made all appropriate repairs, renewals and replacementsthereof. 94 (b) The Borrower will, and will cause each of the Restricted Subsidiariesto, keep its insurable properties adequately insured at all times by PermittedInsurers; maintain such other insurance, to such extent and against such risks,including fire and other risks insured against by extended coverage, as iscustomary with companies in the same or similar businesses, including publicliability insurance against claims for personal injury or death or propertydamage occurring upon, in, about or in connection with the use of any propertiesowned, occupied or controlled by it; maintain such other insurance as may berequired by law or any Collateral Document; and cause each such insurance policyto name the Trustee, on behalf of the Secured Parties, as an additional insuredor loss payee thereunder. The Borrower will permit the Agents and an insuranceconsultant retained by the Agents, at the expense of the Borrower, to review theinsurance policies maintained by the Borrower on an annual basis and willimplement any changes to such policies reasonably recommended by suchconsultant. Section 6.12 Operative Agreements; Collateral Documents. The Borrower will,and will cause each Restricted Subsidiary to, perform and comply with all of itsobligations under each of the Operative Agreements to which it is a party, willenforce each such Operative Agreement against each other party thereto and willnot accept the termination of any such Operative Agreement, unless the taking ofor omitting to take any such action would not have a Material Adverse Effect.The Borrower will not, and will not permit any other Loan Party to, amend,modify or supplement any Operative Agreement or its partnership agreement,certificate of incorporation or by-laws without the prior written consent of theRequired Lenders; provided, that (i) the MLP Agreement and the PartnershipAgreement may be amended, modified or supplemented without the prior writtenconsent of the Required Lenders if such amendment, modification or supplementwould not have a Material Adverse Effect and the Borrower shall have deliveredto each Lender a copy of such proposed amendment, modification or supplementtogether with an Officer's Certificate describing such proposed amendment,modification or supplement and confirming that such proposed amendment,modification or supplement would not have a Material Adverse Effect and (ii) theNote Agreements may be amended, modified or supplemented without the priorwritten consent of the Required Lenders if such amendment, modification orsupplement may be made without the written consent of any Lenders under theIntercreditor Agreement. Section 6.13 Chief Executive Office. The Borrower will not move its chiefexecutive office and the office at which it maintains its records relating tothe transactions contemplated by this Agreement and the Collateral Documents orchange its state of incorporation unless (a) not less than 45 days' priorwritten notice of its intention to do so, clearly describing the new location orstate, shall have been given to the Trustee and each Lender and (b) such action,reasonably satisfactory to the Trustee and each Lender, to maintain any security interest in the property subject to the Collateral Documents at all times fullyperfected and in full force and effect shall have been taken. Section 6.14 Covenant to Secure Notes Equally. The Borrower covenants that,if it or any Restricted Subsidiary shall create or assume any Lien upon any ofits property or assets, whether now owned or hereafter acquired, other thanLiens permitted by the provisions of Section 6.02 (unless prior written consentto the creation or assumption thereof shall have been obtained from the RequiredLenders), it will make or cause to be made effective provision whereby theFacility Obligations will be secured by such Lien equally and ratably with anyand 95all other Indebtedness thereby secured so long as any such other Indebtednessshall be so secured; provided, however, that the provision of such equal andratable security shall not constitute a cure or waiver of any related Event ofDefault. Section 6.15 Compliance with Laws. The Borrower will, and will cause eachSubsidiary to, comply with all applicable statutes, rules, regulations, andorders of, and all applicable restrictions imposed by, the United States ofAmerica, foreign countries, states, provinces and municipalities, and of or byany Governmental Authority, including any court, arbitrator or grand jury, inrespect of the conduct of their respective businesses and the ownership of theirrespective properties or business (including, without limitation, EnvironmentalLaws), except such as are being contested in good faith by appropriateproceedings promptly initiated and diligently conducted and if such reserve orother appropriate provision, if any, as shall be required by GAAP shall havebeen made therefor or the failure to so comply could not reasonably be expectedto have a Material Adverse Effect. Section 6.16 Further Assurances. (a) At any time and from time to timepromptly, the Borrower shall, at its expense, execute and deliver to each Lenderand to the Trustee such further instruments and documents, and take such furtheraction, as may be required under applicable law or as the Lenders may from timeto time reasonably request, in order to further carry out the intent and purposeof this Agreement and to establish and protect the rights, interests andremedies created, or intended to be created, in favor of the Lenders. (b) Without limitation of Section 6.16(a), the Borrower will, and willcause the Subsidiaries to, perform any and all acts and execute any and alldocuments (including the execution, amendment, supplementation, delivery andrecordation and filing of security agreements and financing statements andcontinuation statements under the Uniform Commercial Code of any applicablejurisdiction) for filing under the provisions of the Uniform Commercial Code andthe rules and regulations thereunder, or any other statute, rule or regulationof any applicable foreign, Federal, state or local jurisdictions, including anyfilings in the United States Patent and Trademark Office or similar foreignoffice, which are necessary (or reasonably requested by the Agents), from timeto time, in order to grant and maintain in favor of the Trustee for the ratablebenefit of the Secured Parties a security interest in each item of theCollateral of the type and priority described in the relevant CollateralDocument, perfected to the extent contemplated hereby and thereby. (c) Without limitation of Section 6.16(a), the Borrower will, and willcause the Subsidiaries to, deliver or cause to be delivered to the Lenders fromtime to time such other documentation, consents, authorizations, approvals andorders in form and substance satisfactory to the Agents, as the Agents shalldeem reasonably necessary or advisable to perfect or maintain the Liens for thebenefit of the Secured Parties, including assets which are required to becomeCollateral after the Closing Date. Section 6.17 Subsidiaries. (a) The Borrower may designate any RestrictedSubsidiary or newly acquired or formed Wholly Owned Subsidiary satisfying therequirements in clauses (a), (b) and (c) of the definition of RestrictedSubsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary or newlyacquired or formed Subsidiary as a Restricted Subsidiary, in each case subjectto satisfaction of the following conditions: 96 (i) immediately before and after giving effect to such designation no condition or event shall exist which constitutes an Event of Default or Default; (ii) immediately after giving effect to such designation, (A) except in the case of a designation as a Restricted Subsidiary of an Unrestricted Subsidiary that does not have any Indebtedness the Borrower would be permitted to incur at least $1.00 of additional Indebtedness in compliance with paragraphs (i) and (ii) of Section 6.01(e), (B) the Borrower and the Restricted Subsidiary would not be liable with respect to Indebtedness or any Guarantee, would not own any Investment and their property would not be subject to any Lien which is not permitted by this Agreement and (C) substantially all of the Borrower's assets will be located, and substantially all of the Borrower's business will be conducted, in the United States; (iii) in the case of a designation as an Unrestricted Subsidiary, (A) if such designation (and all other prior designations of Restricted Subsidiaries or newly acquired or formed Subsidiaries as Unrestricted Subsidiaries during the current fiscal year) were deemed to constitute a sale by the Borrower of all the assets of the Subsidiary so designated, such sale would be in compliance with paragraph (iii)(A) or Section 6.07(c) and (B) if such designation (and all other prior designations of Restricted Subsidiaries or newly acquired or formed Subsidiaries as Unrestricted Subsidiaries during the current fiscal year) were deemed to constitute an Investment by the Borrower in respect of all the assets of the Subsidiary so designated, such Investment would be in compliance with clause (iv) of Section 6.03, in each case with the net proceeds of such sale or the amount of such Investment being deemed to equal the net book value of such assets in the case of a Restricted Subsidiary or the cost of acquisition or formation in the case of a newly acquired or formed Subsidiary; provided, that this subdivision (iii) of this Section 6.17(a) shall not apply to an acquisition or formation by the Borrower or a Restricted Subsidiary of a newly acquired or formed Unrestricted Subsidiary to the extent such acquisition or formation is funded solely by the net cash proceeds received by the Borrower from the General Partner or from the Public Partnership as a capital contribution or as consideration for the issuance by the Public Partnership of additional limited partnership interests; (iv) in the case of a designation of a Restricted Subsidiary as an Unrestricted Subsidiary, such Restricted Subsidiary shall not have been an Unrestricted Subsidiary prior to being designated a Restricted Subsidiary; (v) in the case of a designation of an Unrestricted Subsidiary as a Restricted Subsidiary, such Unrestricted Subsidiary at the time of such designation has a positive consolidated net worth; (vi) the Borrower shall deliver to each Lender, within five Business Days after any such designation, an Officers' Certificate stating the effective date of such designation and confirming compliance with the provisions of this Section 6.17; (vii) in the case of the designation of any Unrestricted Subsidiary as a Restricted Subsidiary, such new Restricted Subsidiary shall be deemed to have (a) made 97 or acquired all Investments owned by it and (b) incurred all Indebtedness owing by it and all Liens to which it or any of its properties are subject, on the date of such designation; (viii) the Borrower shall designate Star/Petro as a Restricted Subsidiary and, notwithstanding any other provision of this Section 6.17(a), shall not change such designation without the consent of the Required Lenders; and (ix) the Borrower shall designate Petro Holdings as an Unrestricted Subsidiary and, notwithstanding any other provision of this Section 6.17(a), shall not change such designation without the consent of the Required Lenders. (b) The Borrower will cause each Restricted Subsidiary, at the time it isor is deemed to be designated as a Restricted Subsidiary, to execute and delivera Supplemental Agreement and satisfy all terms therein. (c) The Borrower will not own any Subsidiaries other than Wholly OwnedSubsidiaries satisfying the requirements in clauses (a), (b) and (c) of thedefinition of Restricted Subsidiary. Section 6.18 Use of Proceeds. The Borrower will use the proceeds of theLoans and will use the Letters of Credit only for the purposes set forth inSection 3.13. Section 6.19 Accounting Changes. The Borrower will not, and will not sufferor permit any Restricted Subsidiary to, make any significant change inaccounting treatment or reporting practices, except as required by GAAP. TheBorrower will, and will cause each Restricted Subsidiary to, cause its fiscalyear to end on September 30 in each year. Section 6.20 Certain Real Property. Without affecting the obligations ofthe Borrower or any of the Restricted Subsidiaries under any of the CollateralDocuments, in the event that the Borrower or any Restricted Subsidiary, at anytime after the date hereof, whether directly or indirectly, acquires anyinterest in any real property, including any fee or other ownership interest inone or more properties with an aggregate cost in excess of $50,000, or anyinterest under one or more leases of real property for a term in excess of threeyears and involving aggregate average payments in excess of $100,000 per annum(each such interest, an "After Acquired Property"), the Borrower will, or willcause such Restricted Subsidiary to, as soon as practical provide written noticethereof to the Administrative Agent, setting forth with specificity adescription of such After Acquired Property, the location of such After AcquiredProperty, any structures or improvements thereon and an appraisal or itsgood-faith estimate of the current value of such real property ("CurrentValue"). The Administrative Agent shall provide notice to the Borrower ofwhether the Required Lenders intend to cause the Borrower to grant and record aMortgage on such After Acquired Property; provided, that no new mortgage on suchAfter Acquired Property shall be required if the costs that would be incurred asa result thereof are excessive in relation to the benefits conferred thereby inthe reasonable judgment of the Administrative Agent and the Required Lenders;provided, further, that the amount secured by a new mortgage on After AcquiredProperty located in the State of New York or the State of Florida shall notexceed 125% of the purchase price of such After Acquired Property. In suchevent, the Borrower or such Restricted Subsidiary shall execute and deliver tothe Administrative 98Agent a Mortgage, together with such of the documents or instruments referred toin Sections 4.01(d) and 4.01(e) as the Agents shall require. If, at any time,the aggregate cost to the Borrower and its Restricted Subsidiaries of eachinterest in real property (x) acquired by the Borrower or any RestrictedSubsidiary, whether directly or indirectly, at any time after the Closing Date,at a cost equal to or less than $50,000, (y) at such time, owned directly orindirectly by the Borrower or any Restricted Subsidiary and (z) for which amortgage in favor of the Trustee is not in effect (the "Aggregate Cost ofUnmortgaged Property"), exceeds $500,000, the Borrower will as soon aspractical, and in any event within 10 Business Days, provide written noticethereof to the Administrative Agent, setting forth with specificity adescription of each such interest in real property, the location of such realproperty and an appraisal or its good-faith estimate of the current value ofeach such real property. The Administrative Agent may require the Borrower orthe applicable Restricted Subsidiary to grant and record a mortgage in favor ofthe Trustee on one or more of such real properties so that the Aggregate Cost ofUnmortgaged Property does not exceed $500,000, provided, that no new mortgage onany such real property shall be required if the costs that would be incurred asa result thereof are excessive in relation to the benefit that would beconferred thereby. In the event a mortgage is required, the Borrower or suchRestricted Subsidiary shall execute and deliver to the Trustee a mortgage,together with such documents or instruments as the Administrative Agent shallrequire. In no event shall the title insurance policy for any such AfterAcquired Property be in an amount which is less than the Current Value of suchAfter Acquired Property. Further, with regard to any interest in real property,including any fee or other ownership interest in real property or any material lease of real property, currently owned or held by the Borrower or anyRestricted Subsidiary and which is not being encumbered by a Mortgage of evendate herewith (each such interest, an "Existing Unmortgaged Property"), upon thewritten request of the Required Lenders, the Borrower will, or will cause anyapplicable Restricted Subsidiary to, execute and deliver to the AdministrativeAgent a Mortgage, together with such of the documents or instruments referred toin Section 4.01(d) and 4.01(e) as the Agents shall require. In no event shallthe title insurance policy for any such Existing Unmortgaged Property be in anamount which is less than the Current Value of such Existing UnmortgagedProperty. The Borrower shall pay all fees and expenses, including reasonableattorneys' fees and expenses and expenses of any customary environmental duediligence, and all title insurance charges and premiums, in connection with theobligations of the Borrower and the Restricted Subsidiaries under this Section6.20. Section 6.21 Sale and Lease-Back Transactions. The Borrower will not, andwill not cause or permit any of the Restricted Subsidiaries to, enter into anyarrangement, directly or indirectly, with any Person whereby it shall sell ortransfer any property, real or personal, used or useful in its business, whethernow owned or hereafter acquired, with an intent to rent or lease such propertyor other property which it intends to use for substantially the same purpose orpurposes as the property being sold or transferred. Section 6.22 Acquisitions. Except as permitted by Section 6.07, theBorrower will not, and will not cause or permit any of the RestrictedSubsidiaries to, purchase, lease or otherwise acquire (in one transaction or aseries of transactions) all or any substantial part of the assets of any otherPerson, except that (a) the Borrower and any of the Restricted Subsidiaries maypurchase inventory in the ordinary course of business and (b) the Borrower orany Restricted Subsidiary may engage in any such acquisition if no Event ofDefault or Default has occurred 99and is continuing at the time of any such acquisition or would occur immediatelyafter giving effect thereto. Section 6.23 Impairment of Security Interests. The Borrower will not, andwill not permit any of the Subsidiaries to, take or omit to take any action,which action or omission might or would have the result of materially impairingthe security interests in favor of the Trustee on behalf of the Secured Partieswith respect to the Collateral, and the Borrower will not, and will not permitany of the Subsidiaries to, grant to any Person (other than the Trustee onbehalf of the Secured Parties) any interest whatsoever in the Collateral. Section 6.24 Limitation on Restrictions on Subsidiary Dividends, etc. TheBorrower will not, and will not cause or permit any of the RestrictedSubsidiaries to, directly or indirectly, create or otherwise cause or suffer toexist or become effective any consensual encumbrance or restriction on theability of any Restricted Subsidiary to (a) pay dividends or make any otherdistributions on or in respect of its Capital Stock, or pay any indebtednessowed to the Borrower or any Restricted Subsidiary, (b) make loans or advances tothe Borrower or any Restricted Subsidiary or (c) transfer any of its propertiesor assets to the Borrower or any Restricted Subsidiary, except for suchencumbrances or restrictions existing under or by reason of (i) customarynon-assignment provisions in any lease governing a leasehold interest or othercontract entered into in the ordinary course of business consistent with pastpractices or (ii) this Agreement, the other Loan Documents and the NoteAgreements. Section 6.25 No Other Negative Pledges. The Borrower will not, and will notcause or permit any of the Restricted Subsidiaries to, directly or indirectly,enter into any agreement prohibiting the creation or assumption of any Lien uponthe properties or assets of the Borrower or any Restricted Subsidiary, whethernow owned or hereafter acquired, or requiring an obligation to be secured ifsome other obligation is secured, except for this Agreement, the Note Agreementsand the Working Capital and Acquisition Facility Credit Agreement. Section 6.26 Sales of Receivables. The Borrower will not, and will notcause or permit any of the Restricted Subsidiaries to, sell with recourse,discount or otherwise sell or dispose of its notes or accounts receivable,except for accounts receivable consisting of assets of an operating unit sold asa going concern in accordance with all other provisions of this Agreement. Section 6.27 Fixed Price Supply Contracts; Certain Policies. (a) TheBorrower will not, and will not permit any of the Restricted Subsidiaries to, atany time be a party or subject to any contract for the purchase or supply bysuch parties of propane or other product except where (i) the purchase price isset with reference to a spot index or indices substantially contemporaneouslywith the delivery of such product or (ii) delivery of such propane or otherproduct is to be made no more than one year after the purchase price is agreedto. (b) The Borrower will not amend, modify or waive the trading policy orsupply inventory position policy referred to in Section 3.29, except that theBorrower may enter into Commodity Hedging Agreements as permitted under theother provisions hereof. The Borrower will provide the Agents and the Lenderswith prompt written notice of any such new Commodity Hedging Agreement. Subjectto the foregoing exception, the Borrower and the Restricted Subsidiaries willcomply in all material respects with such policies at all times. 100 Section 6.28 Certain Operations. The Borrower shall not permit Petro or anyof its Affiliates (other than the Borrower and the Restricted Subsidiaries) toacquire a business which derives any revenues from the sale of propane if, aftergiving effect to such acquisition, Petro's Pro Forma Propane Volumes (as definedbelow) would equal or exceed the lesser of (a) 15% of the Borrower's reportedpropane volumes sold for the most recently completed four fiscal quarters whichended at least 90 days prior to the date of such acquisition and (b) 15 milliongallons of propane (such lesser amount, the "maximum permitted amount"). If as aresult of an acquisition, Petro's Pro Forma Propane Volumes exceeds the maximumpermitted amount, the Borrower shall not be in violation of this Section 6.28 ifwithin the period of 90 days following such acquisition the Borrower causesPetro to complete the disposition of sufficient propane volume to reduce Petro'sPro Forma Propane Volumes below the maximum permitted amount. For purposes ofthis Section 6.28, "Petro's Pro Forma Propane Volumes" shall mean the actualpropane volumes sold by Petro and any of its Affiliates (other than the Borrowerand the Restricted Subsidiaries) for the most recently completed four fiscalquarters which ended at least 90 days prior to the date of determination plusthe propane volumes sold of the propane business to be acquired for the mostrecently completed four fiscal quarters which ended at least 90 days prior tothe date of determination. In addition, in the event Petro or any of itsAffiliates (other than the Borrower and the Restricted Subsidiaries) owns apropane business, the Borrower shall not permit Petro or any such Affiliate toaccept as a customer (except for de minimis, unintentional and isolatedacceptances) any Person who is (or was during the last billing cycle of theBorrower and the Restricted Subsidiaries) a customer of the Borrower and theRestricted Subsidiaries. Section 6.29 Independent Corporate Existence. (a) Except as set forth onSchedule 6.29, the Borrower shall maintain, and shall cause each of itsSubsidiaries (other than Petro Holdings or its Subsidiaries) to maintain, books,records and accounts that are separate from the books, records and accounts ofPetro or any of its Subsidiaries such that: (i) the revenues of the Borrower andits Subsidiaries will be credited to the accounts of the Borrower and itsSubsidiaries only; (ii) all expenses incurred by the Borrower and itsSubsidiaries shall be paid only from the accounts of the Borrower and itsSubsidiaries (other than those paid by Petro and allocated to the Borrower inthe manner set forth in clause (c) of this Section); (iii) only officers andemployees of the General Partner, the Borrower and its Subsidiaries in theircapacity as such shall have the authority to make disbursements with respect tothe accounts of the Borrower and its Subsidiaries; (iv) there shall occur nosharing of accounts or funds between the Borrower and its Subsidiaries, on theone hand, and Petro or any of its Subsidiaries (other than the Borrower and itsSubsidiaries), on the other hand; and (v) all cash and funds of the Borrower andits Subsidiaries shall be managed separately from the cash and funds of Petro orany of its Subsidiaries (other than the Borrower and its Subsidiaries), andthere shall not occur any commingling, including for investment purposes, offunds or assets of the Borrower and its Subsidiaries with the funds or assets ofPetro or any of its Subsidiaries. (b) All full-time employees, consultants and agents of the Borrower and itsSubsidiaries (other than Petro Holdings or its Subsidiaries) shall becompensated directly from the bank accounts of the General Partner, the Borrowerand such Subsidiaries (other than Petro Holdings or its Subsidiaries) for services provided by such employees, consultants and agents and, to the extentany employee, consultant or agent is also an employee, consultant or agent ofPetro or any of its Subsidiaries, the compensation of such employee, consultantor agent shall be 101allocated in accordance with clause (c) of this Section among the Borrower andits Subsidiaries, on the one hand, and Petro and any of its Subsidiaries, on theother hand, on a basis which reasonably reflects the services rendered to theBorrower and its Subsidiaries (other than Petro Holdings or its Subsidiaries). (c) All overhead expenses (including telephone and other utility charges)for items shared by the Borrower and its Subsidiaries, on the one hand, andPetro or any of its Subsidiaries (other than Petro Holdings or itsSubsidiaries), on the other hand, shall be allocated on the basis of actual useto the extent practicable and, to the extent such allocation is not practicable,on a basis reasonably related to actual use. (d) The Borrower shall not permit Petro or any of its Subsidiaries to benamed as a loss payee or additional insured on the insurance policy covering theproperty of the Borrower or any of its Subsidiaries (other than Petro Holdingsor its Subsidiaries), or enter into an agreement with the holder of such policywhereby in the event of a loss in connection with such property, proceeds arepaid to Petro and its Subsidiaries. ARTICLE VII EVENTS OF DEFAULT Section 7.01 Events of Default. In case of the happening of any of thefollowing events ("Events of Default"): (a) default shall be made in the payment of any principal of any Loan orany reimbursement obligation in respect of a Letter of Credit when and as thesame shall become due and payable, whether at the due date thereof or at a datefixed for prepayment thereof or by acceleration thereof or otherwise; (b) default shall be made in the payment of any interest on any Loan or anyFee or any other amount (other than an amount referred to in paragraph (a)above) due under any Loan Document, when and as the same shall become due andpayable, and such default shall continue unremedied for a period of fiveBusiness Days; (c) default shall be made in the due observance or performance by theBorrower or any Subsidiary of any covenant, condition or agreement contained inSection 5.02(h) or any of Sections 6.01 through 6.08, inclusive, Section 6.10,Section 6.11 (other than the failure to deliver any broker report on a timelybasis as required by Section 15.3 of the Mortgage) and Sections 6.17 through6.28, inclusive, of this Agreement or in Section 4.21 or 4.23 of the BorrowerSecurity Agreement; (d) default shall be made in the due observance or performance by theBorrower or any other Loan Party of any covenant, condition or agreementcontained in any Loan Document (other than those specified in paragraph (a), (b)or (c) above) and such default shall continue unremedied for a period of 30 daysafter such default shall first have become known to any officer of any LoanParty or written notice thereof shall have been received by the Borrower fromthe Administrative Agent or any Lender; 102 (e) any representation or warranty made in writing or deemed made by or onbehalf of the Borrower or any of its Affiliates in this Agreement or any otherOperative Agreement shall prove to have been false or incorrect in any materialrespect on the date as of which made or deemed made; (f) the Borrower or any Restricted Subsidiary (as principal or guarantor orother surety) shall default in the payment of any amount of principal of orpremium or interest on Indebtedness which is outstanding in a principal amountof at least $2,000,000 in the aggregate (other than the Facility Obligations) or the Working Capital and Acquisition Facility Credit Agreement or on the MortgageNotes; or any event shall occur or condition shall exist in respect of anyIndebtedness which is outstanding in a principal amount of at least $2,000,000or the Working Capital and Acquisition Facility Credit Agreement or the MortgageNotes or under any evidence of any such Indebtedness or the Working Capital andAcquisition Facility Credit Agreement, the Mortgage Notes or of any mortgage,indenture or other agreement relating to such Indebtedness or the WorkingCapital and Acquisition Facility Credit Agreement or the Mortgage Notes, theeffect of which is to cause (or to permit one or more Persons to cause) suchIndebtedness or the Working Capital and Acquisition Facility Credit Agreement orthe Mortgage Notes to become due before its stated maturity or before itsregularly scheduled dates of payment or to permit the holders of suchIndebtedness or the Working Capital and Acquisition Facility Credit Agreement orthe Mortgage Notes to cause the Borrower or any Restricted Subsidiary torepurchase or repay such Indebtedness or the Working Capital and AcquisitionFacility Credit Agreement or the Mortgage Notes, and such default, event orcondition shall continue for more than the period of grace, if any, specifiedtherein and shall not have been waived pursuant thereto; (g) filing by or on the behalf of the Borrower or the General Partner of avoluntary petition or an answer seeking reorganization, arrangement,readjustment of its debts or for any other relief under any bankruptcy,reorganization, compromise, arrangement, insolvency, readjustment of debt,dissolution or liquidation or similar act or law, state or Federal, now orhereafter existing ("Bankruptcy Law"), or any action by the Borrower or theGeneral Partner for, or consent or acquiescence to, the appointment of areceiver, trustee or other custodian of the Borrower, or the General Partner, orof all or a substantial part of its property; or the making by the Borrower orthe General Partner of any assignment for the benefit of creditors; or theadmission by the Borrower or the General Partner in writing of its inability topay its debts as they become due; (h) filing of any involuntary petition against the Borrower or the GeneralPartner in bankruptcy or seeking reorganization, arrangement, readjustment ofits debts or for any other relief under any Bankruptcy Law and an order forrelief by a court having jurisdiction in the premises shall have been issued orentered therein; or any other similar relief shall be granted under anyapplicable Federal or state law; or a decree or order of a court of competentjurisdiction for the appointment of a receiver, liquidator, sequestrator,trustee or other officer having similar powers over the Borrower or the GeneralPartner or over all or a part of its property shall have been entered; or theinvoluntary appointment of an interim receiver, trustee or other custodian ofthe Borrower or the General Partner or of all or a substantial part of itsproperty; or the issuance of a warrant of attachment, execution or similarprocess against any substantial part of the property of the Borrower or theGeneral Partner; and continuance of any 103such event for 60 consecutive days unless dismissed, bonded to the satisfactionof the court of competent jurisdiction or discharged; (i) filing by or on the behalf of any Restricted Subsidiary of a voluntarypetition or an answer seeking reorganization, arrangement, readjustment of itsdebts or for any other relief under any Bankruptcy Law, or any action by anyRestricted Subsidiary for, or consent or acquiescence to, the appointment of areceiver, trustee or other custodian of such Restricted Subsidiary or of all ora substantial part of its property; or the making by any Restricted Subsidiaryof any assignment for the benefit of creditors; or the admission by anyRestricted Subsidiary in writing of its inability to pay its debts as theybecome due; (j) filing of any involuntary petition against any Restricted Subsidiary inbankruptcy or seeking reorganization, arrangement, readjustment of its debts orfor any other relief under any Bankruptcy Law and an order for relief by a courtof competent jurisdiction shall have been issued or entered therein; or anyother similar relief shall be granted under any applicable Federal or state law;or a decree or order of a court having jurisdiction in the premises for theappointment of a receiver, liquidator, sequestrator, trustee or other officerhaving similar powers over any Restricted Subsidiary or over all or a part ofits property shall have been entered; or the involuntary appointment of aninterim receiver, trustee or other custodian of any Restricted Subsidiary or ofall or a substantial part of its property; or the issuance of a warrant of attachment, execution or similar process against any substantial part of theproperty of any Restricted Subsidiary; and continuance of any such event for 60consecutive days unless dismissed, bonded to the satisfaction of the court ofcompetent jurisdiction or discharged; (k) a final judgment or judgments (which is or are non-appealable or whichhas or have not been stayed pending appeal or as to which all rights to appealhave expired or been exhausted) shall be rendered against the Borrower or anyRestricted Subsidiary for the payment of money in excess of $1,000,000 in theaggregate and any one of such judgments shall not be discharged or executionthereon stayed pending appeal within 45 days after the date due, or, in theevent of such a stay, such judgment shall not be discharged within 30 days aftersuch stay expires, or any action shall be legally taken by a judgment creditorto levy upon assets or properties of the Borrower or any Restricted Subsidiaryto enforce any such judgment; (l) any of the Loan Documents or other Operative Agreements shall at anytime, for any reason, cease to be in full force and effect or shall be declaredto be null and void in whole or in any material part by the final judgment(which is non-appealable or has not been stayed pending appeal or as to whichall rights to appeal have expired or been exhausted) of any court or othergovernmental or regulatory authority having jurisdiction in respect thereof, orthe validity or the enforceability of any of the Loan Documents or otherOperative Agreements shall be contested by or on behalf of the Borrower or anyother Loan Party, or the Borrower or any other Loan Party shall renounce any ofthe Loan Documents or other Operative Agreements, or deny that it is bound bythe terms of any of the Loan Documents or other Operative Agreements; (m) any Lien purported to be created by any Collateral Document shall ceaseto be, or shall for any reason be asserted by the Borrower or any other LoanParty not to be, a valid, perfected, first priority Lien on the securities,properties or assets covered thereby, other than as a result of an act oromission of any Agent or Lender; 104 (n) any order, judgment or decree is entered in any proceedings against theBorrower decreeing a split-up of the Borrower which requires the divestiture ofassets of the Borrower or the divestiture of the stock of a RestrictedSubsidiary which would not be permitted if such divestiture were considered apartial disposition of assets pursuant to Section 6.07(c) and such order,judgment or decree shall not be dismissed or execution thereon stayed pendingappeal within 30 days after entry thereof, or, in the event of such a stay, suchorder, judgment or decree shall not be discharged within 30 days after such stayexpires; (o) there shall occur at any time a change in Legal Requirementsspecifically applicable to the Borrower or to the Business or to the business ofthe wholesale and retail sale, distribution and storage of propane gas andrelated petroleum derivative products and the related retail sale of suppliesand equipment, including home appliances which would have a Material AdverseEffect and 60 days after the earlier of (i) such occurrence shall first havebecome known to any officer of the Borrower or the General Partner or (ii)written notice thereof shall have been received by the Borrower from theAdministrative Agent or any Lender, such Material Adverse Effect shall becontinuing; or (p) any Governmental Authority revokes or fails to renew any materiallicense, permit or franchise of the Borrower or any Restricted Subsidiary, orthe Borrower or any Restricted Subsidiary for any reason loses any materiallicense, permit or franchise, or the Borrower or any Restricted Subsidiarysuffers the imposition of any restraining order, escrow, suspension or impoundof funds in connection with any proceeding (judicial or administrative) withrespect to any material license, permit or franchise;then, and in every such event, and at any time thereafter during the continuanceof such event, the Administrative Agent may, and at the request of the RequiredLenders shall, take one or more of the following actions, at the same ordifferent times: (i) by notice to the Borrower terminate the Commitments andthey shall immediately terminate; (ii) by notice to the Borrower declare theLoans then outstanding to be forthwith due and payable (in whole or, in the solediscretion of the Required Lenders, from time to time in part), whereupon theprincipal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of theBorrower accrued hereunder or under any other Loan Document, shall thereuponbecome immediately due and payable, without presentment, demand, protest or anyother notice of any kind, all of which are hereby expressly waived by theBorrower, anything contained herein or in any other Loan Document to thecontrary notwithstanding; (iii) require the Borrower to deposit cash collateralwith the Trustee pursuant to the Intercreditor Agreement in an amount notexceeding the Letter of Credit Exposure; (iv) exercise any remedies availableunder the Guarantee Agreements, the Collateral Documents or otherwise; or (v)any combination of the foregoing; provided, that in the case of any of theEvents of Default with respect to the Borrower described in paragraph (g) or (h)above, the Commitments shall automatically terminate and the principal of theLoans then outstanding, together with accrued interest thereon and any unpaidaccrued Fees and all other liabilities of the Borrower accrued hereunder orunder any other Loan Document, shall automatically become due and payable,without presentment, demand, protest or any other notice of any kind, all ofwhich are hereby expressly waived by the Borrower, anything contained herein orin any other Loan Document to the contrary notwithstanding. 105 Section 7.02 Remedies. In case any one or more Events of Default orDefaults shall occur and be continuing, (i) any Lender may proceed to protectand enforce the rights of such Lender by an action at law, suit in equity orother appropriate proceeding, whether for the specific performance of anyagreement contained herein or in any other Loan Document, or for an injunctionagainst a violation of any of the terms hereof or thereof, or in aid of theexercise of any power granted hereby or thereby or by law or otherwise, and (ii)the Trustee and the Lenders may exercise any rights or remedies in theirrespective capacities under the Collateral Documents in accordance with theprovisions thereof. In case of a default in the payment or performance of anyprovision hereof or of the Loan Documents, the Borrower will pay to each Lendersuch further amount as shall be sufficient to cover the cost and expenses ofcollection, including reasonable attorneys' fees, expenses and disbursements,and any out-of-pocket costs and expenses of any such holder incurred inconnection with analyzing, evaluating, protecting, ascertaining, defending orenforcing any of its rights as set forth herein or in any of the Loan Documents.No course of dealing and no delay on the part of any Lender in exercising anyright, power or remedy shall operate as a waiver thereof or otherwise prejudicesuch Lender's rights, powers or remedies. No right, power or remedy conferred bythis Agreement or by any other Loan Document upon any Lender shall be exclusiveof any other right, power or remedy referred to herein or therein or now orhereafter available at law, in equity, by statute or otherwise. ARTICLE VIII THE AGENTS AND ISSUING BANK Section 8.01 Appointment and Authorization. (a) Each of the Lenders, andeach subsequent holder of any Note by its acceptance thereof, hereby irrevocablyappoints and authorizes each of the Agents and the Issuing Bank to take suchactions as agent on behalf of such Lender or holder and to exercise such powersas are specifically delegated to such Agent or the Issuing Bank, as the case maybe, by the terms and provisions hereof and of the other Loan Documents, togetherwith such actions and powers as are reasonably incidental thereto.Notwithstanding any provision to the contrary elsewhere in this Agreement,neither the Agents nor the Issuing Bank shall have any duties orresponsibilities, except those expressly set forth herein, or any fiduciaryrelationship with any Lender, and no implied covenants, functions,responsibilities, duties, obligations or liabilities shall be read into thisAgreement or any other Loan Document or otherwise exist against the Agents orthe Issuing Bank. (b) The Administrative Agent is hereby expressly authorized by the Lendersto, without hereby limiting any implied authority, and hereby agrees (in thecase of clause (ii) below, at the direction of the Required Lenders) to, (i)receive on behalf of the Lenders all payments of principal of and interest onthe Loans and all other amounts due to the Lenders hereunder, and promptly todistribute to each Lender its proper share of each payment so received; (ii)give notice on behalf of each of the Lenders to the Borrower of any Event ofDefault specified in this Agreement of which the Administrative Agent has actualknowledge acquired in connection with its agency hereunder; and (iii) distributeto each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any Subsidiary pursuant to this Agreement or anyother Loan Document as received by the Administrative Agent (other thanmaterials required hereunder to be delivered by the Borrower directly to theLenders). 106 Section 8.02 Liability of Agents. Neither the Agents, the Issuing Bank, norany of their respective directors, officers, employees, attorneys-in-fact,affiliates or agents, shall be liable as such for any action taken or omitted tobe taken by any of them in connection with this Agreement or any other LoanDocument, except for such party's own gross negligence or willful misconduct (asfound by a final and non-appealable decision of a court of competentjurisdiction), or be responsible for any statement, warranty, recital orrepresentation herein or the contents of any document delivered in connectionherewith, or be required to ascertain or to make any inquiry concerning theperformance or observance by the Borrower or any Subsidiary of any of the terms,conditions, covenants or agreements contained in any Loan Document. Neither theAgents nor the Issuing Bank shall be responsible to the Lenders or the holdersof the Notes for the due execution, genuineness, validity, enforceability oreffectiveness of this Agreement, the Notes or any other Loan Documents or otherinstruments or agreements. The Administrative Agent may deem and treat the payeeof any Note as the owner thereof for all purposes hereof until it shall havereceived from the payee of such Note notice, given as provided herein, of thetransfer thereof in compliance with Section 9.04. Each of the Agents, theIssuing Bank and the Lenders shall be entitled to rely, and shall be fullyprotected in relying, upon any instrument, writing, resolution, notice, consent,certificate, affidavit, letter, telecopy, telex or teletype message, statement,order or other document or conversation believed by it to be genuine and correctand to have been signed, sent or made by the proper Person or Persons and uponadvice and statements of legal counsel (including counsel to the Borrower),independent accountants and other experts selected by the Administrative Agent.Each of the Administrative Agent and the Issuing Bank shall be fully justifiedin failing or refusing to take any action under this Agreement or any other LoanDocument unless it shall first receive such advice or concurrence of theRequired Lenders (or, if so specified by this Agreement, all Lenders) as itdeems appropriate or it shall first be indemnified to its satisfaction by theLenders against any and all liability and expense that may be incurred by it byreason of taking or continuing to take any such action. Neither the Agents, theIssuing Bank nor any of their respective directors, officers, employees oragents, shall have any responsibility to the Borrower on account of the failureof or delay in performance or breach by any Lender of any of its obligationshereunder or to any Lender on account of the failure of or delay in performanceor breach by any other Lender or the Borrower or any Subsidiary of any of theirrespective obligations hereunder or under any other Loan Document or inconnection herewith or therewith. Each of the Agents and the Issuing Bank mayexecute any and all duties hereunder by or through agents or employees, shall beentitled to consult with legal counsel, independent public accountants and otherexperts selected by it with respect to all matters arising hereunder and shallnot be liable for any action taken or omitted to be taken in good faith by it inaccordance with the advice of such counsel, accountants or experts. None ofLenders identified in this Agreement as a "Documentation Agent" or "SyndicationAgent" shall have any obligation, liability, responsibility or duty under thisAgreement in such capacity other than those applicable to all Lenders as such.Without limiting the foregoing, none of Lenders so identified as "DocumentationAgent" or "Syndication Agent" shall have or be deemed to have any fiduciaryrelationship with any Lender. Each Lender acknowledges that is has not relied,and will not rely, on any of Lenders so identified in deciding to enter intothis Agreement or in taking or not taking action hereunder. Section 8.03 Action by Agents. The Lenders hereby acknowledge that none ofthe Agents and the Issuing Bank shall be under any duty to take anydiscretionary action permitted to be taken by it pursuant to the provisions ofthis Agreement unless it shall be requested in writing 107to do so by the Required Lenders. The obligations of the Agents and the IssuingBank under the Loan Documents are only those expressly set forth herein andtherein. Section 8.04 Notice of Default. Except for actual knowledge of non-payment,the Administrative Agent shall not be deemed to have knowledge or notice of theoccurrence of any Default or Event of Default unless the Administrative Agenthas received notice from a Lender or the Borrower referring to this Agreement,describing such Default or Event of Default and stating that such notice is a"notice of default". In the event that the Administrative Agent receives such anotice, the Administrative Agent shall give notice thereof to the Lenders. TheAdministrative Agent shall take such action with respect to such Default orEvent of Default as shall be reasonably directed by the Required Lenders (or, ifso specified by this Agreement, all Lenders); provided that unless and until theAdministrative Agent shall have received such directions, the AdministrativeAgent may (but shall not be obligated to) take such action, or refrain fromtaking such action, with respect to such Default or Event of Default as it shalldeem advisable in the best interests of the Lenders. Section 8.05 Successor Agents. The Administrative Agent and the IssuingBank (except, in the case of the Issuing Bank, in respect of Letters of Creditissued by it) may resign at any time by notifying the Lenders and the Borrower.Upon any such resignation, the Required Lenders shall have the right to appointfrom among the Lenders a successor, whereupon such successor shall succeed tothe rights, powers and duties of either the Administrative Agent or IssuingBank, and the term "Administrative Agent" or "Issuing Bank" shall mean suchsuccessor agent effective upon such appointment and approval, and the formerAdministrative Agent or Issuing Bank's rights, powers and duties asAdministrative Agent or Issuing Bank shall be terminated, without any other orfurther act or deed on the part of such former Administrative Agent, IssuingBank or any of the parties to this Agreement or any holders of the Loans. If nosuccessor shall have been so appointed by the Required Lenders, and shall haveaccepted such appointment, within 10 days after the retiring Agent or IssuingBank, as the case may be, gives notice of its resignation, then the retiringAdministrative Agent's or Issuing Bank's resignation shall neverthelessthereupon become effective, and the retiring Administrative Agent or IssuingBank, as the case may be, may, on behalf of the Lenders, appoint a successor,which shall be a commercial bank organized or licensed under the laws of theUnited States of America or of any State thereof and having a combined capitaland surplus of at least $500,000,000 or an Affiliate of any such bank. Upon theacceptance of any appointment as the Administrative Agent or Issuing Bank, asthe case may be, hereunder by a successor bank, such successor shall succeed toand become vested with all the rights, powers, privileges and duties of theretiring Administrative Agent or Issuing Bank and the retiring AdministrativeAgent or Issuing Bank shall be discharged from its duties and obligationshereunder. After the resignation of the Administrative Agent or the IssuingBank, as the case may be, hereunder, the provisions of this Article and Section9.05 shall continue in effect for its benefit in respect of any actions taken oromitted to be taken by it while it was acting as the Administrative Agent orIssuing Bank. Section 8.06 Agent and Affiliate. With respect to the Loans made by ithereunder, the Letters of Credit issued by it hereunder and the Notes issued toit, each of the Agents and the Issuing Bank in its individual capacity and notas an Agent or the Issuing Bank shall have the same rights and powers as anyother Lender and may exercise the same as though it were not an Agent or theIssuing Bank. The term "Lender" or "Lenders" shall include each Agent in its 108individual capacity. Each of the Agents and the Issuing Bank (and itsAffiliates) may accept deposits from, lend money to and generally engage in anykind of business and transactions with the Borrower or any Subsidiary or otherAffiliate thereof as if it were not an Agent or the Issuing Bank (or suchAffiliate thereof). Section 8.07 Indemnification. Each Lender agrees (a) to reimburse each ofthe Agents and the Issuing Bank, on demand, in the amount of its pro rata share(based on its Commitment hereunder) of any expenses incurred for the benefit ofthe Lenders by such Agent or the Issuing Bank, as the case may be, includingcounsel fees and compensation of agents and employees paid for services renderedon behalf of the Lenders, which shall not have been reimbursed by the Borrowerand (b) to indemnify and hold harmless each of the Agents, the Issuing Bank andany of their respective directors, officers, employees, attorneys-in-fact,affiliates or agents, promptly after demand, in the amount of such pro ratashare, from and against any and all liabilities, taxes, obligations, losses,damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurredby or asserted against it in its capacity as an Agent or the Issuing Bank or anyof them in any way relating to or arising out of this Agreement, any other LoanDocument, any documents contemplated by or referred herein or therein, thetransactions contemplated hereby or thereby or any action taken or omitted by itor any of them under this Agreement or any other Loan Document, to the extentthe same shall not have been reimbursed by the Borrower; provided, that noLender shall be liable to any Agent or the Issuing Bank for any portion of suchliabilities, obligations, losses, damages, penalties, actions, judgments, suits,costs, expenses or disbursements resulting from the gross negligence or willfulmisconduct of such Agent or the Issuing Bank (as found by a final andnon-appealable decision of a court of competent jurisdiction). Section 8.08 Credit Decision. Each Lender expressly acknowledges thatneither the Agents nor any of their respective officers, directors, employees,agents, attorneys-in-fact or affiliates have made any representations orwarranties to it and that no act by any Agent hereafter taken, including anyreview of the affairs of a Loan Party or any affiliate of a Loan Party, shall bedeemed to constitute any representation or warranty by any Agent to any Lender.Each Lender acknowledges that it has, independently and without reliance uponthe Agents, the Issuing Bank or any other Lender and based on such documents andinformation as it has deemed appropriate, made its own credit analysis anddecision to enter into this Agreement. Each Lender also acknowledges that itwill independently and without reliance upon the Agents, the Issuing Bank or anyother Lender and based on such documents and information as it shall from timeto time deem appropriate, continue to make its own decisions in taking or nottaking action under or based upon this Agreement or any other Loan Document, anyrelated agreement or any document furnished hereunder or thereunder. Except fornotices, reports and other documents expressly required to be furnished to theLenders by the Agents hereunder, the Agents shall not have any duty orresponsibility to provide any Lender with any credit or other informationconcerning the business, operations, property, condition (financial orotherwise), prospects or creditworthiness of any Loan Party or any affiliate ofa Loan Party that may come into the possession of the Agents or any of itsofficers, directors, employees, agents, attorneys-in-fact or affiliates. 109 Section 8.09 Intercreditor Agreement. The Lenders hereby authorize andagree to be bound by the terms of the Intercreditor Agreement and authorize theAdministrative Agent, on behalf of the Lenders, to execute the Agreement ofParity Lenders and Supplement to Intercreditor Agreement. ARTICLE IX MISCELLANEOUS Section 9.01 Notices. Notices and other communications provided for hereinshall be in writing and shall be delivered by hand or overnight courier service,mailed by certified or registered mail or sent by telecopy as follows: (a) if to the Borrower, to it at: 2187 Atlantic Street Stamford, CT 06902 Attention: Richard Ambury Telecopy: (203) 328-7393 Telephone: (203) 328-7300 E-mail: rambury@star-gas.com (b) if to the Administrative Agent, to it at: JPMorgan Chase Bank Loan and Agency Services Group 1111 Fannin Street Houston, TX 77002 Attention: Debbie Meche/Melissa Paiva Telecopy: (713) 750-2938 with a copy to: JPMorgan Chase Bank 395 North Service Road Melville, NY 11747 Attention: William A. DeMilt, Jr. Telecopy: (631) 755-5184 (c) if to the Documentation Agent, to it at: Wachovia Bank, N.A. 301 South College Street Charlotte, NC 28288 Attention: Mark Weir Telecopy no.: (704) 383-0550 110 with a copy to Wachovia Bank, N.A. 201 South College Street Charlotte, NC 28288 Attention: Cynthia Rawson Telecopy no.: (704) 715-0097 (d) if to the Syndication Agent, to it at: Fleet National Bank 100 Federal Street Boston, MA 02110 Attention: Bert Valbona Telecopy no.: (617) 434-3652 with a copy to: Fleet National Bank 100 Federal Street Boston, MA 02110 Attention: Francia Castille Telecopy no.: (617) 434-9820 (e) if to a Lender, to it at its address on Schedule 1.01A hereto or in theAssignment and Acceptance pursuant to which such Lender shall have become aparty hereto. All notices and other communications given to any party hereto inaccordance with the provisions of this Agreement shall be deemed to have beengiven on the date of receipt if delivered by hand or overnight courier serviceor sent by telecopy or on the date five Business Days after dispatch bycertified or registered mail if mailed, in each case delivered, sent or mailedproperly addressed) to such party as provided in this Section 9.01 or inaccordance with the latest unrevoked direction from such party given inaccordance with this Section 9.01; provided, that any notice, request or demandto or upon the Administrative Agent or the Lenders shall not be effective untilreceived. Notices and other communications to the Lenders hereunder may be deliveredor furnished by electronic communications pursuant to procedures approved by theAdministrative Agent; provided, that the foregoing shall not apply to noticespursuant to Article II unless otherwise agreed by the Administrative Agent andthe applicable Lender. The Administrative Agent or the Borrower may, in itsdiscretion, agree to accept notices and other communications to it hereunder byelectronic communications pursuant to procedures approved by it; provided, thatapproval of such procedures may be limited to particular notices orcommunications. Section 9.02 Survival of Agreement. All covenants, agreements,representations and warranties made by the Borrower herein and in thecertificates or other instruments prepared or delivered in connection with orpursuant to this Agreement or any other Loan Document shall be considered tohave been relied upon by the Lenders, the Agents and the Issuing Bank and shall 111 survive the making by the Lenders of the Loans, the execution and delivery tothe Lenders of the Notes evidencing such Loans, and the issuance of the Lettersof Credit, regardless of any investigation made by the Lenders, the Agents orthe Issuing Bank or on their behalf, and shall continue in full force and effectas long as (a) the principal of or any accrued interest on any Loan, any Fee,any Letter of Credit Disbursement or any other amount payable under thisAgreement or any other Loan Document is outstanding and unpaid, (b) theCommitments have not been terminated or (c) any Letter of Credit has not expiredor been terminated. Section 9.03 Binding Effect. This Agreement shall become effective when theconditions precedent set forth in Section 4.01 are satisfied (except that,solely for the purpose of calculating any fees stated herein to commence toaccrue on the date of this Agreement, this Agreement shall become effective whenthe conditions precedent set forth in Section 4.01(a) are satisfied). Section 9.04 Successors and Assigns; Participations and Assignments. (a)The provisions of this Agreement shall be binding upon and inure to the benefitof the parties hereto and their respective successors and assigns permittedhereby (including any affiliate of the Issuing Lender that issues any Letter ofCredit), except that (i) the Borrower may not assign or otherwise transfer anyof its rights or obligations hereunder without the prior written consent of eachLender (and any attempted assignment or transfer by the Borrower without suchconsent shall be null and void) and (ii) no Lender may assign or otherwisetransfer its rights or obligations hereunder except in accordance with thisSection. (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, anyLender may assign to one or more assignees (each, an "Assignee") all or aportion of its rights and obligations under this Agreement (including all or aportion of its Commitments and the Loans at the time owing to it) with the priorwritten consent (such consent not to be unreasonably withheld) of: (A) the Borrower, provided, that no consent of the Borrower shall be required for an assignment to a Lender, an affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default under Section 7.01(a), (b), (g), (h), (i) or (j) has occurred and is continuing, any other Person; (B) the Administrative Agent, provided, that no consent of the Administrative Agent shall be required for an assignment of (x) any Revolving Credit Commitment to an assignee that is a Lender with a Revolving Credit Commitment immediately prior to giving effect to such assignment or (y) all or any portion of a Term Loan to a Lender, an Affiliate of a Lender or an Approved Fund; and (C) in the case of an assignment of any Revolving Credit Commitment, the Issuing Bank, provided, that no consent of the Issuing Bank shall be required for an assignment of any Revolving Credit Commitment to an assignee that is a Lender with a Revolving Credit Commitment immediately prior to giving effect to such assignment. 112 (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender's Commitments or Loans, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent (and, if applicable, the Issuing Lender) otherwise consent, provided, that (1) no such consent of the Borrower shall be required if an Event of Default under Section 7.01(a), (b), (g), (h), (i) or (j) has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any; (B) each Lender shall simultaneously assign, and the Assignee shall simultaneously take an assignment of, a pro rata portion of the sum of the principal amount of the outstanding loans under the Working Capital and Acquisition Facility Credit Agreement and the unused amount of the commitment of the assigning lender under the Working Capital and Acquisition Facility Credit Agreement and all other interests, rights and obligations under the Working Capital and Acquisition Facility Credit Agreement in accordance with the provisions thereof, such that at all times (x) the Revolving Credit Commitment Percentage of such Lender hereunder and the Tranche B Revolving Credit Commitment Percentage (as defined in the Working Capital and Acquisition Facility Credit Agreement) of such lender under Facility B shall be the same and (y) the Revolving Credit Commitment Percentage of such Lender hereunder and the Tranche A Revolving Credit Commitment Percentage (as defined on the Working Capital and Acquisition Facility Credit Agreement) of such lender under Facility A shall be the same; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; and (D) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire. For the purposes of this Section 9.04, the terms "Approved Fund" has the following meaning: "Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a 113 Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Acceptance the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19 and 9.05). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Letter of Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Lender and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (v) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an Assignee, the Assignee's completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (c) (i) Any Lender may, without the consent of the Borrower or theAdministrative Agent, sell participations to one or more banks or other entities(a "Participant") in all or a portion of such Lender's rights and obligationsunder this Agreement (including all or a portion of its Commitments and theLoans owing to it); provided, that (A) such Lender's obligations under thisAgreement shall remain unchanged, (B) such Lender shall remain solelyresponsible to the other parties hereto for the performance of such obligationsand (C) the Borrower, the Administrative Agent, the Issuing Lender and the otherLenders shall continue to deal solely and directly with such Lender inconnection with such Lender's rights and obligations under this 114Agreement. Any agreement pursuant to which a Lender sells such a participationshall provide that such Lender shall retain the sole right to enforce thisAgreement and to approve any amendment, modification or waiver of any provisionof this Agreement; provided, that such agreement may provide that such Lenderwill not, without the consent of the Participant, agree to any amendment,modification or waiver that (1) requires the consent of each Lender directlyaffected thereby pursuant to the proviso to Section 9.08(b) and (2) directlyaffects such Participant. Subject to paragraph (c)(ii) of this Section, theBorrower agrees that each Participant shall be entitled to the benefits ofSections 2.13, 2.14, 2.15 and 2.19 to the same extent as if it were a Lender andhad acquired its interest by assignment pursuant to paragraph (b) of thisSection. To the extent permitted by law, each Participant also shall be entitledto the benefits of Section 9.06 as though it were a Lender, provided, that suchParticipant shall be subject to Section 2.17 as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 2.13, 2.14 or 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.19 unless such Participant complies with Section 2.19(d). (d) Any Lender may at any time pledge or assign a security interest in allor any portion of its rights under this Agreement to secure obligations of suchLender, including any pledge or assignment to secure obligations to a FederalReserve Bank, and this Section shall not apply to any such pledge or assignmentof a security interest; provided, that no such pledge or assignment of asecurity interest shall release a Lender from any of its obligations hereunderor substitute any such pledgee or Assignee for such Lender as a party hereto. (e) The Borrower, upon receipt of written notice from the relevant Lender,agrees to issue Notes to any Lender requiring Notes to facilitate transactionsof the type described in paragraph (d) above. (f) Notwithstanding the foregoing, any Conduit Lender may assign any or allof the Loans it may have funded hereunder to its designating Lender without theconsent of the Borrower or the Administrative Agent and without regard to thelimitations set forth in Section 9.04(b). Each of the Borrower, each Lender andthe Administrative Agent hereby confirms that it will not institute against aConduit Lender or join any other Person in instituting against a Conduit Lenderany bankruptcy, reorganization, arrangement, insolvency or liquidationproceeding under any state bankruptcy or similar law, for one year and one dayafter the payment in full of the latest maturing commercial paper note issued bysuch Conduit Lender; provided, however, that each Lender designating any ConduitLender hereby agrees to indemnify, save and hold harmless each other partyhereto for any loss, cost, damage or expense arising out of its inability toinstitute such a proceeding against such Conduit Lender during such period offorbearance. Section 9.05 Expenses; Indemnity. (a) The Borrower agrees to pay (whetheror not the transactions contemplated hereby shall be consummated) all reasonableout-of-pocket costs and expenses incurred by any Agent or the Issuing Bank inconnection with the preparation, 115execution and delivery of this Agreement and the other Loan Documents, theclosing of the Facility, the administration of the Facility or any amendment,modification or waiver of the provisions hereof or thereof or incurred by anyAgent, the Issuing Bank or any Lender in connection with the enforcement orprotection of the rights of the Agents, the Issuing Bank and the Lenders underthis Agreement and the other Loan Documents or in connection with the Loans madehereunder, the Notes issued hereunder or the Letters of Credit issued hereunder,including the reasonable fees, charges and disbursements of (i) Simpson Thacher& Bartlett LLP, counsel to the Administrative Agent, (ii) any third partyconsultants retained to assist the Agents in analyzing any environmental,insurance and other due diligence issues, (iii) any search and filing fees ofany company acceptable to the Lenders and (iv) in connection with any suchenforcement or protection, any other counsel for any Agent, the Issuing Bank orany Lender. (b) The Borrower agrees to indemnify each of the Agents, the Issuing Bank,the affiliates of any Agent, the Issuing Bank, the Lenders, and their respectivedirectors, officers, employees, agents and Controlling Persons (each, an"Indemnified Party") from and against any and all losses, claims (whether validor not), damages and liabilities, joint or several, to which such IndemnifiedParty may become subject, related to or arising out of (i) the Facility and thetransactions contemplated hereby and thereby, (ii) the execution or delivery ofthis Agreement or any other Loan Document or any agreement or instrumentcontemplated hereby or thereby, the performance by the parties hereto or theretoof their respective obligations hereunder or thereunder or the consummation ofthe other transactions contemplated hereby and thereby, (iii) the use of theLetters of Credit or the proceeds of the Loans or (iv) any claim, litigation,investigation or proceeding relating to any of the foregoing, whether or not anyIndemnified Party is a party thereto. The Borrower further agrees to reimburseeach Indemnified Party for all expenses (including reasonable attorneys' feesand expenses) as they are incurred in connection with the investigation of,preparation for or defense of any pending or threatened claim or any action orproceeding arising therefrom. Notwithstanding the foregoing, the obligation toindemnify any Indemnified Party under this Section 9.05(b) shall not apply inrespect of any loss, claim, damage or liability to the extent that a court ofcompetent jurisdiction shall have determined by final and nonappealable judgmentthat such loss, claim, damage or liability resulted from such IndemnifiedParty's gross negligence or willful misconduct. (c) The Borrower agrees to indemnify each of the Agents, the Issuing Bank,the Lenders and the other Indemnified Parties from and against any and alllosses, claims (whether valid or not), damages and liabilities, joint orseveral, to which such Indemnified Party may become subject, related to orarising out of (i) any Environmental Laws affecting the Borrower or any otherLoan Party or its properties or assets, (ii) any Hazardous Materials managed bythe Borrower or any other Loan Party, (iii) any event, condition or circumstanceinvolving environmental pollution, regulation or control affecting the Borroweror any other Loan Party or its properties or assets or (iv) any claim,litigation, investigation or proceeding relating to any of the foregoing,whether or not any Indemnified Party is a party thereto. The Borrower furtheragrees to reimburse each Indemnified Party for all expenses (includingreasonable attorneys' fees and expenses) as they are incurred in connection withthe investigation of, preparation for or defense of any pending or threatenedclaim or any action or proceeding arising therefrom. Notwithstanding theforegoing, the obligation to indemnify any Indemnified Party under this Section9.05(c) shall not apply in respect of any loss, claim, damage or liability tothe extent that a court of competent jurisdiction shall have determined by finaland nonappealable judgment that 116such loss, claim, damage or liability resulted from such Indemnified Party'sgross negligence or willful misconduct. (d) In the event that the foregoing indemnity is unavailable orinsufficient to hold an Indemnified Party harmless, then the Borrower willcontribute to amounts paid or payable by such Indemnified Party in respect ofsuch Indemnified Party's losses, claims, damages or liabilities in such proportions as appropriately reflect the relative benefits received by and faultof the Borrower and such Indemnified Party in connection with the matters as towhich such losses, claims, damages or liabilities relate and other equitableconsiderations. (e) If any action, proceeding or investigation is commenced, as to whichany Indemnified Party proposes to demand such indemnification, it shall notifythe Borrower with reasonable promptness; provided, however, that any failure bysuch Indemnified Party to notify the Borrower shall not relieve the Borrowerfrom its obligations hereunder except to the extent the Borrower is prejudicedthereby. The Borrower shall be entitled to assume the defense of any suchaction, proceeding or investigation, including the employment of counsel and thepayment of all fees and expenses. Each Indemnified Party shall have the right toemploy separate counsel in connection with any such action, proceeding orinvestigation and to participate in the defense thereof, but the fees andexpenses of such counsel shall be paid by such Indemnified Party, unless (i) theBorrower has failed to assume the defense and employ counsel as provided herein,(ii) the Borrower has agreed in writing to pay such fees and expenses ofseparate counsel or (iii) an action, proceeding or investigation has beencommenced against such Indemnified Party and the Borrower and representation ofboth the Borrower and such Indemnified Party by the same counsel would beinappropriate because of actual or potential conflicts of interest between theparties (in the case of any Agent or Lender, the existence of any such actual orpotential conflict of interest to be determined by such party, taking intoaccount, among other things, any relevant regulatory concerns). In the case ofany circumstance described in clause (i), (ii), or (iii) of the immediatelypreceding sentence, the Borrower shall be responsible for the reasonable feesand expenses of such separate counsel; provided, however, that the Borrowershall not in any event be required to pay the fees and expenses of more than oneseparate counsel (plus appropriate local counsel under the direction of suchseparate counsel) for all Indemnified Parties. The Borrower shall be liable onlyfor settlement of any claim against an Indemnified Party made with theBorrower's written consent. (f) The provisions of this Section 9.05 shall remain operative and in fullforce and effect regardless of the expiration of the term of this Agreement, theconsummation of the transactions contemplated hereby, the repayment of any ofthe Loans, the invalidity or unenforceability of any term or provision of thisAgreement or any other Loan Document, or any investigation made by or on behalfof any Agent or Lender. All amounts due under this Section 9.05 shall be payableon written demand therefor. Section 9.06 Right of Setoff. If an Event of Default shall have occurredand be continuing, each Lender is hereby authorized at any time and from time totime, to the fullest extent permitted by law, to set off and apply any and alldeposits (general or special, time or demand, provisional or final) at any timeheld and other indebtedness at any time owing by such Lender to or for thecredit or the account of the Borrower against any of and all the obligations ofthe Borrower now or hereafter existing under this Agreement and the other LoanDocuments 117held by such Lender, irrespective of whether or not such Lender shall have madeany demand under this Agreement or such other Loan Document and although suchobligations may be unmatured. The rights of each Lender under this Section 9.06are in addition to other rights and remedies (including other rights of setoff)which such Lender may have. Section 9.07 Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTSSHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWOF THE STATE OF NEW YORK. Section 9.08 Waivers; Amendment. (a) No failure or delay of any Agent, theIssuing Bank or any Lender in exercising any power or right hereunder shalloperate as a waiver thereof, nor shall any single or partial exercise of anysuch right or power, or any abandonment or discontinuance of steps to enforcesuch a right or power, preclude any other or further exercise thereof or theexercise of any other right or power. The rights and remedies of the Agents, theIssuing Bank and the Lenders hereunder and under the other Loan Documents arecumulative and are not exclusive of any rights or remedies which they wouldotherwise have. No waiver of any provision of this Agreement or any other LoanDocument or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by Section 9.08(b), andthen such waiver or consent shall be effective only in the specific instance andfor the purpose for which given. No notice or demand on the Borrower in any caseshall entitle the Borrower to any other or further notice or demand in similaror other circumstances. (b) None of this Agreement, the other Loan Documents and any provisionhereof or thereof may be waived, amended or modified, except pursuant to anagreement or agreements in writing entered into by the Borrower and the RequiredLenders; provided, however, that no such waiver, amendment or modification shall(i) decrease the principal amount of any Loan, extend the Maturity Date or theConversion Date, extend any Repayment Date or any date for the payment of anyinterest on any Loan, or waive or excuse any such payment or any part thereof,or decrease the rate of interest on any Loan, without the prior written consentof each holder of a Note affected thereby, (ii) increase or extend theCommitment or decrease the Commitment Fees or Letter of Credit Fees of anyLender without the prior written consent of such Lender, (iii) postpone the datefixed for any reimbursement of a Letter of Credit Disbursement without the priorwritten consent of each Lender affected thereby, (iv) permit the release of anymaterial amount of Collateral under any Collateral Document or permit therelease of any material guarantor from the Guarantee Agreements without theprior written consent of each Lender, (v) increase the aggregate Commitments ofthe Lenders without the prior written consent of each Lender, (vi) amend ormodify the provisions of Section 2.01(b) or waive the conditions set forththerein, the provisions of Section 2.11(f), the provisions of Section 2.16, theprovisions of Sections 9.04(a)(i), 9.04(b)(ii)(B), or any of the provisions ofArticle II relating to the pro rata treatment between this Agreement and theWorking Capital and Acquisition Facility Credit Agreement, the provisions ofthis Section 9.08 or the definition of "Required Lenders" or otherwise changethe percentage of the Commitments, the percentage of the aggregate unpaidprincipal amount of the Notes or the number of Lenders which shall be requiredfor the Lenders or any of them to take any action under any provision of thisAgreement or any other Loan Document, without the prior written consent of eachLender; provided, further, that no such agreement shall amend, modify orotherwise affect the rights or duties of any Agent or the Issuing Bank hereunderwithout the prior written consent of such Agent or the Issuing Bank, as 118applicable. Each Lender and each holder of a Note shall be bound by any waiver,amendment or modification authorized by this Section 9.08 regardless of whetherits Note shall have been marked to make reference thereto, and any consent byany Lender or holder of a Note pursuant to this Section 9.08 shall bind anyPerson subsequently acquiring a Note from it, whether or not such Note shallhave been so marked. (c) In the event that any waiver, amendment or modification requires theprior written consent of each Lender pursuant to Section 9.08(b), and theBorrower has obtained the approval of all but one Lender, the Borrower shallhave the right to replace such non-consenting Lender; provided that, (i) suchreplacement does not conflict with any Requirement of Law, (ii) no Event ofDefault shall have occurred and be continuing at the time of such replacement,(iii) the replacement financial institution shall purchase, at par, all Loansand other amounts owing to such replaced Lender on or prior to the date ofreplacement, (iv) the Borrower shall be liable to such replaced Lender underSection 2.15 if any Eurodollar Loan owing to such replaced Lender shall bepurchased other than on the last day of the Interest Period relating thereto,(v) the replacement financial institution, if not already a Lender, shall bereasonably satisfactory to the Administrative Agent, (vi) the replaced Lendershall be obligated to make such replacement in accordance with the provisions ofSection 9.04(b) (provided that, the Borrower shall be obligated to pay theregistration and processing fee referred to therein) and (vii) any suchreplacement shall not be deemed to be a waiver of any rights that the Borrower,the Administrative Agent or any other Lender shall have against the replacedLender. Section 9.09 Interest Rate Limitation. Notwithstanding anything herein orin the Notes to the contrary, if at any time the applicable interest rate,together with all fees and charges which are treated as interest underapplicable law (collectively the "Charges"), as provided for herein or in anyother document executed in connection herewith, or otherwise contracted for,charged, received, taken or reserved by any Lender, shall exceed the maximumlawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rateof interest payable under the affected Note held by such Lender, together withall Charges payable to such Lender, shall be limited to the Maximum Rate. Section 9.10 Entire Agreement. This Agreement, the other Loan Documents,the other Operative Agreements and the Letter Agreement constitute the entirecontract among the parties relative to the subject matter hereof and thereof.Any agreement previously entered into among the parties with respect to thesubject matter hereof and thereof is superseded by this Agreement, the otherLoan Documents, the other Operative Agreements and the Letter Agreement. Nothingin this Agreement, the other Loan Documents, the other Operative Agreements orthe Letter Agreement, expressed or implied, is intended to confer upon anyparty, other than the parties hereto and the other Secured Parties, any rights,remedies, obligations or liabilities under or by reason of this Agreement, theother Loan Documents, the other Operative Agreements or the Letter Agreement. Section 9.11 Severability. In the event any one or more of the provisionscontained in this Agreement or in any other Loan Document should be heldinvalid, illegal or unenforceable in any respect, the validity, legality andenforceability of the remaining provisions contained herein and therein shallnot in any way be affected or impaired thereby. The parties shall 119endeavor in good-faith negotiations to replace the invalid, illegal orunenforceable provisions with valid provisions the economic effect of whichcomes as close as possible to that of the invalid, illegal or unenforceableprovisions. Section 9.12 Counterparts. This Agreement may be executed in two or morecounterparts, each of which shall constitute an original but all of which whentaken together shall constitute but one contract, and shall become effective asprovided in Section 9.03. Section 9.13 Headings. Article and Section headings and the Table ofContents used herein are for convenience of reference only, are not part of thisAgreement and are not to affect the construction of, or to be taken intoconsideration in interpreting, this Agreement. Section 9.14 Jurisdiction; Consent to Service of Process; Waiver of JuryTrial. (a) The Borrower hereby irrevocably and unconditionally submits, foritself and its property, to the nonexclusive jurisdiction of any New York Statecourt or Federal court of the United States of America sitting in New York, NewYork, and any appellate court from any thereof, in any action or proceedingarising out of or relating to this Agreement or the other Loan Documents, or forrecognition or enforcement of any judgment, and each of the parties heretohereby irrevocably and unconditionally agrees that all claims in respect of anysuch action or proceeding may be heard and determined in such New York State or,to the extent permitted by law, in such Federal court. Each of the partieshereto agrees that a final judgment in any such action or proceeding shall beconclusive and may be enforced in other jurisdictions by suit on the judgment orin any other manner provided by law. Nothing in this Agreement shall affect anyright that any Agent, the Issuing Bank or any Lender may otherwise have to bringany action or proceeding relating to this Agreement or the other Loan Documentsagainst the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to thefullest extent it may legally and effectively do so, any objection which it maynow or hereafter have to the laying of venue of any suit, action or proceedingarising out of or relating to this Agreement or the other Loan Documents in anyNew York State court or Federal court of the United States of America sitting inNew York, New York. Each of the parties hereto hereby irrevocably waives, to thefullest extent permitted by law, the defense of an inconvenient forum to themaintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of processin the manner provided for notices in Section 9.01. Nothing in this Agreementwill affect the right of any party to this Agreement to serve process in anyother manner permitted by law. (d) TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, EACH OF THEBORROWER, THE LENDERS, THE AGENTS AND THE ISSUING BANK HEREBY IRREVOCABLY ANDUNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT AND THE OTHER LOANDOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 120 Section 9.15 Legend. THIS AGREEMENT AND THE NOTES ARE SUBJECT TO THE TERMSAND CONDITIONS CONTAINED IN THE INTERCREDITOR AGREEMENT WHICH, AMONG OTHERTHINGS, ESTABLISHES CERTAIN RIGHTS WITH RESPECT TO THE SECURITY FOR THISAGREEMENT AND THE NOTES AND THE SHARING OF PROCEEDS THEREOF WITH CERTAIN OTHERSECURED CREDITORS. COPIES OF THE INTERCREDITOR AGREEMENT WILL BE FURNISHED TOANY LENDER (OR ANY TRANSFEREE THEREOF) UPON REQUEST TO THE BORROWER. IN WITNESS WHEREOF, the Borrower, the Agents, the Issuing Bank and theLenders have caused this Agreement to be duly executed by their respectiveauthorized officers as of the day and year first above written. STAR GAS PROPANE, L.P., as Borrower By: STAR GAS LLC, its general partner By: ----------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Administrative Agent, as Issuing Bank and as a Lender By: ----------------------------------------- Name: Title: FLEET NATIONAL BANK, as Syndication Agent and as a Lender By: ----------------------------------------- Name: Title: WACHOVIA BANK, N.A., as Documentation Agent and as a Lender By: ----------------------------------------- Name: Title: EXHIBIT 10.34 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of April 1, 2002 (the "Agreement"),is entered into by and between Petro Holdings, Inc., a Minnesota corporation(the "Company") and Angelo Catania (the "Executive"). RECITALS WHEREAS, the Executive has been employed by the Company for manyyears, most recently as the Regional Vice President of the Company'sMid-Atlantic Region; and WHEREAS, the Company wishes to retain the services of the Executive asits President and the Executive desires to continue to render services to theCompany in such capacity; WHEREAS, the Company and the Executive deem it to be in theirrespective best interests to enter into an agreement providing for the Company'semployment of the Executive on the terms and conditions set forth below; and NOW, THEREFORE, in consideration of the foregoing and the mutualcovenants, representations, agreements, and promises set forth herein and othergood and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties agree as follows: AGREEMENT 1. Employment 1.1 Term. The Company agrees to employ the Executive asPresident of the Company and the Executive agrees to accept such employment, foran initial term commencing as of April 1, 2002 and ending on April 1, 2007 orfor such longer term as the Company and the Executive may agree. Notwithstanding the foregoing, between January 1, 2006 and June 30, 2006 theExecutive may give the Company notice of the pending expiration of the term andif such notice is given, the term will automatically be extended for one yearunless the Company gives notice to the Executive on or before September 30, 2006of its election not to extend the term , in which event the term shall end onthe last day of the initialterm. If this Agreement is extended, then between January 1 and June 30 of eachextension year the Executive may give the Company notice of the pendingexpiration of the term and if such notice is given, the term will automaticallybe extended one year unless the Company gives notice by September 30 that yearof its election not to extend the term. The initial term plus any extendedterm(s), if applicable, is referred to herein as the "Term". 1.2 Duties. During the Term, the Executive shall perform suchduties and functions as are assigned to him by the Chief Executive of theCompany and the Executive shall adhere to all of the Company's policies andprocedures. The Executive shall report directly to the Chief Executive Officer. 1.3 Time Devoted to Employment. The Executive agrees to devotehis entire working time, attention and efforts to the Company and itssubsidiaries, use his best, good faith efforts to promote the success of theCompany's business, and cooperate fully with the Chief Executive Officer in theadvancement of the best interests of the Company. Among the duties of theExecutive will be the completion of the Organizational Re-Engineering/CallCenter Project ("Project") currently underway and it is anticipated that theExecutive will be required to devote up to 25% of his time to oversee thecompletion of that project until it is completed or abandoned. 1.4 Location of Employment. The Executive's principal place ofemployment shall initially be at the Company's principal executive officeslocated in Stamford, CT. However, it is contemplated that the Company may moveits offices to another location within a 45 mile radius of New York City in (the"Greater New York Metropolitan Area") and if such move is made, then Executive'sprincipal place of employment will be at the new location. 1.5 Moving Expenses. The Company will pay (i) all reasonablepacking and moving expenses associated with moving the Executive's possessionsfrom his home in Brielle, New Jersey to a new home selected by the Executivenearer to the executive offices of the Company (ii) all closing costs andexpenses (including reasonable attorneys fees and normal brokerage commissions)associated with the sale of his present home and the purchase of his new homeplus (iii) up to $5,000 as may be required to reduce the fixed mortgage rate onthe Executive's new home to 6%. Until such move is accomplished the -2-Company will pay the reasonable cost of renting a furnished two bedroomapartment for the Executive in or around Stamford, Connecticut or in proximityto any new office established by the Company. The Company will pay for suchfurnished apartment beginning on April 1, 2002 and continuing for a period whichends 6 months after the date on which the Company has advised the Employee ofits intention not to move its executive officers from Stamford, CT or actuallymoves its executive offices to a new location, whichever occurs first. 2. Compensation. 2.1 Base Salary; Bonus. As compensation for services renderedhereunder, the Company shall pay the Executive an annual base salary of $325,000or such higher amount as the Company, in its sole judgment and discretion, mayprovide during the Term (the "Annual Base"). Executive shall be entitled toreceive a bonus targeted of up to $100,000 for each 12 month period endingSeptember 30 during the Term ("Targeted Bonus"). The Chief Executive Officerwill review Executive's performance on an annual basis (normally on or aboutOctober 15) to determine what percentage of this Targeted Bonus he shallactually receive, based upon objectives established prior to the beginning ofeach fiscal year of the Company taking into account the Company's overallperformance, Executive's individual job performance and other factors deemedappropriate by the Chief Executive Officer. The Targeted Bonus for the April 1,2002 to September 30, 2002 period shall be a prorated portion of the $100,000annual amount and shall be based upon performance objectives that areestablished prior to April 5, 2002. For the period between January 1, 2002 andMarch 31, 2002, the Executive shall be compensated at the annual rate of$240,000 per annum and shall receive a pro rated bonus for the short periodOctober 1, 2001 to March 31, 2002 based upon the bonus program in effect for the2001 fiscal year. The Annual Base shall be paid over the year in a mannerconsistent with the Company's payment of executive salaries. The bonus shall bepaid to Executive each January following the end of each fiscal year. TheExecutive shall be entitled to a success bonus of $300,000 upon the successfulcompletion of the Project, or, if the Project is abandoned prior to itscompletion he shall receive a bonus of $150,000 in lieu of the success bonus.The Project shall be deemed to be successfully completed if substantially allcustomers of the Company on April 1, 2002 (other than Meenan and BaysideCustomers) are properly -3-serviced from one or two call centers on or before October 15, 2003; or suchlater date as agreed to by the Chief Executive Officer. 2.2 Benefits. The Executive will be eligible to participate inthe Company's employee benefit plans as in effect from time to time madegenerally available to senior executive employees of the Company includingmedical, dental, life insurance, and 401(k) plan, all in accordance with Companypolicies, as well as a company car. 2.3 Withholding. The Company shall make such deductions andwithhold such amounts from each payment made to the Executive under thisAgreement as may be required from time to time by law, governmental regulationor order and in accordance with the Company's customary payroll practices. 2.4 Senior Subordinated Units. The Executive shall be granted8,000 Senior Subordinated Units per year under the Company's Employee UnitIncentive Plan for the fiscal years ending September 30, 2002, September 30,2003 and September 30, 2004 3. Termination of Employment. 3.1 Termination. The Executive's employment hereunder may beterminated prior to the end of the Term of this Agreement under the followingcircumstances: (a) Death. The Executive's employment hereunder shall terminateupon his death. (b) Disability. If, as a result of the incapacity of theExecutive due to physical or mental illness which constitutes "disability" underany disability plan maintained by the Company of which the Executive is aparticipant, the Executive shall have been absent from the full-time performanceof his duties with the Company for six (6) months during any eighteen (18)-monthperiod, his employment may be terminated by the Company for "Disability." (c) Cause. Termination by the Company of the employment of theExecutive for "Cause" shall mean termination based upon the Executive's (i)willful breach or willful neglect of his duties and responsibilities, (ii)conviction (or plea of noto contendere) of a felony occurring on or after theexecution of this Agreement, (iii) material breach of this Agreement or anyother Agreement to which the Executive and the Company are parties (iv)violation of any material Legal Requirement (as defined in Section 6.2 below),(v) material -4-breach of his duty of loyalty or fiduciary duties, or (vi) failure to complywith the Company's reasonable orders or directives; provided, however, that inthe case of any act or failure to act described in sub-sections (i), (iii),(iv), (v) or (vi) above, such act or failure to act shall not constitute Causeif, within twenty (20) business days after Notice of Termination is given to theExecutive by the Company, the Executive has corrected such act or failure toact, to the satisfaction of the Chief Executive Officer or the Chief ExecutiveOfficer is otherwise satisfied that termination of the Executive's employment isnot in the best interests of the Company. (d) Good Reason. The Executive may terminate his employmentduring the Term of this Agreement for "Good Reason." Good Reason shall mean (i)a requirement that Executive relocate to an area outside of the Greater New YorkMetropolitan Area (ii) a substantial change in Executive's duties andresponsibilities or (iii) within the period of sixty (60) days following aChange in Control, any termination of the Executive's employment for any reason,either by the Executive or by the Company; however, in the case of any actdescribed in subsections (i) or (ii), such act or failure to act shall notconstitute Good Reason if after Notice of Termination is given by the Executiveto the Company, the Company has corrected such act or failure. "Change inControl" shall mean (i) if the present members of Star LLC no longer have theright to elect a majority of the Board of Directors of Star LLC or any successorentity (iv) Star LLC or such successor entity is no longer the general partnerof Star Gas Propane LP or (iii) Star Gas LLC ceases for any reason to have theindirect power to elect a majority of the Board of Directors of the Company. 3.2 Date of Termination. "Date of Termination" shall mean (a)the expiration of the Term, (b) if the Executive's employment is terminated dueto his death, the date of his death, (c) if the Executive's employment isterminated due to the Executive's Disability, ten (10) days after Notice ofTermination is given to the Executive, and (d) if the Executive's employment isotherwise terminated by the Company or by the Executive, the date upon which thefor Cause or Good Reason event occurs or such other date set forth in the Noticeof Termination. Nothing in this Section shall be deemed to diminish theCompany's right to cause the Executive to cease performing his duties andresponsibilities as a President and employee of the Company at any time("Termination Without Cause"), or to limit either party's right to give a Noticeof Termination at any time during the Term of this Agreement. -5- 3.3 Notice of Termination. Any purported termination of theExecutive's employment by the Company or by the Executive shall be communicatedby written Notice of Termination to the other party hereto in accordance withParagraph 7.4 of this Agreement. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specifictermination provision in this Agreement relied upon, and shall set forth inreasonable detail the facts and circumstances claimed to provide a basis fortermination of the Executive's employment under the provision so indicated. 4. Compensation Upon Termination. 4.1 Disability. During any period in which the Executive failsto perform his full-time duties with the Company as a result of incapacity dueto physical or mental illness, the Executive shall be compensated as follows:(a) the Executive shall continue to receive his Annual Base at the rate ineffect at the commencement of any such period less any compensation payable tothe Executive under the applicable disability insurance plan of the Companyduring such period, until the Executive's employment is terminated pursuant toSection 3 of this Agreement; and (b) the Company shall pay to the Executivefollowing such termination, in the same regular payments as theretofore as ifthe Executive continued his employment with the Company, the lesser of (i) one(1) year's Annual Base salary, and (ii) the unpaid amount of Annual Base for theremaining balance of the Term of the Agreement; which payments shall be reducedby any payments for disability under the Company's insurance and other benefitprograms. Thereafter, the Executive's benefits shall be only as provided underthe Company's insurance and other benefits programs then in effect in accordancewith the terms of such programs. 4.2 Death. In the event the Executive's employment is terminatedby reason of his death all earned, but unpaid amounts of Annual Base, if any, towhich the Executive was entitled as of the Date of Termination shall be paid inaccordance with the terms of this Agreement to the Executive's beneficiary, or,if no beneficiary has been designated by the Executive in a written notice priorto his death, to the Executive's estate. Thereafter, the Company shall have nofurther obligations to the Executive's beneficiary or estate under thisAgreement. -6- 4.3 Termination for Cause or by The Executive Without GoodReason. In the event the Executive's employment is terminated by the Company forCause or by the Executive without Good Reason, the Company shall pay theExecutive all earned, but unpaid amounts of his Annual Base, if any, to whichthe Executive was entitled as of the Date of Termination and the Company shallhave no further obligations to the Executive under this Agreement. 4.4 Termination Without Cause or by Executive for Good Reason.In the event the Executive's employment is terminated by the Company withoutCause or by the Executive for Good Reason, the Company shall pay the Executiveall earned, but unpaid amounts of his Annual Base, if any, to which theExecutive was entitled as of the Date of Termination. In addition, the Companyshall pay to the Executive promptly after the Date of Termination (i) if theDate of Termination occurs during the initial term, a single payment of $480,000or (ii) if the Date of Termination occurs after the initial term, an amountequal to the Annual Base then in effect. 5. Restrictive Covenants. 5.1 Confidential Information. The Executive acknowledges thatduring his employment with the Company, he shall be exposed to or given accessto Confidential Information (as defined below in Section 6.1). The Executiveagrees, without limitation in time or until such information shall become publicother than by the Executive's unauthorized disclosure (except as necessary orappropriate in connection with the performance by the Executive of his duties oras required by law), to maintain the confidentiality of the ConfidentialInformation and refrain from divulging, disclosing, or otherwise using for hisbenefit or for the benefit of others in any respect the Confidential Informationto the detriment of the Company and any of its subsidiaries, affiliates,successors or assigns, or for any other purpose or no purpose. Notwithstandingthe foregoing, there shall be no prohibition against the Executive using thegeneral skill and knowledge which he has acquired as an employee of the Company. 5.2 Ownership of Intellectual Property. The Executiveacknowledges and agrees that all work performed, and all ideas, concepts,materials, products, software, documentation, designs, architectures,specifications, flow charts, test data, programmer's notes, deliverables,improvements, discoveries, methods, processes, or inventions, trade secrets or -7-other subject matter related to the Company's business (collectively,"Materials") conceived, developed or prepared by him, alone or with others,during the period of his employment or other relationship with the Company inwritten, oral, electronic, photographic, optical or any other form, are theproperty of the Company and its successors or assigns, and all rights, title andinterest therein shall vest in the Company and its successors or assigns, andall Materials shall be deemed to be works made for hire and made in the courseof his employment or other relationship with the Company. To the extent thattitle to any Materials has not or may not, by operation of law, vest in theCompany and its successors or assigns, or such Materials may not be consideredworks made for hire, the Executive hereby irrevocably assigns all rights, titleand interest therein to the Company and its successors or assigns. All Materialsbelong exclusively to the Company and its successors or assigns, with theCompany and its successors or assigns having the right to obtain and to hold inits or their own name, copyrights, patents, trademarks, applications,registrations or such other protection as may be appropriate to the subjectmatter, and any extensions and renewals thereof. The Executive hereby grants tothe Company and its successors or assigns an irrevocable power of attorney toperform any and all acts and execute any and all documents and instruments onhis behalf as the Company and its successors or assigns may deem appropriate inorder to perfect or enforce the rights defined in this Section. Executivefurther agrees to give the Company and its successors or assigns, or any persondesignated by the Company and its successors or assigns, at the Company's or itssuccessors' or assigns' expense, any assistance required to perfect or enforcethe rights defined in this Section. Executive shall communicate and deliver tothe Company and its successors or assigns promptly and fully all Materialsconceived or developed by him (alone or jointly with others) during the periodof his employment or other relationship with the Company and its successors andassigns. 5.3 Covenant Not to Compete. (a) For a period commencing on April 1, 2002 and continuinguntil 19 months after the termination of the Executive's employment with theCompany, The Executive shall not in any city, town or county in any state of theUnited States, where the Company or any of its subsidiaries, affiliates,successors or assigns engages in the sale or distribution at retail of #2 fueloil (the "Business"), directly or indirectly, do any of the following: -8- (i) engage in the Business for the Executive's own account; (ii) enter the employ of, or render any services to or for,any entity that is engaged in the Business; or (iii) become involved in any entity engaged in the Businessin any capacity, including as an individual, partner, member, shareholder,officer, director, principal, employee, agent, investor, trustee or consultant. Notwithstanding the foregoing, the Executive may own, directly orindirectly, solely as a passive investment, securities of any entity traded onany national securities exchange or automated quotation system if the Executiveis not a controlling person of, or a member of a group which controls, suchentity and does not, directly or indirectly, beneficially own 5.0% or more ofany class of securities of such (b) Noninterference. For a period commencing on April 1, 2002and continuing until 19 months after the termination of the Executive'semployment with the Company, the Executive shall not, directly or indirectly, doany of the following: solicit, induce, or attempt to solicit or induce anyperson known by the Executive to be an employee or consultant of the Company orits subsidiaries, affiliates, successors or assigns, to terminate his or heremployment or other relationship with the Company or any of its subsidiaries,affiliates, successors or assigns. (c) Nonsolicitation. For a period commencing on April 1, 2002and continuing until 19 months after the termination of the Executive's employment with Company, the Executive shall not directly or indirectly,solicit, induce, or attempt to solicit or induce any person or entity then knownto be a customer, vendor, supplier, distributor or consultant of the Company orany of its subsidiaries, affiliates, successors or assigns (a "Customer orSupplier") to terminate his, her or its relationship with the Company, or any ofits subsidiaries, affiliates, successors or assigns for any purpose. The provisions of this Section shall be in addition to and not inlimitation of the provisions of any other agreement which the Executive has ormay sign for the benefit of the Company. -9- 5.4 Return of Documents and Other Property. At the end of theTerm or upon termination of the Executive's employment, the Executive shallreturn to the Company all of its property, equipment, documents, records, lists,files and any and all other Company materials including, without limitation,computerized or electronic information that is in the Executive's possession asof the Date of Termination (the "Company Property"). The Company Property shallbe delivered to the executive officers of the Company, at the Executive'sexpense, within five (5) business days after the Date of Termination. Unlessotherwise agreed by the Company in writing, the Executive shall not retain anyCompany Property. 5.5 Reasonableness of Restrictive Covenants. The Executiveagrees that, due to the uniqueness of his skills and abilities and theuniqueness of the confidential information that he will possess in the course ofhis employment with the Company, the covenants set forth herein are reasonableand necessary for the protection of the Company. Nevertheless, if it shall bedetermined that such covenants are unenforceable in that they are too broad asto their scope or geographical coverage, then the parties hereby confer upon anyappropriate court the power to limit such scope or geographical coverage suchthat they will be enforceable. 5.6 Irreparable Injury. The Executive acknowledges that thecovenants contained in this Section 5 and the Executive's services under thisAgreement are of a special and unique character, which gives them a peculiarvalue to the Company, the loss of which may not be reasonably or adequatelycompensated for by damages in an action at law, and that a material breach orthreatened breach by him of any of the covenants contained in this Agreementwill cause the Company irreparable injury. the Executive therefore agrees thatthe Company shall be entitled, in addition to any other right or remedy, to atemporary restraining order, preliminary and permanent injunctions and any otherappropriate equitable remedy that prevents the Executive from breaching thisAgreement, without the necessity of proving the inadequacy of monetary damagesor the posting of any bond or security, enjoining or restraining the Executivefrom any such violation or threatened violation. 6. Definitions. For purposes of this Agreement, the following termshave the meanings specified or referred to in this Section 6: -10- 6.1 "Confidential Information" shall mean (i) any and all TradeSecrets, product specifications, compositions, designs, sketches, photographs,graphs, drawings, samples, inventions and ideas, past, current and plannedresearch and development, current and planned manufacturing and distributionmethods and processes, current and anticipated customer requirements, marketingand product procurement plans, price lists, market studies, business plans,computer software and programs (including object code and source code), computersoftware and database technologies, systems, structures and architectures (andrelated processes, formulae, compositions, improvements, devices, know-how,inventions, discoveries, concepts, ideas, designs, methods and information), ofthe Company and any other information, however documented, of the Company thatis a Trade Secret; (ii) any and all information concerning the business andaffairs of the Company (which includes historical financial statements,financial projections and budgets, historical and projected sales, capitalspending budgets and plans, the names and backgrounds of key personnel,personnel training and techniques and materials), however documented; and (iii)any and all notes, analysis, compilations, studies, summaries, and othermaterial prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing. 6.2 "Legal Requirement" shall mean any federal, state, local,municipal, foreign, international, multinational, or other administrative order,constitution, law, ordinance, principle of common law, regulation, statute, ortreaty. 6.3 "Trade Secret" shall mean all technology, know-how,proprietary processes and formulas, customer lists, software, technicalinformation, data, process technology, plans, drawings, and blue prints ownedused, or licensed by the Company as licensee or licensor. -11- 7. Miscellaneous. 7.1 Successors and Assigns; Binding Agreement. This Agreementshall be binding upon and shall inure to the benefit of the parties hereto andtheir respective heirs, personal representatives, successors and assigns;provided, that the duties of the Executive hereunder are personal to theExecutive and may not be delegated or assigned by him. 7.2 Governing Law. This Agreement shall be governed by andconstrued in accordance with the laws of the State of Connecticut. 7.3 Waivers. The waiver by either party hereto of any righthereunder or any failure to perform or breach by the other party hereto shallnot be deemed a waiver of any other right hereunder or of any other failure orbreach by the other party hereto, whether of the same or a similar nature orotherwise. No waiver shall be deemed to have occurred unless set forth in awriting executed by or on behalf of the waiving party. No such written waivershall be deemed a continuing waiver unless specifically stated therein, and eachsuch waiver shall operate only as to the specific term or condition waived andshall not constitute a waiver of such term or condition for the future or as toany act other than that specifically waived. 7.4 Notices. All notices and communications that are required orpermitted to be given hereunder shall be in writing and shall be deemed to havebeen duly given when delivered personally or by overnight courier, as follows: If to the Company, to: Petro Holdings, Inc. 2187 Atlantic Street Stamford, CT 06902 Attn: Chief Executive Officer And Phillips Nizer Benjamin Krim & Ballon LLP 666 Fifth Avenue New York, New York 10103-0084 Attn: Alan Shapiro, Esq. If to the Executive, to: -12- Angelo Catania 633 Valley Road Brielle, NJ 08730or to such other address as may be specified in a written notice personallydelivered, faxed or mailed by overnight courier or registered or certified mail,postage prepaid, return receipt requested, given by one party to the other partyhereunder. 7.5 Severability. If for any reason any term or provision ofthis Agreement is held to be invalid or unenforceable, all other valid terms andprovisions hereof shall remain in full force and effect, and all of the termsand provisions of this Agreement shall be deemed to be severable in nature. If for any reason any term or provision containing a restriction set forth hereinis held to cover an area or to be for a length of time which is unreasonable, orin any other way is construed to be too broad or to any extent invalid, suchterm or provision shall not be determined to be null, void and of no effect, butto the extent the same is or would be valid or enforceable under applicable law,any court of competent jurisdiction shall construe and interpret or reform thisAgreement to provide for a restriction having the maximum enforceable area, timeperiod and other provisions (not greater than those contained herein) as shallbe valid and enforceable under applicable law. 7.6 Amendment: Cancellation. This Agreement may not be amendedor cancelled except by mutual agreement of the parties in writing (without theconsent of any other person) and, so long as the Executive lives, no person,other than the Company, its successors and assigns and the Executive shall haveany rights under or interests in this Agreement or the subject matter hereof. 7.7 Descriptive Headings. The parties hereto agree that theheadings of the several paragraphs of this Agreement are inserted forconvenience only and shall not in any way affect the meaning or construction ofany provision of this Agreement. 7.8 Entire Agreement. This Agreement constitutes the entireagreement between the parties hereto, and supersedes all prior oral and/orwritten understandings and/or agreements between the parties hereto relating tothe subject matter hereof. -13- IN WITNESS WHEREOF, the parties hereto have executed this Agreement onthe date and year first above written. PETRO HOLDINGS, INC. By: _________________________________ Name: Irik Sevin Title: Chief Executive Officer _____________________________________ Angelo Catania -14- Exhibit 14 Star Gas Partners, L.P. Code of Business Conduct and EthicsTo Whom the Code Applies This Code applies to all employees of Star Gas Partners, L.P. and itsdirect and indirect subsidiaries (collectively "SGP"), including, but notlimited to, its principal executive officer; principal financial officer;principal accounting officer; or persons performing similar functions. Itspurpose is to deter wrongdoing and to provide full, fair, timely andunderstandable disclosures in public filings.The Standard of Conduct SGP employees must maintain the highest standards of ethical conduct intheir work. Behaving ethically means avoiding: actual or apparent conflicts ofinterest between personal and professional relationships; lying; cheating; andstealing, as well as deception and subterfuge. Behaving ethically also meanspersonal compliance with all applicable governmental laws, rules, andregulations. Every employee records information of some kind, which is used for businesspurposes. Full, fair, accurate, understandable and timely reporting ofinformation is critical. Any employee who falsifies, alters, or misrepresentsdata or information, (including financial information), whether in a filing withan administrative agency or in a public communication, will be severelydisciplined if not discharged.Accurate Periodic Reports As you are aware, full, fair, accurate, timely and understandabledisclosures in SGP's reports filed with the Securities and Exchange Commission("SEC") is legally required and is essential to the success of its business.Please exercise the highest standards of care in preparing such reports inaccordance with the following guidelines: . All SGP accounting records, as well as reports produced from those records, must be in accordance with the laws of each applicable jurisdiction. . All records must fairly and accurately reflect the transactions or occurrences to which they relate. . All records must fairly and accurately reflect, in reasonable detail, SGP's assets, liabilities, revenues and expenses. . SGP's accounting records must not contain any false or intentionally misleading entries. . No transactions should be intentionally misclassified as to accounts, departments or accounting periods. . All transactions must be supported by accurate documentation in reasonable detail and recorded in the proper account and in the proper accounting period. . No information should be concealed from the internal auditors or the independent auditors. . Compliance with SGP's system of internal accounting controls is required.Reporting Misconduct The duty and responsibility to accurately and honestly report informationand to not lie, cheat, steal or deceive extends to and includes the duty toreport those who breach this duty and responsibility and to provide informationor participate in a proceeding wherein someone is alleged to have violated this duty and responsibility.People Who Report Misconduct Are Protected Employees who report unethical conduct, or who provide information in aninvestigation of alleged unethical behavior, are protected against retaliationor adverse employment actions for reporting the unethical conduct orparticipating in the investigation. This protection extends to, but is notlimited to, employees who report alleged violations of the SEC rules relating tofraud against shareholders or any federal or state securities or anti fraud law. 2To Whom Is The Report To Be Made All actual or suspected fraud, misconduct, illegal activity and fraudulentfinancial reporting of any kind whatsoever should be reported directly to yourimmediate supervisor for appropriate follow-up action. It is the supervisor'sresponsibility to notify Senior Management and the Internal Audit Director ofall issues and resolutions. Employees may also wish to use either the anonymousEmployee Awareness Hotline or E-Mail address, or directly contact either theSenior Human Resource & Compliance Officer or Internal Audit Director. Employeesare encouraged to use the anonymous employee hotline below or provide timelywritten notification. The Company will treat all such calls and notifications asconfidential and protect employee identity to the extent consistent with itslegal obligations.. Employee Awareness Hotline - 1.877.STARGAS. Email - HelpStar@petroheat.com. Senior Human Resource & Compliance Officer - 1.203.325.5433. Internal Audit Director - 1.203.328.7354Insider Trading/Access To Non-Public Information If you learn information that directly or indirectly relates to SGP orcould impact its value or unit price, you must share that information only withemployees or advisers of SGP who have a business reason to know what you know.It would be illegal for you to personally invest, or cause others (e.g.,friends, relatives) to invest for themselves or for you based on thatinformation. SGP has adopted a separate Insider Trading Policy, which includes,among other provisions, specific prohibitions on trading on non-publicinformation or "tipping" others who might trade.Corporate Opportunities Employees, Officers and Directors must never take for themselves personallyopportunities that are discovered through the use of corporate property,information or position. Likewise, employees, Officers, and Directors must neveruse corporate property or information for personal gain or to compete with SGP.Your work hours are to be devoted solely to activities 3directly related to SGP business. You may not perform work for or solicitbusiness for any other employer.Proper Use Of Company Assets All Company assets, (e.g., phones, computers, etc.) should be used solelyfor legitimate business purposes. Carelessness and waste are unacceptable.Proprietary And/Or Confidential Information Proprietary information is sensitive, confidential, private or classifiedtechnical, financial, personnel or business information. This includes tradesecrets. You must not misuse or disclose such information to non-employees ofSGP (including family and friends). This obligation on your part not to discloseor misuse SGP proprietary/confidential information continues when and if you leave SGP for whatever reason.Relationships With Customers/Suppliers You must treat all customers/suppliers fairly and according to applicablelaws, customs and regulations. Business decisions regarding suppliers must bemade on the basis of the quality, delivery, value and reliability of the productor service offered. Employees may not borrow money or accept advances or otherpersonal payments from any person or company doing or seeking to do businesswith SGP. Employees may not receive gifts of goods, services, accommodations orotherwise from any person or company doing or seeking to do business with SGPwith a value in excess of $100, without the prior written approval of SGP'schief executive officer, chief financial officer or a member of the AuditCommittee of the Board of Directors.Conflicts of Interest A "conflict" occurs when an individual's private interest interferes oreven appears to interfere in any way with the person's professionalrelationships and/or the interests of SGP. You are conflicted if you takeactions or have interests that may make it difficult for you to perform yourwork for SGP objectively and effectively. Likewise, you are conflicted if you ora member of your family receives personal benefits as a result of your positionin SGP (directly or through a company they are employed by or in which they havean ownership interest). You 4should avoid even the appearance of such a conflict. For example, there is alikely conflict of interest if you: . Cause SGP to engage in business transactions with relatives or friends; . Use nonpublic SGP client or vendor information for personal gain by you, relatives or friends (including securities transactions based on such information); . Have more than a modest financial interest in SGP vendors, clients or competitors; . Receive a loan, or guarantee of obligations, from SGP or a third party as a result of your position at SGP; or . Compete, or prepare to compete, with SGP while still employed by SGP. If you think you have been, are, or may become conflicted, report thesituation to Jim Bottiglieri at 203-325-5460 or by e-mail jbottigl@petroheat.comimmediately. The prompt reporting of such situations will be favorably weightedshould it be determined that corrective actions need to be administered.Waivers/Changes No waivers or changes in any provisions of this Code can be granted by anyperson other than the Board of Directors or a member of the Audit Committee ofthe Board of Directors. Any waiver or change will be in writing and will bepromptly disclosed to the public, in accordance with rules applicable to publiccompanies like SGP. Public disclosure will be made within five (5) business daysafter the waiver is granted or change is made or otherwise as permitted underthe applicable SEC regulations. It will be made by the filing of an SEC Form8-K. Concurrently, notice will be made by a posting on SGP website, whichposting will be retained for at least 12 months after it is initially posted.Accountability Violations of this Code will result in discipline up to and includingtermination and/or civil and/or criminal prosecution. 5 Exhibit 21 A.P. Woodson Company – District of ColumbiaColumbia Petroleum Transportation, LLC - DelawareMarex Corporation - MarylandMaxwhale Corp. - MinnesotaMeenan Holdings of New York, Inc.Meenan Oil Co., Inc. - DelawareMeenan Oil Co., L.P. - DelawareOhio Gas & Appliance Company - OhioOrtep of Pennsylvania, Inc. - PennsylvaniaPetro Holdings, Inc. - MinnesotaPetro Plumbing Corporation – New JerseyPetro, Inc. - DelawarePetroleum Heat and Power Co., Inc. - MinnesotaRegionOil Plumbing, Heating and Cooling Co., Inc. – New JerseyRichland Partners, LLC - PennsylvaniaStar Gas Finance Company - DelawareStar Gas Propane, L.P. - DelawareStar/Petro, Inc. - MinnesotaStellar Propane Service Corp. – New YorkTG&E Service Company, Inc. - FloridaTotal Gas & Electric, Inc. - FloridaTotal Gas & Electricity (PA), Inc. - Florida Exhibit 23.1 Consent of Independent Auditors The Partners ofStar Gas Partners, L.P.: We consent to incorporation by reference in the registration statements No. 333-100976 on Form S-3, Nos. 333-49751 and 333-103873 on Form S-4 and Nos.333-40138, 333-46714 and 333-53716 on Form S-8 of Star Gas Partners, L.P. of our report dated December 4, 2003, relating to the consolidated balancesheets of Star Gas Partners, L.P. and Subsidiaries as of September 30, 2002 and 2003, and the related consolidated statements of operations, comprehensiveincome (loss), partners’ capital and cash flows for each of the years in the three-year period ended September 30, 2003 and related financial statementschedule, which report appears in the September 30, 2003 annual report on Form 10-K of Star Gas Partners, L.P. Our report refers to the adoption of Statementof Financial Accounting Standards No. 142. /s/ KPMG LLPStamford, ConnecticutDecember 22, 2003 Exhibit 31.1 CERTIFICATIONS I, Irik P. Sevin, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Partners, L.P. and Star Gas Finance Company (“Registrants”); 2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this annual report; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report; 4.The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this annual report is being prepared; (b)evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this annual report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (c)disclosed in this annual report any change in the registrants’ internal control over financial reporting that occurred during theregistrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and 6.The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrants’ auditors and the audit committee of the registrants’ board of directors: (a)all significant deficiencies and material weaknesses the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information and; (b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’internal control over financial reporting. Date: December 22, 2003 /s/ Irik P. SevinIrik P. SevinChief Executive OfficerStar Gas Partners, L.P.Star Gas Finance Company Exhibit 31.2 CERTIFICATIONS I, Ami Trauber, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Partners, L.P. and Star Gas Finance Company (“Registrants”); 2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this annual report; 3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report; 4.The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this annual report is being prepared; (b)evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this annual report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (c)disclosed in this annual report any change in the registrants’ internal control over financial reporting that occurred during theregistrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and 5.The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrants’ auditors and the audit committee of the registrants’ board of directors: (c)all significant deficiencies and material weaknesses the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information and; (d)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’internal control over financial reporting. Date: December 22, 2003 /s/ Ami TrauberAmi TrauberChief Financial OfficerStar Gas Partners, L.P.Star Gas Finance Company Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Star Gas Partners, L.P. (the “Partnership”) and Star Gas Finance Company on Form 10-K for the year endedSeptember 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Irik P. Sevin, Chief Executive Officer of thePartnership and Star Gas Finance Company, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, following due inquiry, I believe that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of thePartnership and Star Gas Finance Company. A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P.and furnished to the Securities and Exchange Commission or its staff upon request. STAR GAS PARTNERS, L.P. STAR GAS FINANCE COMPANY By: STAR GAS LLC (General Partner)December 22, 2003 By: /s/ Irik P. Sevin Irik P. Sevin Chief Executive Officer Star Gas Partners, L.P. Star Gas Finance Company Exhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Star Gas Partners, L.P. (the “Partnership”) and Star Gas Finance Company on Form 10-K for the year endedSeptember 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ami Trauber, Chief Financial Officer of thePartnership and Star Gas Finance Company, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, following due inquiry, I believe that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of thePartnership and Star Gas Finance Company. A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P.and furnished to the Securities and Exchange Commission or its staff upon request. STAR GAS PARTNERS, L.P. STAR GAS FINANCE COMPANY By: STAR GAS LLC (General Partner)December 22, 2003 By: /s/ Ami Trauber Ami Trauber Chief Financial Officer Star Gas Partners, L.P. Star Gas Finance Company
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